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9 Critical Contract Management KPIs for Effective Contract Performance Tracking

Contracts are vital to day-to-day business operations. While effective contract management aids business growth, poorly managed contracts can cause expensive disasters.

Poor contract management slows down processes, increases risks, and incurs opportunity costs to your business. A World Commerce and Contracting report states that poor contracting management costs businesses 9% of their annual revenue.

Tracking contract management KPIs helps organizations get measurable results on their contract administration performance. It helps pinpoint weaknesses, elevate efficiency, and even discover new opportunities.

This blog offers detailed information on contract KPI tracking. 

What are KPIs in contract management?

Contract management key performance indicators are pre-defined metrics that help evaluate the performance of contract management processes. These KPIs can help you understand the current state of your contracts and establish performance benchmarks for your teams.

Well-chosen contract KPIs are the key to efficient contract management. These metrics help dodge legal, operational, and administrative problems and define a clear pathway to plan proactive contract renewal strategies and better contracting processes. There’s a lot more to the benefits of using KPIs in contract management. The next section covers these benefits.

Why is tracking contract management KPIs important?

Like any other business process, contract management processes require routine checks. Key performance indicators give your contract management lifecycle’s performance a measurable value and help ensure efficiency, productivity, and compliance. Let’s find out how.

1. Helps track contract lifecycle efficiency

Tracking this process’s efficiency helps:

Get metrics on the contract admin process.

Identify and eliminate bottlenecks in specific stages of contract processes.

Accelerate the average contract turnaround time (TAT).

Watch and execute ongoing contracts effortlessly.

Unbottleneck critical contracts with name, status, turn, and template filters.

Prioritize and streamline action items and approval requests across teams and organizations.

2. Monitors contract obligations

No agreement is bulletproof. Tracking your contract’s risks through key performance indicators helps:

Keep track of contractual obligations, risks, and liabilities.

Visualize key contract data with auto-generated reports.

Proactively plan for and mitigate contract risks.

Automated obligation tracking and proactive risk management empower your team to close deals faster while mitigating risk and improving compliance. Contract process metric analytics is a superpower to reduce contract TAT and minimize contract risks. 

Let’s now delve into the top contract management KPIs to track.

Top 9 KPIs in contract management

1. CLM duration

Definition: How long do your contract processes take from start to finish? The contract lifecycle management duration KPI helps you understand the time it takes to process your contract at each stage: drafting, editing, negotiation, redlining, and signing.

Why It Matters: The contract lifecycle duration depends on factors like the type of contract, contract approval process, resource availability, and contract value. Tracking this KPI helps identify bottlenecks in contract management and take steps to accelerate the CLM process.

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2. Contract renewal rate

Definition: The contract renewal rate is the ratio of renewed contracts to expired contracts. A higher number of renewed contracts indicates customer retention, a positive customer experience, and sustainable income streams.

Why It Matters: Tracking contract renewal dates helps you understand how many contracts are being renewed. This, in turn, enables you to understand your business efforts in client acquisition and vendor hunting.

3. Number of clauses tracked

Definition: Missed contract milestones can result in legal penalties and risks. Tracking key clauses and obligations helps manage risks and opportunities proactively.

Why It Matters: By tracking key terms around obligations, renewals, and dates, you can identify trends, locate gaps, and take the necessary steps for timely renewals. This KPI helps identify vulnerabilities and stay ahead of your obligations.

4. Contract value

Definition: Contract value KPI is a metric that tracks the value of contracts signed during a particular period. It is one of the most important KPIs of contract management and directly correlates with business performance.

Why It Matters: Contract value assessments help track high and low-critical agreements. Moreover, tracking contract value helps the legal team identify which contract clauses need priority review, improving efficiency, negotiation power, and revenue opportunities.

5. Contract status

Definition: Contract status helps you track where your contract is in the lifecycle in real time. Contract admins can establish granular controls and workflows and set benchmarks for contract TAT.

Why It Matters: Knowing who has the pen and who’s next helps you unbottleck contract requests. With automated reminders, you can get parties to sign off on contracts without manual follow-ups.

