In the dynamic world of small and medium-sized businesses (SMBs), effective contract management is a cornerstone for success. However, navigating the challenges of the contract lifecycle can be tricky.
To ensure smooth sailing, it’s crucial for SMBs to keep a close eye on key performance indicators (KPIs) that reflect the health and efficiency of their contract management processes.
In this blog, we’ll explore the five essential contract management KPIs that SMBs in the US market should track for sustained success.
The 5 Important Contract Management KPIs to Track Success
#1. Contract Cycle Time:
KPI: Average time taken to complete the entire contract lifecycle.
Efficient contract management involves swift navigation through various stages, from drafting to negotiation and finalization. Tracking the average contract cycle time provides insights into the speed and effectiveness of your processes.
Reducing cycle times enhances overall productivity and ensures timely deal closures.
#2. Contract Compliance:
KPI: Percentage of contracts in compliance with terms and regulations.
Compliance is non-negotiable in the business world, and contracts are no exception. Monitoring the percentage of contracts in compliance helps SMBs stay on the right side of legal and regulatory requirements.
This KPI safeguards against potential risks, ensuring that your business operates within the boundaries of the law.
#3. Contract Renewal Rate:
KPI: Percentage of contracts renewed compared to the total number of contracts.
Renewing contracts is often more cost-effective than acquiring new ones. Tracking the contract renewal rate highlights the success of your relationship management and the satisfaction of both parties.
A high renewal rate signifies strong customer relationships and ongoing business success.
#4. Cost Per Contract:
KPI: Total cost incurred in managing contracts divided by the number of contracts.
Understanding the financial implications of contract management is vital for SMBs. Calculating the cost per contract provides transparency into the expenses associated with the entire process.
Identifying cost-saving opportunities helps optimize resources and improve the overall efficiency of your contract management.
(Related Read: Making Contracting Easier for SMBs)
#5. Contract Value Realization:
KPI: Measuring the actual value derived from contracts compared to the expected value.
While landing a contract is a significant achievement, realizing its full value is equally important. Tracking contract value realization helps SMBs assess the effectiveness of their negotiations and the successful implementation of agreed-upon terms.
This KPI ensures that your business maximizes the benefits outlined in each contract.
For SMBs in the US market, mastering the fundamentals of contract management is a strategic imperative.
By focusing on these five key contract management KPIs – contract cycle time, contract compliance, contract renewal rate, cost per contract, and contract value realization – small and medium-sized businesses can streamline their processes, mitigate risks, and pave the way for sustained success.
Keep a close eye on these metrics, adapt as needed, and watch your SMB thrive in the competitive business landscape.