In 2022, the legal tech industry saw over $3.4 billion in investments, as digitization efforts move toward data extraction, analytics, and contract automation.
You can’t go about your usual manual route—and risk getting burned out—especially when you’re dealing with contracts in high volumes. You need a more efficient, tech-led approach.
In this guide, we will explore the nuts and bolts of contract automation, from fundamentals and expert tips to real-life success stories that will transform your approach to legal operations.
Let’s dive in!
What is contract automation?
Contract automation is the use of software tools to generate contracts and streamline workflows with low manual input. The power of legal contract automation lies in cutting out routine, manual processes and enabling business professionals to focus on more crucial aspects of the contract lifecycle.
What areas of the contract process can you automate?
Some of the routine processes in automated contract management include:
- Contract data entry
- Contract creation
- Review tracking
- Contract approvals
- Contract renewal/expiration reminders
- Contract storage
- Contract reporting, and much more.
According to Mckinsey Quarterly, 45% of business activities can be automated by leveraging demonstrated technologies. Think of any repetitive task you carry out as an in-house legal counsel, and you'll most likely be able to automate it.
Key features and benefits of legal contract automation
“Producing contracts is the highest and best use of a legal department, and any technology that helps you get contracts done more quickly is always on my radar."
— Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: “Cool Tech” for In-House Counsel
Contract automation offers access to a wide array of functionalities that have proven beneficial for businesses. Some of the benefits of contract automation include:
#1 Improved compliance
Contract automation improves contract compliance by letting you streamline compliance-related tasks like tracking renewals, monitoring milestones, updating clause libraries, and protecting data within the boundaries of existing laws.
This helps ensure that everyone on either side of the contract delivers on their contractual obligations while strictly adhering to company, industry, and federal regulations.
#2 Speed and efficiency
Traditional contract management processes are riddled with too many repetitive tasks. These can lead to burnout, errors, and even losses.
But with automated contract management, repetitive tasks are minimized, tremendously accelerating the entire process, eliminating risks, and helping teams close more deals. This is made possible through contract templates, approval workflows, redlining functionalities, and more.
#3 Error detection and risk reduction
With contract automation, you can scan an entire document and detect errors in seconds. Contract errors can result in many consequences, like missed deadlines, the extension of unfavorable terms, lawsuits, and financial losses.
Automating error detection removes the pressure from in-house counsels, allowing them to invest their energy in more productive endeavors.
#4 Cost reduction and increased revenue
Automation allows businesses to scale contract volumes while keeping employee headcount relatively the same. A study by Gartner revealed that the average legal counsel spends 25% to 40% of their time on activities that don't need their involvement. This costs an average of $2.7 million in lost productivity annually.
Contract automation cuts down on these needless activities and opens up more opportunities for value. It alerts you to upcoming expiration and eliminates all potential lapses in renewal, enabling you to get more value from your contracts.
"You can't keep adding the same proportion of legal people to take care of inexpensive processes like building Word documents, spreadsheets, etc. You can't scale and keep adding costs."
— Stephanie Dominy, Consultant GC and Startup Advisor
Why Fractional GCs Are On the Rise
#5 Improved collaboration
Contract automation fosters alignment between cross-functional teams by providing a centralized repository, automated approval routing, fallback clauses, contract templates, and third-party app integration.
By streamlining how teams work together, bottlenecks are eliminated, and the organization hits revenue milestones faster.
Selecting the right contract automation solution
Are you considering integrating automation into your contract management process? Do not just go for it on a whim! Here are essential steps to take before picking your choice contract automation tool.
#1 Find your “why”
Before you get a contract automation solution, identify pain points and bottlenecks that might push you to go for automation.
This specifically entails identifying processes that need automating alongside blockers you need to overcome. Knowing these will give you a clear picture of what features you need in your contract automation tool.
#2 Evaluate your current tech stack
What kind of tools are you already using, and what gaps do you need your contract automation tool to fill?
You ought to prioritize automation solutions that integrate with your existing business tools. The aim of an automation tool should be to make your existing tech stack more efficient.
#3 Compile a list of contract automation tools based on public reviews
G2, Capterra, and Trust Radius are some of the top platforms to find public reviews on software tools. You should pay attention to both the positive and negative reviews on any tool so that you can get a well-rounded picture of its overall experience.
#4 Request demos from software providers
Having gotten your long list of automation tools, requesting a demo and introductory call should be part of your evaluation process. This will give you a high-level view of how the tool actually works. During this phase, you should also look out for the level of customer service—are they responsive? Are they answering your questions? etc.
#5 Weigh the pricing against your budget
Automation is a considerable investment, so it is crucial to understand the pricing they offer and what features are available for each pricing tier. Weigh this against your current budget and how available features match your business needs.
Your goal should be to make a short list of solutions with features you need, transparent pricing, and—more importantly—within your budget.
