Below, we explore the seven essential contract management KPIs every legal team should track. From measuring the length of the contract cycle to monitoring contract renewals, these KPIs provide valuable data to enhance your contract management practices.
What is a contract management KPI?
A contract management KPI (Key Performance Indicator) is a measurable value or metric that demonstrates the effectiveness of contract management processes in achieving organizational objectives. KPIs serve as a tool to evaluate the performance of various aspects of contract management, such as contract creation, negotiation, compliance, and risk management.
By identifying and tracking the right KPIs, organizations can determine how well their contract management system works and where improvements might be needed. These indicators offer a snapshot of the health of contract management operations, enabling teams to identify strengths and weaknesses and make data-driven decisions to optimize processes.
For instance, common KPIs in contract management may include:
- The average time to negotiate and finalize a contract.
- The percentage of contracts compliant with organizational standards.
- The number of renewed contracts versus those that expire without renewal.
These metrics provide valuable insights into the efficiency and effectiveness of the contract management lifecycle. The selection of relevant KPIs should align with the specific goals and needs of the organization, ensuring that the efforts invested in contract management directly support broader business objectives.
7 contract management KPIs you should track
1. Length of contract cycle
The length of the contract cycle measures the amount of time it takes to complete the entire lifecycle of a contract, from creation to execution. You can identify bottlenecks and inefficiencies in the contract processing workflow by tracking this KPI. A shorter contract cycle indicates improved efficiency and the ability to close deals faster, while a longer cycle may indicate areas for improvement.
The best way to measure the length of the contract cycle is to use contract lifecycle management software that provides real-time data on each stage of the contract process. By analyzing this data, you can quickly identify delays, streamline workflows and process contracts.
2. Contract value
Tracking the contract value is essential for assessing the financial impact of your legal contracts. This KPI measures the total value of contracts signed within a specific timeframe. By monitoring contract value, legal teams can evaluate the effectiveness of their contract terms and identify areas for negotiation or improvement.
To measure contract value, integrate your contract management system with your financial software. Integration provides real-time insights into the financial impact of your contracts, allowing you to make decisions based on real-time accurate data.
3. Contract acceptance rate
The contract acceptance rate measures the percentage of contracts that are accepted without modifications or rejections.
A high acceptance rate indicates that your contracts meet the expectations of all parties involved and are effectively addressing their needs. Conversely, a low acceptance rate indicates contract creation or negotiation process issues.
When analyzing the data, identify patterns that help you understand the reasons for rejections or modifications, and optimize your contract creation and negotiation processes.
4. Missed milestones
Missed milestones indicate potential risks and inefficiencies in your contract management processes. This KPI measures the number of milestones not achieved within the expected timeframe.
By tracking missed milestones, legal teams can identify potential bottlenecks, communicate with stakeholders and take corrective actions to ensure timely contract execution.
Establish a clear system for milestone management within your contract management software. Regularly review and update milestone deadlines, communicate expectations clearly and monitor progress to mitigate risks and ensure contract effectiveness.
5. Number of contract requests
The number of contract requests received in a given time period is a crucial KPI for assessing your legal team’s workload and resource allocation. By tracking this KPI, legal teams can identify trends in contract demand, allocate resources efficiently and plan for future growth or fluctuations in workload.
One of the best ways to measure contract requests is to track and categorize incoming requests. Analyze the data to identify peak periods, recurring requests and potential areas for process automation or optimization.
6. Contract risk levels
Contract risk measures the level of potential risks associated with your legal contracts. This KPI assesses how well your contracts align with legal obligations, mitigate potential disputes and protect your organization’s interests.
By tracking contract risk, legal teams can identify areas of vulnerability, ensure compliance and implement risk management strategies effectively.
To measure contract risk, conduct regular reviews of contract terms, assess the potential impact of contractual obligations, and implement risk mitigation strategies to safeguard your organization’s interests.
7. Percentage of contract renewals
Tracking contract renewals is crucial for maintaining strong client relationships and minimizing revenue loss. This KPI measures the percentage of contracts successfully renewed within a specific timeframe.
By monitoring contract renewals, legal teams can identify factors contributing to successful renewals, proactively address potential obstacles and optimize contract terms to improve renewal rates.
When tracking contract renewals, implement proactive renewal strategies, analyze renewal data and tailor contract terms to increase renewal rates and maximize revenue retention.
Minimize risk and improve efficiency with Pramata
Getting your legal team to track their work is an uphill battle at best. Pramata’s contract management platform gives you valuable insights as to how your legal team is using their time and how you can optimize your resources—all in just a few clicks.
If you’re ready to improve how you measure key contract management KPIs, we’re here to support you. Read on for deep dive on contracting KPIs & Metrics and learn more about Pramata today!