One of the biggest challenges legal teams face when trying to justify the budget for adopting a tool like SpotDraft is making a business case for a contract management system.
Typically, legal functions within organizations are considered cost centers. And consequently, they often have a lot less available budget than sales or other departments, which are revenue generators.
Part of the reason legal teams have difficulties getting a budget approval is due to a lack of understanding in the broader company for the work they do. Legal is often judged by their contract turnaround time, with little insight into what goes into the contract management process.
And here’s the thing: Getting a budget for a new CLM solution doesn’t just help legal — it has positive effects on the business at large. Faster contract turnaround makes for a more efficient sales team and the ability to take on more contracts.
When budgeting for a CLM solution, you should consider budgets from all the departments ultimately using the CLM — Sales, Business Development, Partnerships, Legal, and even HR. When it comes to making a solid argument to justify the purchase of the solution, we’d always be sure to include all teams it will impact.
What Problems Demand the Need for a CLM Solution?
What if you were to carry on as usual without implementing a CLM solution? Most businesses will reach a point where they find some issues creeping in that can have adverse effects on financial and administrative well-being.
Contract management demands close attention to stay on top of things. For example, inconsistencies in contracts or contract renewals can be costly to the business, while inefficient processes can slow employee productivity and leave them unhappy at work. Missed milestones or defaulted payment deadlines can also cause havoc.
The first step to making a successful business case for implementing a contract management system at your workplace is identifying all the problems it could help your teams solve. Below are some examples of pressing problems that a CLM can help ease:
Rapid Scaling of Business Teams
Have you ever been in a situation where the business team is scaling much more rapidly than the legal team? There comes a point when legal cannot keep up with the request volume, causing the contract turnaround times to be significantly slower.
If your business relies on the rapid closure of sales contracts, you’ll feel this pain acutely. You’ll find a limit beyond which you can’t put through any new ones.
Outside of sales, teams like procurement or business development can find themselves stuck in a contract rut. It’s hard to move anything forward without enabling the pace of contract management to pick up.
Challenges with Tracking Key Dates
Missed contract milestones and deadlines can be a nightmare for your bottom line. Suddenly you have expiring contracts auto-renewing or conditions not met on time.
It becomes hard to keep track of important dates without a CLM solution, specifically if your company handles a sizable volume of contracts. Contracts may be in different places, and critical dates may be out of sight and out of mind.
Measuring and Justifying Legal Team Spending
If your CFO asks for a justification of legal team spending, or if you’re trying to present a business case for hiring new personnel, it’s challenging to provide accurate data without a CLM that tracks the numbers.
A CLM allows you to track primary data such as contract review requests and the processing time for turning around new requests. This data helps to justify why you might need additional personnel.
Emphasize the Benefits of a CLM Solution
An important aspect of building a business case for investing in a contract management system is outlining its benefits in day-to-day operations. Specifically, how will the company see a return on their investment?
CLM solutions pack in features that power the efficiency of the contract management lifecycle. Centralized access, efficient financial management, reduced risks, and scalable systems. These are some excellent benefits to expand upon with the CFO’s office, along with
Simplified Tracking of Cash Outflows
Tracking cash outflows is one of the priorities of the CFO office. This activity isn’t always easy to hold a grip on when those outflows relate to various contracts. Getting the correct data often involves manual work and sourcing information from the different places contracts are stored.
A CLM like SpotDraft keeps all contract information on one centralized platform, allowing easy tracking of procurement contract outflows. CLMs offer an instant and seamless way to generate reports, saving a massive amount of time.
Reduced Sales Cycle Times
How do you grow your topline faster? One way is by reducing the sales cycle time, and a great way to do that is to improve the efficiency of the contract process. A CLM allows business units to “self-serve” contracts, particularly those high volume contracts. They can use predetermined templates and criteria, offering faster contract closure and compliance with company policy.
Visibility Over the Contracting Lifecycle
If you’re in the position where you need to add headcount, most CFOs will go for a data-driven approach. Some strategic questions to ask are as follows:
Why do we need help?
Where are the bottlenecks?
How will additional headcount help to resolve those issues?
A CLM provides visibility over the entire contracting lifecycle so that those bottlenecks are recorded and apparent. For example, you could show how an additional person in the legal team might allow improved contract turnaround time.
Improved Renewal and Expiration Management
Contracts usually have notice periods and expiration dates. If these lie out of site across disparate hard drives, inboxes, or filing cabinets, it’s easy for those key dates to slip below the radar. And before you know it, a contract auto-renews, making the company liable for obligations to complete cash payouts.
CLM software ensures that companies don’t accidentally auto-renew a contract due to a lack of visibility over the key dates. The software alerts users to dates so that they can take action on time.
Lower Risk of Non-compliance
No company enjoys receiving fines or penalties associated with contract non-compliance. This event usually happens when there is a lack of visibility over the contracts.
CLM software lowers the risk of non-compliance, helping companies keep more revenue in their pockets.
How to Calculate the ROI of a CLM
Finally, you might want to put the ROI of implementing a contract management system in numbers while making a business case.
First of all, how much do contracts cost you without a CLM? You need to factor in how many hours you spend on contracts and the value per hour. This weight varies with the complexity of the contract. However, the World Commerce and Contracting Association (WCCA) estimates that a typical contract costs an organization 40 hours and $6900. Further, it contributes to 9.2% of annual revenue leakage.
Consider factors such as:
- Sales cycle time
- Administrative time
- Costs associated with renewals
- Penalty costs
CLMs heavily reduce those cost factors. Moreover, SpotDraft can save an average of 70% off the total cost of processing any contract. For most CFOs, this will make it worth investing in a CLM.
If you’re looking to sell decision-makers the idea of bringing in a new CLM system, take note of these points. A CLM is there to solve some significant pain points in companies, going well beyond the legal team.
SpotDraft is a feature-rich CLM software built to streamline your contract lifecycle management and improve company returns. If you’re considering investing in a contract management software and want to know how it can help make your job easier, request a free demo here.