#6 Evaluate the duration of onboarding and implementation for your shortlisted tools
Time-to-value is very critical in the fast-paced world of business. You have to ensure that the tool you choose takes less time to become fully operational.
How long does the tool's set up process take, and how long does usage training last? Knowing these will enable you to cut your shortlist down to the very best.
#7 Check for a free trial
Now that you have barely a handful of tools left on your vetting list, you can take them for a spin. This will allow you to verify claims about their features and, most importantly, see how each tool fits into your company's existing workflows.
We’ve created a more in-depth guide on how to choose the best agreement automation solution. Click here to read it.
How to automate your contract management lifecycle for free
It is true that you can create an automated contract management process without financial commitments. Each applicable phase of the contract lifecycle will require a different set of tools, some of which are quite easy to use.
- For the initial contract drafting process, you can collect vital information from stakeholders using word processors like Google Docs or MS Word
- Spreadsheet tools like MS Excel and Google Sheets will help you track activities throughout the process
- To automate how you manage approvals, you can leverage an email scheduling plugin like HubSpot and MailChimp to plan emails ahead of time and coordinate with stakeholders more efficiently.
- eSign tools like Adobe Sign and Zoho allows you to collect signatures for contract execution
- For storing contracts, review playbooks, and clause libraries, you can use Google Drive or Dropbox
These tools will help you go levels above manual contract management. However, automation at this level is pretty basic, doesn’t cater to all stages of the contract lifecycle, and can get chaotic when contract volumes start scaling.
With a purpose-built CLM, you get to experience the full power of automation in contract management. A CLM is built with all the tools you need to expedite every aspect of your contract management process. That way, you can close contracts faster, win more deals, and ramp up revenue.
Implementing contract automation and overcoming common challenges in implementation
Implementing a contract automation solution is not the most straightforward process. However, by leveraging the best practices discussed below, you’ll be in the best position to get fully set in as little time as possible.
#1 Plan ahead and keep everyone in the loop
Before you hit the ground running, planning ahead and making the right preparations is vital.
There’s a whole lot to consider at this point:
- What are your priorities for this automation?
- Do you want to set up templates or import historical contracts first?
- What team do you want to onboard first?
While planning, ensure that the right people are involved. Communicate and strategize with them to ensure that all teams are adequately represented in the implementation process.
#2 Invest in team training
A contract automation tool is a company-wide infrastructure involving a variety of teams with different levels of tech savviness.
Investing in team-wide training ensures that everyone is armed with enough skills to get the best out of the automation solution and bring better results for your company in the long run.
#3 Roll out implementation in phases and integrate with cross-functional teams
Implementing a legal contract automation solution involves many moving parts and can be overwhelming if you try to go at it with all energy and no direction. Implementing it in phases allows you to stay efficient and make minimal errors. It also ensures you don’t disrupt any ongoing processes while moving your company to the path of automation.
At this point, you’ll need to ensure that business tools across all company departments are integrated with your automation solution. Test to ensure that these tools are seamlessly communicating through integration points.
#4 Improve on the go
No implementation process hits the mark right off the bat. As you begin to adopt the automation system, you’re bound to experience some wins and learning experiences. Take this as an opportunity to make things more efficient. Continue to refine your adoption strategies, communicate with your team members to identify existing bottlenecks, and don’t be scared to go back to the drawing board if it comes to that.
To get a more comprehensive perspective on this topic, click here.
Measuring the success of contract automation
“You need to tell stakeholders what your team is up to. Otherwise, leverage tools such as CLMs to showcase how your team has contributed to closing deals effectively.”
—Juliette Thirsk, Head of Legal, Peach Payments
Streamlining Legal at a FinTech Startup
What’s the point of adopting a new system if there’s no way to prove results? This section will highlight some of the important metrics you can track to measure the success of contract automation within teams and across the company.
That way, you will identify the effectiveness of contract automation for your company and explore new ways to optimize for even better results.
Here are the metrics you should track periodically.
#1 Number of contracts executed/closed
The execution phase is one of the most critical stages of the contract execution lifecycle, and the number of executed contracts should be the most important metric you track.
Knowing how many contracts you've closed within a specific timeframe (weekly, monthly, or annually) will help you discover your most productive months, effective strategies, the nature of contracts completed, etc.
#2 Value of contracts sealed
Everything boils down to revenue. How much revenue are your contracts bringing into the coffers? Knowing this enables you to calculate profitability and identify contracts that generate the most revenue.
You can calculate the average contract value by dividing the number of executed contracts by the total revenue generated across a specific timeframe.
#3 Contract success rate
Not all contracts that get into the pipeline make it to the execution stage. So, it is important to measure the number of contracts that actually get closed versus the volume of contracts sent to legal at a given time.
This helps reveal blockers and paves the way for discussions on improving the success rate.
You may also want to take note of the renewal rate as part of this metric. Knowing how many clients/business partners agree to renew their contracts helps you measure the quality of services rendered. However, this heavily depends on your industry and the nature of the services rendered.
