How to Measure the ROI of Contract Management Software

Measuring ROI on Contract Management software is critical to realising its full value. Organisations need to understand the key details to make this complicated process more straightforward.

Contract Management Software is a big investment financially, but it can also be expensive in terms of personnel time and resources. In both cases, it is essential to measure the Return on Investment (ROI) of the software to ensure your company is getting the most value from its installation.

However, calculating ROI can be a complicated process. When it comes to Contract Management Software, the ROI is calculated by determining if the overall profitability of the company has increased since the implementation of the platform. This is done by drilling down and analyzing specific gains. The ROI of your Contract Management Software requires an understanding of the entirety of the ongoing contribution the platform makes to the business.

Measuring the ROI 

Contract Management Software is typically used to bring contract collection under control. But it is also used to increase profitability by streamlining or automating processes in order to increase efficiencies across the organization. Therefore, the only metric by which we can accurately measure the ROI of Contract Management Software is broad efficiency gains. 

A comprehensive ROI analysis must drill down through several layers of detail to provide an accurate calculation. The areas below aren’t always easy to quantify, but help to create the full picture of the ROI.

1. Time Spent on Contracts

Contract Management Software is designed to streamline administrative processes as they relate to contract management. This should result in a reduction in time spent working on or with contracts, a gain that should result in the following benefits:

• Existing contract documentation is easy to find.
• Editable templates speed up contract creation.
• Standardized language is readily available for inclusion.
• Manual handling is eliminated.

2. Time Spent on Obligation Management

Obligation Management is the collection of processes maintained by an organization to meet its contractual obligations. If an organization is streamlined and working efficiently, a reduction in time spent on obligation management should be evident. For example, a business should be able to meet its obligations such as deliverables, milestones, and renewal deadlines without resulting in workflow bottlenecks.

3. Time Spent on Missed Renewals

Missing renewal dates is an indicator of inadequate contract management and causes the company to incur costs in both resources and poor performance. If the implementation of Contract Management Software has led to a reduction in the time spent on missed renewals, then it is creating efficiencies in contract management that benefit the organization.

4. Time Spent on Audits

Audits are an integral part of compliance processes, while also serving to bolster data security and accountability among personnel. They require evidence of activity, proving full adherence to policies and procedures, and this involves a lot of administrative tasks. Contract Management Software incorporates a high degree of automation, including audit trails. Without it, audits must be dealt with manually, consuming a significant amount of time and resources. A Contract Management Software that delivers a high ROI will reduce the time staff has to spend completing audit-related tasks.

5. Reduction in Contract Dispute Costs

Organizations minimize costs associated with legal issues by identifying areas of dispute before they occur. Contract Management Software is designed with risk management in mind which means that a platform delivering a high rate of return on investment will significantly reduce contract dispute costs.

Increasing efficiencies in contract management processes is an effective risk management strategy because it ensures a higher level of responsiveness resulting in more conflict prevention rather than conflict resolution.

6. Internal Compliance

Internal compliance is measured by the adherence to company policies and procedures, and the level to which the business is shown to be meeting its contractual obligations. When Contract Management Software is performing well and generating high ROI, audits will show that there is an increased level of internal compliance.

7. Sourcing

Contract Management Software centralizes contract collection and generates comprehensive, customized reports. This reporting delivers actionable data that informs decision-making and leads to more cost-effective sourcing choices when functioning in an optimal way. Contract collection contains a wealth of information about third party relationships that can complete due diligence and refine vendor selections. So, when Contract Management Software is providing value for money, it is creating an environment for improved sourcing.

8. Third Party Compliance

The compliance levels of third parties indicate how vendors are meeting or failing to meet contractual obligations. Business contracts essentially regulate business relationships, so it is imperative that these agreements work for both parties. Analyzing third party compliance can create and amend standardized language, while helping to mitigate the risks associated with an approach that is not proactive. 

Effective Contract Management Software will provide analysis of your entire contract collection, past performance trends, and process efficiency. This will lead to enhanced relationships with third parties and measure their value contribution.

9. Increased Sales

Efficiency in contract management leads to increased sales simply by shortening the sales cycle. A contract is not generating revenue while it is being negotiated, drafted, signed and enacted.  So, the longer that part of the contract lifecycle takes, the longer it takes to make the next sale. 

Streamlining the contract lifecycle means that everything moves faster, and sales can be made more frequently. When the rate of sales for a business is increased after the implementation of Contract Management Software, the platform is creating a high rate of ROI.

10. Generation of New Opportunities

The reporting and data analysis functions of Contract Management Software are intended to generate new opportunities that would otherwise not be apparent. This is achieved through the creation of a filtration facility, transforming the centralised contract collection into a single pool of data. This is then processed to deliver actionable information to aid decision-making. An increase in these types of new opportunities indicate a high ROI generated by Contract Management Software.

Quantitative vs Qualitative ROI

While quantitative ROI can be determined using metrics according to the type of business in question, qualitative ROI can be just as important. Qualitative ROI will ultimately translate into quantifiable revenue boosts, but its origin is decidedly less easy to measure. 

Streamlining of administrative tasks leads to increased output from personnel, making increased profitability more likely. Secondary gains, such as reductions in the carbon footprint of the business, can also contribute to an increase in staff motivation. When a business demonstrates progressive, forward-thinking, a more positive working environment is created. 

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