This article originally appeared in ITProPortal.
Contract management software allows businesses to gain valuable insight from the data they already have.
Successful companies consistently strive to increase business execution and operational efficiency. Contracts can help in this endeavor, and effective contract management is an important step in both managing the contracting process, and working against important metrics that define company success. Understanding the statistics behind an organization’s success is critical to improving and continuing growth. Top-performing companies do so because they are able to make adjustments where necessary and track the outcomes behind these adaptations.
Performance metrics are key to everything from employee health and happiness to overall business success. Fortunately, most companies already have the information they need to track these. The data lies in their contracts—but the challenge is knowing what to look for and how to surface that information. Here are seven basic metrics to keep in mind when looking at success.
Every company’s customer base contains a huge amount of valuable information about the company itself. Happy customers speak to good work not only on customer-facing teams such as sales and customer success, but also to excellent product creation.
Where do contracts come into play? Renewals. If customers continually renew their deals, it means the product is critical to their success, they’re pleased with the experience, and they want to continue the relationship. Strong renewal data indicates high customer satisfaction. And any lost renewals can be analyzed to improve future engagements and better connect with the customer base.
Average Deal Size
Especially in the SaaS sphere where deals are often sold by the number of users, bigger deals means more people are using the SaaS tool. Providing a full picture during the sales cycle of how a particular tool can be used often increases the deal size when customers see the value they receive from the product.
The more users and data on a product, the more critical it is to a company. This mass-adoption is often referred to as “stickiness.” Stickiness is essential for any SaaS tool’s long-term adoption within an organization. Consider a tool such as Slack or email. Every employee at an organization has access because it is necessary to communicate within teams and across departments. Showing the importance of a tool for every employee in a company is likely to increase the deal size and, in turn, generate more revenue.
Recurring Contract Value
Tracking the recurring revenue versus the new revenue from contracts is one way to determine success from a certain time period. These metrics also provide insight into any recurring revenue that is lost from expiring, unrenewed contracts. This is a key indicator for companies, especially as they are scaling. If customers are not renewing, valuable assets, both in partnerships and income, are being lost within a company and inhibiting its success.
During the signing process, the time spent responding, getting the correct approvals, and negotiating directly impacts how soon a company will receive revenue for the deal. Any time wasted during this process means less time spent creating and signing other deals.
This starts from the point when leads first come in and continues through the signing and even through the renewal process of an agreement. Analyzing the response time can help determine what changes will be most beneficial to reduce the response time.
Cashflow is an obvious indicator of company performance, but it’s equally important to observe how and where that cash is moving. Two important metrics to look at are Days Payable Outstanding (DPO) and Days Sales Outstanding (DSO). DPO is the amount of time it takes a company to pay off its vendors, and DSO is the opposite, or the average time a company takes to collect payments from their customers.
Knowing when and where company resources are going helps that organization manage its assets well. If a business is paying vendors faster than it collects revenue, problems may arise. A contract management platform contains the record of all dates and payments made and received. Ensuring these two are moving in sync with each other helps maintain financial equilibrium and ensure long-term financial health.
Beyond just an organization that involves clear document structure, finding a contract should be easy through an extensive search functionality. Being able to easily search and locate documents through the tags and folder names that they were organized in, or even by key words and phrases in their terms and conditions, makes a process that used to take hours turn into just a few seconds. While many products offer some form of search, having OCR functionality is key for the best document storage and access. OCR captures an image of a document and makes it searchable, meaning even legacy or hardcopy contracts are now part of the overall dataset.
Finally, a key number in a company is its gross margin statistic. Higher gross margins mean more profit, which leads to higher capabilities in production and future success. Gross margin helps track the overall progress and direction of a company, minimizing surprises and enabling the executive team to plan ahead. Alternately, when the gross margin is not as high or begins decreasing, this is an opportunity to anticipate future trends and avoid a potential crisis.
When measuring performance, start with these metrics and leverage the right tools to draw actionable analysis. A contract management platform that hosts all of a company’s documents, people, and processes will provide the best jumping-off point for making smart business decisions.