Core Contract Management KPIs To Track for Every Department

Determine which contract management KPIs to use for sales, legal, business, and procurement.

Effective contract management is the cornerstone of successful business operations. And one of the top contract management best practices is setting up Key Performance Indicators (KPIs) in advance. In this article, we explore the best practice of defining and implementing KPIs and delve deeper into their significance for different departments within an organization. Whether it's streamlining contract cycle times for contract managers, optimizing turnaround times for sales teams, or improving procurement efficiency, the right KPIs are crucial in driving positive outcomes. We also provide an insightful case study that showcases how setting and achieving KPIs can significantly impact contract management, leading to increased efficiency, cost savings, compliance, and ultimately, successful business outcomes. By embracing and implementing these KPIs, businesses can revolutionize their contract management processes, driving growth and propelling their organizations forward.

What Are Contract KPIs? 

Contract KPIs (Key Performance Indicators), are specific, time-based, measurable goals that track the progress and performance of your contracts. They measure goals in contract efficiency, value, risk, and performance.  

Common Contract KPIs 

When implementing new contract management software, it’s critical to measure the performance of your old (often manual) system, against your new contract management system. Setting up metrics (KPIs) in advance, can help deliver objective data that you can use to optimize your process, improve your partner relationships, and potentially increase your revenues. The most common contract KPIs include: 

Measuring Contract Efficiency:  

• Time spent reviewing, completing (lifecycle time in days) and negotiating (minimal time to signature) a contract  
• Minimal changes to agreed contract language 
• Maximum compliance with contract obligations 
• An end to burdensome contract searches and manual in-process tracking

Measuring Contract Value  

• Increased contract volume 
• Cost and budget savings 
• Fewer invoicing errors 
• Best possible value from contract agreements and renewals 

Measuring Partner Performance

• How many times a contract was revised
• Whether the contract's obligations have been met 
• Which vendors insist on non-standard clauses 

Measuring Contract Risk

• The variance in standard clauses 
• The quantity of contracts expiring without renewal dates 
• Instances of unfulfilled contractual obligations 
• Improper electronic signature approvals or vendor authorizations
• Delays in contract approval processes
• Resolution of disputes related to contract terms 

Contract KPIs for Each Department in Your Organization 

Looking at these KPIs without a deeper understanding of your contract power users and stakeholders is only half of the story.  It is critical to interview your core contract users- who they are, their role in the contract lifecycle process (departments and teams), and their challenges - to improve existing processes.  Here are a few KPIs that can provide insights unique to each department.   

9 Contract Management KPIs for Contract Managers:  

KPIs are crucial for measuring the effectiveness and efficiency of a contract manager responsible for negotiating standard contracts, utilizing approved language, managing contracts, and tracking contractual obligations. Here are nine important KPIs that every contract manager should keep in mind:

1. Contract Cycle Time: Measure the average time it takes to negotiate, finalize, and execute contracts. Shorter cycle times typically indicate efficiency in contract management. 

2. Negotiation Efficiency: Assess the efficiency of negotiations by measuring the number of negotiation rounds needed to finalize a contract. Lower negotiation rounds may indicate effective negotiation skills and the use of approved language. 

3. Contract Compliance Rate: Monitor the percentage of contracts that comply with approved contract language and standard terms. High compliance rates demonstrate the effective use of standardized language. 

4. Contract Renewal Rate: Track the rate at which contracts are renewed within their specified terms. A high renewal rate suggests successful management and maintenance of relationships with contract parties. 

5. Contract Value and Cost Savings: Measure the total value of contracts negotiated and calculate cost savings achieved through negotiations compared to standard terms. This indicates the financial impact of effective negotiation and management. 

6. Contract Performance Metrics: Track and evaluate contract performance against predefined KPIs within the contract terms. This measures how well contractual obligations are being met. 

7. Contract Compliance Audits: Monitor the frequency and results of compliance audits conducted on contracts to ensure adherence to approved language and regulatory requirements. 

8. Contract Repository Accuracy: Assess the accuracy and completeness of the contract repository or database. Ensure that all contracts are stored correctly and can be easily accessed and referenced. 

9. Number of Contract Variations: Track the number of variations or amendments to standard contracts, assessing the need for customization and the potential for process improvement. 

7 Contract Management KPIs for Legal Teams and General Counsels:   

For legal teams and general counsel managing highly negotiated contracts and overseeing contract language, fallback provisions, and templates, the following are seven KPIs they can use to measure contract performance effectively: 

1. Cost Per Contract: Evaluate the average cost to businesses of processing and reviewing basic everyday contracts. Tracking and streamlining the contract management process can lead to significant cost savings for those processing large contracts each year. 

2. Contract Cycle Time: Track the time it takes to process a contract from the moment of initiation or request until the time it is executed. This metric provides a roadmap to where to focus your efforts to remove bottlenecks and streamline the end-to-end process. 

3. Time to First Draft: Assess the time it takes to deliver a first draft of a contract back to the person who requested it. For General Counsels, it is ideal for this metric to be part of the array of SLAs. Tracking (and reducing) the time it takes to supply a first draft contract is critical to closing sales and achieving challenging weekly, monthly, and quarterly objectives. 

4. Contract Version Control and Error Rates: Monitor the accuracy of contract versions, including the number of errors or discrepancies. This KPI reflects the quality and accuracy of contract drafts. 