Expenditures encompass costs incurred during the contract creation process. This includes contract-related administrative costs (compliance tracking, storage management, and outreach programs), litigation costs, third-party services, and more.
The goal of measuring your expenditures is to weigh them against revenue and identify ways to cut them down and improve the company's bottom line.
#5 Average time spent on contract closure
All contracts don’t take the same time to close and execute. You need to ascertain turnaround times for signatures and approvals at each stage of the contract lifecycle.
Evaluate the TAT for both templatized contracts and built-from-scratch contracts, as well as the types of contracts that take longer to close.
The goal here is to find opportunities to accelerate the negotiation cycle and close deals faster.
“Eventually, if you're on a two or three-day turnaround time — or heaven forbid, a week's turnaround time — your stakeholders will start working around you. Suddenly, there will be a ton of stuff no one ever shows you, and you'll find out after the fact that the company did that partnership, made that commitment, or signed that document with risky language without any legal review."
—Jonathan Franz, Head of Legal, Crunchbase
Navigating Economic Turbulence and Thriving in Chaos
Also read: Contract Management KPIs
Real-world examples: Legal contract automation success stories
Now a part of a $3-billion industry, contract automation has earned a solid reputation as a game changer for many organizations.
SpotDraft, a contract lifecycle management solution, has been at the forefront of agreement automation, helping businesses create contracts two times faster and close more deals.
This section will highlight real-world testimonials from legal contract automation users across different industries.
PostScript, an SMS marketing company, needed to automate its contract workflows and eliminate the repetitive general requests that slowed its contract processes.
By joining forces with SpotDrat, the company was able to set up automations for workflow approvals, implement fallback clauses, and ultimately streamline the entire process.
This gave them enough free time to focus on strategic legal tasks.
"SpotDraft streamlines our workflows so we can focus on true legal requests, not the repetitive general requests that can be resolved via standard fallbacks and appropriate approvals. Everything simply works, the team is open to feedback, and the team is constantly improving the product!"
~ Taylor Smith, Contract Management, PostScript
Edgewell Personal Care, a multinational consumer products company, managed an ever-increasing number of contracts and needed a way to expedite the contract creation process while scaling.
With SpotDraft, the legal team notes they can draft contracts in 5 minutes, and the internal stakeholders are also pleased with this.
"SpotDraft helps me draft a variety of contracts easily and with many options to search and find contracts with speed. I can typically complete a contract in less than 5 mins. And that has been wonderful, to say the least. Not only am I happy, but my internal stakeholders are too!
I love the fact that the staff is great! And always responds to my questions within 24-48 hours. The system is extremely easy to use and self-explanatory even if you're not computer savvy."
~ Terri, EdgeWell Personal Care
#3 Perch Energy
Perch Energy Inc. is a renewable energy company headquartered in Massachusetts. Handling contracts in the company used to be a completely manual process, from drafting to redlining and approval tracking.
However, after adopting SpotDraft, the company successfully streamlined its contract management processes, from automating approval workflows to tracking the status of contracts. Now they have a tonne of free time and stay organized with their contracts.
"I love how SpotDraft keeps us organized, allows us to set custom workflows and approvals, and sets searchable and customizable key pointers.
Being able to easily see the status of a contract has been incredibly helpful. I no longer have to try and keep track of what is signed and who returned or didn't return a fully executed version. This has definitely saved a ton of time in my daily life of trying to manually track it all.
I also love how we have a Customer Success Associate assigned to us that is very responsive and a great help to us.”
~ Kate, Perch Energy Inc.
For the team at Snapsheet, managing all the company's contracts from one place is a significant value-add in agreement automation. Overall, the team loves SpotDraft for its simplicity, flexibility, and scalability.
“All around, SpotDraft is an impressive organization and very enjoyable to work with. From the platform to the people, I've always had a great experience when interacting with SpotDraft. The platform is versatile, easy to use for all involved parties, and new features/enhancements get introduced regularly.
From one place, I can fully manage a variety of different agreements easily. I can get an agreement fully executed, track the progress of an agreement, or review a historical agreement in an efficient and user-friendly way.”
~ David (Snapsheet)
Zai specifically needed to build a central repository for their contracts. Not only did SpotDraft help them achieve this, but they were also able to get more value from the platform's automation features.
"The specific problem we were looking to Spotdraft to solve was to provide a single, secure, and easily searchable repository of all our contracts. Spotdraft has solved that problem for us. But it has also brought significant additional benefits, particularly around the execution of template contracts."
~ Ben Bowden | COO and General Counsel at Zai
Overturning the Chaos with Automation
The business ecosystem is a fast-paced one fueled by technology and data. As a legal counsel, sticking to manual processes for contract management will slow you down, burn you out, and even lead to critical errors in the long run.
However, with agreement automation tools, these challenges are heavily reduced.
Want to learn more about how SpotDraft can improve your contract management experience? Click here to book a demo.