6. Contract review time

Definition: This contract management KPI calculates the time it takes for contract review, starting from initiation. The contract signing time depends on factors like contract complexity, number of contract requests, and the industry.

Why It Matters: Tracking this contractual KPI requires identifying all the pre-execution steps and calculating the time each step is taking. This helps evaluate the efficiency of each stage of the signing process and take steps to accelerate contract signing.

7. Number of inbound contract requests

Definition: The number of inbound contract requests refers to contract requests generated within the organization during a specific period. Tracking this KPI helps the legal team understand its workflow and allocate resources accordingly. This metric is usually dependent on the legal professional-to-stakeholder ratio.

Why It Matters: Businesses can use this KPI to understand contract request generation trends during different times of the year. This helps get contract volume forecasts and plan contract management strategies effectively.

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8. Contract acceptance rate

Definition: The contract acceptance rate is a contract management KPI that tracks the percentage of contracts accepted without any revisions or negotiations. This metric is based on the total number of contracts versus the contracts with no changes.

Why It Matters: A high contract acceptance rate indicates contract effectiveness and is a valuable metric to track. Moreover, monitoring clauses of contracts with high acceptance helps understand patterns in contract quality and further optimize the contract lifecycle.

9. Turn frequency

Definition: The turn frequency metric tracks the number of turns it takes before a contract is signed. Some contracts need more complex and granular workflows while breezing through the pre-execution process.

Why It Matters: The metric signifies the complexity of contracts and indicates room for process improvement or the need for standardized clauses and templates.

5 actionable tips to efficiently track contract management KPIs

Manual tracking of multiple contract KPIs is inefficient and wasteful. Here are 5 actionable tips to help you effortlessly track your contract lifecycle performance.

1. Implement a CLM Software

Contract lifecycle management software like HyperStart CLM helps automate renewal tracking and visualize contract flows. A contract management system manages all stages of your contracting process with powerful automation and AI.

2. Define clear KPIs

Choosing the right KPIs helps generate valuable results from contract management KPI tracking. To get reliable and meaningful contract KPI data, align KPI metrics to your business processes and industry.

3. Centralize contract data

Storing all your contract data in one place helps maintain a single source of truth. You can do this through contract management software offering central contract repository functionality.

4. Integrate other systems

CRM, HRMS, ERP systems, etc., manage contracts differently. Configuring these systems helps improve contract administration performance by consistently tracking all contract KPIs.

5. Set SMART goals

SMART (Specific, Measurable, Achievable, Result Oriented, and Time Constrained) contract KPIs give your contract processes a direction. They also help ensure your KPIs are realistic, relevant, and achievable.

These are some tips to help you get started with contract performance tracking. If you want to track your contract management process’s performance using these KPIs minus the efforts, you need intelligent and automation-driven contract management software.

Automate contract KPI tracking with HyperStart CLM

Contract lifecycle management software is an excellent tool for optimizing your contract management process or tracking performance metrics. These tools help automate contractual processes and enable end-to-end contract tracking.

HyperStart CLM offers an end-to-end contract lifecycle management system to help you automate all stages of your contract lifecycle. Using HyperStart CLM enables you to experience complete contract management success.

From contract drafting, editing, redlining, and negotiation to signing, storing, and tracking contracts, HyperStart CLM is a complete suite. Book a demo with out team today to learn more.

Frequently asked questions

Intelligent CLM solutions can automatically track key contract obligations and process metrics like turnaround time and number of turns. They generate reports and dashboards to visualize risks, opportunities, and contract trends.
Contract management KPIs offer measurable information on your contract management process’s efficiency. They help you identify opportunities and pitfalls for more informed business decisions and ensure contract process efficiency.
Yes. Contract management KPIs offer insightful data on contract bottlenecks, obligations, potential risks, and risk mitigation strategies.
There are several ways to use KPI data to improve your contracting. You can redimension manual contract admin resources to more important work, automate renewal tracking, and accelerate the contract lifecycle. All of this directly contributes to saved opportunity and financial costs.

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