5. Percentage of Standardized Clauses Used: Assess the proportion of standardized and pre-approved clauses used in contracts. A higher percentage indicates the successful use of standardized language, which can streamline negotiations and reduce the risk associated with non-standard clauses. 

6. Contract Risk Assessment: Implement a risk assessment system that categorizes contracts based on their associated risks. This KPI helps prioritize contracts for review and approval based on their risk level, ensuring appropriate attention to high-risk contracts. 

7. Cost Savings through Standardization: Calculate the cost savings achieved through standardizing contract language and using templates. This demonstrates the financial impact of efficient contract management practices. 

6 Contract Management KPIs for Sales Teams  

For Sales Teams who utilize contracts for initial sell-side transactions and follow-on business, the following 6 KPIs will measure and improve contract management efficiency, increase customer satisfaction, and drive revenue. 
 
1. Contract Turnaround Time: Measure the time taken from the initial contract request to its completion and approval. Shorter turnaround times can accelerate sales processes and enhance customer satisfaction. 

2. Template Availability and Accessibility: Monitor the availability and accessibility of contract templates. Ensure that the sales team can easily access and use approved contract templates, reducing time spent searching for appropriate templates. 

3. Language Change Efficiency: Track the time and effort required to communicate and explain language changes to the legal team. Efficient communication and understanding of language changes are essential to expedite contract reviews and approvals. 

4. Customer History Retrieval Time: Measure the time taken to retrieve and compile customer history and contract data for renewal and upsell opportunities. Streamlining this process can improve upselling efficiency and customer relationship management. 

5. Contract Renewal and Upsell Rate: Track the percentage of contracts that are successfully renewed and the rate of successful upsell opportunities. These metrics indicate the effectiveness of leveraging contracts for follow-on business. 

6. Customer Satisfaction with Contracts: Collect feedback from customers regarding their satisfaction with contract terms and the contract management process. Satisfied customers are more likely to engage in repeat business and refer others.

7 Contract Management KPIs for Business Users 

For business users responsible for utilizing buy-side contracts to procure goods and services, and facing challenges related to contract access and information retrieval, the following seven KPIs are important to improve procurement efficiency and reduce costs. 
 
1. Contract Access Time: Measure the time it takes for business users to gain access to needed contracts once a request is made. Reducing access time helps expedite procurement processes. 

2. Contract Search Efficiency: Track the time and effort spent by business users searching for specific contract information. Efficient contract search processes are crucial for intelligent procurement decisions. 

3. Percentage of Negotiated Savings: Calculate the percentage of cost savings achieved through effective negotiation of contract terms and conditions. This KPI demonstrates the financial impact of efficient procurement. 

4. Supplier Performance Metrics: Evaluate supplier performance against contract terms and KPIs to ensure suppliers meet their obligations and deliverables. 

5. Contract Compliance Rate: Monitor the percentage of contracts that comply with internal procurement policies and procedures as well as legal and regulatory requirements. 

6. Procurement Cycle Time: Measure the average time it takes to complete the procurement cycle, from identifying the need to contract execution. Shorter cycle times can improve procurement efficiency. 

7. Procurement Cost per Contract: Calculate the average cost associated with procuring goods or services per contract. This KPI helps in optimizing procurement-related expenses.

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Example Case Study: Multinational Software Company Defines Clear Metrics and KPIs Upfront 

Company: A multinational software corporation that develops software for the architecture, engineering, and construction industries. 
 
Problem: The company had a growing number of contracts and agreements with customers, partners, and suppliers. Managing these contracts manually was becoming challenging, leading to issues such as missed deadlines, overlooked renewal opportunities, and inconsistent compliance monitoring.  
 
Solution: Before implementing contract management software, they took a proactive approach by defining clear metrics that they aimed to achieve through the implementation: 

KPIs:

• Contract Turnaround Time: They identified that contracts were taking longer than desired to move through the approval and negotiation process. They established a KPI to reduce the average contract turnaround time by a certain percentage.
  
  
• Renewal Rate: They wanted to improve their contract renewal rate by ensuring timely notifications and reminders for contract renewals. They set a KPI to increase the renewal rate by a specific percentage over a certain period.
  
  
• Compliance Monitoring: They defined metrics related to the number of compliance breaches detected before and after software implementation.
  
  
• Contract Visibility: They aimed to enhance visibility into contract status and milestones for various stakeholders. They established a KPI to measure the percentage increase in real-time access to contract information.
  
  
• Cost Savings: The company recognized the potential for cost savings through improved contract management efficiency. They set a KPI to measure the reduction in contract management operational costs.

• Faster Turnaround: With a focus on contract turnaround time, the company reduced delays and bottlenecks in the contract approval process. Contracts moved through the pipeline more efficiently. 
  
  
• Renewal Success: Automated renewal notifications and tracking led to an increase in the renewal rate. They were able to capture more renewal opportunities and retain valuable contracts.
  
  
• Enhanced Compliance: Automated alerts and monitoring features helped identify compliance breaches early, minimizing risks and potential legal issues.
  
  
• Improved Visibility: Stakeholders gained improved visibility into contract status, which enhanced collaboration and decision-making across departments.
  
  
• Operational Efficiency: The software streamlined manual processes, leading to operational cost savings and freeing up resources for more strategic tasks. 
   

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