How much time, money and hours are you wasting on contract management?
According to IACCM, the International Association for Contract & Commercial Management, organizations lose an average of 9.2% of revenue each year due to substandard contract management, lack of oversight and no visibility. Survey results in the 2018 Sourcing & CLM Insight Report from PayStream Advisors show that 58% of companies are still using manual contract management processes. These two stats are not a coincidence.
The link between technology use and improved contract management is not theoretical. Industry research and our own case studies lay out the facts. That being the case, why do a majority of companies still resist implementing a CLM solution?
Contract cost vs. contract value.
As revealed in the PayStream report, organizations don’t use CLM technology solutions for several reasons. Many times it’s cultural, i.e., “the way we do it is the way we’ve always done it, why change?” Other times the resistance is based on perceived cost and complexity concerns, such as “we can’t justify the budget,” “IT says it’s too time consuming and disruptive” and/or “we don’t want to risk messing with our other backend systems, like ERP.”
But when you cost out the real value that your contracts represent – and they are among the most valuable assets a company has – the investment in contract management technology pales in comparison.
First, there’s the cost of creating the actual contracts themselves. According to Tim Cummins, President of IACCM, businesses spend an average of $6,900 on a low risk contract from draft through to signature (a 38% increase over six years); mid-complexity contracts average $21,300; and high complexity contracts run into hundreds of thousands of dollars.
Multiply those figures by the number of contracts you create in a year, then multiply that by the users who need to access them. If you’re not benefiting from all the advantages that a cloud-based contract management solution provides to leverage those contracts, then think about how much you are overspending to fill your file cabinets.
And that’s not including the “costs” from poor risk management, or the missed opportunities to increase savings and revenue, streamline your business, maximize third-party relationships and free up staff to create value in more strategic ways.
So, ready to maximize contract value now?
Step one: Run your numbers through our CLM ROI Calculator.
IACCM also found that the world’s most efficient businesses have cut around one-third of the cost on contracts when compared to the average corporation. Just like leveraging your contracts to the fullest, that requires visibility – in this case, your current contract base and the number of users who need to access them in various capacities.
Our CLM ROI Calculator is even simpler than our Procurement ROI version. There are only two numbers you need, and industry best-practice equations do the rest. Here’s what’s involved:
Number of Contracts: No surprise here – just plug in the total number of contracts created or renewed each year. Depending on which research you consult, the average number can be as high as 20,000 to 40,000, though realistically for mid-enterprise level companies it’s probably closer to 3,000 to 6,000. Considering it takes an average of 7 to 15 weeks to create each new one, the fact that a contract lifecycle management solution can boost efficiency by 35% shows you how much benefit can be realized.
Number of Contract Users: This number probably varies more per company than number of contracts, but can still represent significant opportunity. Contract users can be everyone from requestors to legal, contract managers, the procurement team, sales – think of anyone and everyone who needs to access a contract on a day-to-day basis. Now, where are those contracts? As the PayStream survey showed, shared drives, spreadsheets, emails and file cabinets loom large in the manual contract management world. How much valuable people time does that waste? Industry research indicates you can boost savings by as much as 20%, and the number can go even higher, with something as simple as a repository and integrated data. After all, you can’t manage what you can’t see.
Step two: Show the annualized contract savings and CLM ROI to your stakeholders.
Sound oversimplified? It’s not. We’ve used the same Efficiency / Effectiveness calculations to demonstrate the cost savings of achieving contract Process Under Management to our customers, and the effect is never disappointing. If you think about it, how often do you consider what the possible ROI of your current contract process is? If you’re one of the 58% of companies surveyed who are not using any CLM solution technology at all, maybe now is the time to think about it.