Smart companies carefully track their investments in every part of their business. By carefully monitoring and managing their return on investment (ROI) on major purchases, they protect their profitability and increase their opportunities for rapid growth. What You Need to Know About Calculating the ROI of Contract Management Software

Understanding the Business Contribution of Contract Management Software To calculate the ROI of your CMS, you must first understand the business contribution your CMS, and your contract management team in general, make.

Traditional ROI Calculations May Fail to Fully Capture Value Traditional ROI calculations often fail to fully capture the value that CMS provides because it looks for the value in the wrong places. The automation that CMS delivers may not be enough to result in a reduced headcount in your contract management department

Savings Provided by Contract Management Software One simple way to start the ROI calculation of CMS is total the cost savings it produces. CMS lowers costs in four easy to measure ways: Automation Fewer compliance penalties Overpayment recapture Termination of poor performing contracts With the exception of automation, a strong contract management team should be producing some of these cost savings without CMS. However, CMS, when used properly, will increase the savings of what is possible without software.

Automation CMS uses cutting edge AI and machine learning to automate much of the work that a contract management team used to perform manually. These automation result in cost savings over three primary areas: Staff Time Legal Costs Audits

Fewer Contract Compliance Penalties CMS helps reduce the amount of money the company pays out in contract compliance fees. This is accomplished through alters and easier tracking and communication tools. Even the best contract management team is not able to manage the complexities of multiple contracts, as well as CMS, does.

Overpayment Recapture One way organizations waste money is in the overpayment of contract compliance fees. A typical company does not have the resources to verify that the amount a contracting partner bills for compliance fees is accurate based on the terms of the contract.

Ending Poor Performing Contracts The last way CMS produces cost savings is through the termination of underperforming contracts. Sometimes contracts are automatically renewed, even though they shouldn’t be. CMS solves this problem in two ways. First, it makes it easier to see the value of every contract. It’s advanced reporting features can show any number of metrics, including cost savings for each contract.

Market-Based Focus on Contract Management Software ROI While calculating the cost savings generated by CMS is useful, it is only part of the ROI the company enjoys.

Maximizing Business Relationship Efficiency Contracts are a function of relationships. If you want to maximize the value of a contract, you need to maximize the underlying business relationship. CMS is designed to remove internal barriers and inefficiencies to better business relationships with contracting partners.

Shorter Vendor Contracting Cycles Another place where you can measure the business relationship efficiency produced by CMS is in the length of the contracting cycle with vendors. CMS shortens this time between the negotiation of the deal and the execution of the written contract.

Revenue Increases Provided by Contract Management Software While the traditional focus of contract management ROI calculations has been on cost savings and risk avoidance, much of the real value of CMS can be seen in increased revenues. This increase in revenues can be measured in three different areas: Better Customer Relationships More Efficient Contract Renewals Shorter Sales Cycles

Better Customer Relationships CMS leads to revenue increases by improving customer relationships. The CMS does this through improving internal compliance, using automated reminders to make sure the company is prepared for the renewal of the deal and streamlining the contracting process.

Easier Contract Renewals CMS improves the contract renewal process. While many contracts are set to auto-renew, every account needs to be reviewed for profitability before it is renewed.

Shorter Sales Cycle The time it takes to negotiate and execute a contract is lost time for the organization. It isn’t making any money during the sales cycle. It cannot even do much to anticipate the sale.

Opportunities Gained If you want to capture the full value that CMS adds to your business, you also need to take into account the additional opportunities it generates.

Easier reporting Reports have been a part of the business from the beginning. However, today businesses need more sophisticated reports to understand what is happening right now, not just last year

Faster Analysis Sometimes having access to data isn’t enough. Sometimes what leads to new opportunities is the ability of a company to analyze and synthesize the data. Contract management professionals and data scientists are limited at the speed of their analysis.

Actionable Business Intelligence The third way that CMS helps generate new opportunities is by taking raw data, processing it, analyzing it, and producing actionable business intelligence.

Conclusion There’s a reason so many companies are rapidly moving to CMS. But, if you want to accurately calculate the value the software is generating, you need to long beyond just the cost savings produced by the automation.

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