Just a little more than half of sales teams achieve their annual company sales targets, while 44 percent say they struggle not only to hit their numbers but to do so profitably. Considering that there is no clearer marker of success in sales than a signed contract, it follows that stronger contract management processes can only improve sales metrics.
Strong sales performance is a matter of both quantity and quality. It hinges upon the ability to both minimize the amount of time spent negotiating and closing individual contracts – freeing up team members to move on to the next deal – and also upon improving the quality of contracts, learning from the performance of previous deals in order to improve new agreements, whether that’s a renewal with an existing supplier or an all-new contract. Furthermore, leveraging these learnings can also help to speed up the negotiation process for new contracts by helping sales teams to identify contract types and terms that best achieve organizational goals and reducing the amount of time it can take to draft each new contract from scratch.
Research from Aberdeen looked at just how closely sales and contract management are intertwined, finding that “on average, 18 percent of an enterprise’s sales cycle is attributed to contract creation, negotiation, and approval. For example, if a company has a sales cycle of 90 days, approximately 16 days are taken by contract-related activities. With this in mind, a one-day reduction in a company’s sales cycle is worth, on average, approximately $80,000.”
The challenge, however, is that more traditional manual contract management processes have a number of inherent issues that make it difficult for sales to see such benefits. Switching to contract management software, meanwhile, has been shown to help reduce bottlenecks and improve the ease of tracking, growing the upside of contracting. Improvements to contract management programs within organizations has been shown to result in ease of contract access, drive better contract benefits and business value and accelerate revenue and/or savings – all metrics with direct lines back to sales.
But how can organizations best ensure that sales benefits from improvements to contract management programs? A closer look at typical sales and contracting stages and processes can identify key opportunities for alignment, allowing sales teams to use the greater efficiencies that come from improving contracting management to fuel sales performance.
Stage 1: Pre-contract
The pre-contract stage of sales involves all of the activities that lead up to signing a new contract or winning a new customer. Once a lead has been identified, sales is then tasked with developing a proposal, the details of which will later be reflected within the contract terms should discussions progress to a deal.
For sales, the ultimate goal of the pre-contract phase is to develop a set of mutually-agreeable terms that will result in a strong contract, without wasting a lot of time on back and forth. While it’s important not to rush through the drafting of an agreement, delays in reaching a deal can strain relationships and increase the risk that a contract may never be signed at all.
Opportunity for alignment:
With the average number of contracts per organization reaching levels as high as hundreds of thousands per year, there is no reason for sales to have to reinvent the wheel, drafting a whole new proposal for every prospect being pitched.
Strong contract management processes and good software present an opportunity for organizations to regularly evaluate the performance of existing contracts and incorporate the learnings into the standard contract in order to optimize the effectiveness of future agreements.
Stage 2: Contract execution
Even once you’ve come to an agreement on terms, it’s still possible that a deal may never be executed, should delays in signing drag on into perpetuity. The reasons for stalled signing can include parties having second thoughts, shifts in organizational priorities or simply a fatal reduction in momentum and enthusiasm. Whatever the cause, the end result is a dead deal.
Opportunity for alignment:
The use of electronic signature tools can dramatically speed up the time it takes to go from reaching an agreement to closing the contract. This offers numerous benefits to sales: it reduces the risk that a contract may never get signed, lowers the resources required to complete this phase of the sales process and, finally, it frees up members of the sales team to go after their next deal. These benefits are likely demonstrated in Aberdeen research which found that nearly two-thirds of sales teams identified as “best in class” (the top 20 percent of performers) say they are active e-signature users. Additionally, e-signature users were more likely to rate themselves as “very effective” across critical sales capabilities than non-users and average a 29 percent higher “win rate”.
Stage 3: Post-award
While sales may hand off contracts to the relevant departments and individuals once a deal has been inked, that doesn’t mean their involvement is over. A strong understanding of how past contracts have performed – encompassing both what’s working as well as pain points – can improve effectiveness at negotiating new deals, as well as help the sales team to make renewals more favorable.
Opportunity for alignment:
While sales may or may not be directly involved in activities related to contract performance reviews, it’s vital that contract management processes include briefing the sales team on any changes, opportunities or other insights that may arise as a result of such reviews. One way to ensure that this happens is designating such briefings as milestones within the contract management lifecycle. Notification tools embedded within contract management software can ensure this knowledge transfer actually occurs and doesn’t fall by the wayside.