During the COVID-19 pandemic, thousands of companies adopted technology that could facilitate online remote work. Businesses found themselves searching for solutions that helped them stay up and running while employees worked from home.
Flash forward three years later, and the circumstances have changed dramatically. But rather than large-scale remote work, inflation and rising interest rates have compelled mass layoffs and downsizing. So instead of software that gets the job done with remote workers, now companies are looking for software that still gets the job done with fewer workers.
At the same time, widespread budget cuts have placed software spend squarely in the crosshairs. To manage software costs, companies are asking the hard questions about how critical certain software is.
This is partly a consequence of companies racing to implement new technology that supposedly enabled greater remote productivity and collaboration. Countless companies ended up paying a king’s ransom without knowing if the software was truly worth the cost.
The narrative has changed since then. Now companies are weighing the software they purchase, the benefits they reap, and whether the costs merit being worth more than their king (or corresponding head of state).
Contract lifecycle management (CLM) software is no different. If you want your finance team to allow you to continue using your CLM (or swap to a different CLM solution), you should be able to explain why your legal team needs CLM software and what the potential returns are.
But for this to happen, you must estimate a CLM’s Return on Investment (ROI).
What is ROI?
ROI is a measure that evaluates the profitability of an investment. Regardless of whether it’s stocks, commodities, crypto, or real estate, ROI is always calculated the same way.
ROI = ((Investment Value) - (Investment Cost)) / (Investment Cost)
Investment value refers to the current value of the investment. And since ROI can easily be converted into a percentage, it’s a helpful gauge that you can use to compare the performance of multiple investments. This allows stakeholders and decision-makers to see which investments paid off and which didn’t.
As a general rule of thumb, the higher the ROI, the more cost-effective the software.
This isn’t always the case. There are times when a negative ROI is inevitable, yet still preferable.
Antivirus is a good example. Most of the time, antivirus is a straightforward expense. Nevertheless, it’s a necessary expense. Just like how obsolete software can create security vulnerabilities, the lack of antivirus could leave your devices vulnerable to malware and costly exploits. Given the choice, organizations would opt for losing a few thousand on antivirus, especially when the alternative is losing millions because of a hack.
That’s why even though a positive ROI is the ideal result, a negative ROI may still be acceptable. The critical element is that software should result in some degree of cost savings.
Sometimes referred to as investment gain, there are usually two reasons why you purchase software: to do something you previously couldn’t, or to do something more efficiently.
In both cases, an investment’s value or gain can be measured by the value obtained. This could be free time, sales deals, and other revenue-generating activities.
Several factors help determine the final price tag of CLM software. Some are clear, direct costs, while others may be less apparent.
The most visible direct cost is the money spent on acquiring and maintaining the new software. This includes licenses, subscriptions, fees, and technical support. You might even need new hardware for running the software you purchased.
There are also “hidden” costs to account for. Some of the more apparent hidden costs are onboarding and training employees or colleagues. Personalized tutorials may not cost an arm and a leg, but they can still rack up a pretty penny.
The truly hidden costs lie in the background. While your staff is engaged in tutorials, they’re not able to complete more productive activities. And there will be a drop in productivity as they become more familiar with the software. That’s why a low learning curve can be quite appealing. The steeper the curve, the more time your staff needs to adjust (and the less time they have for revenue-generating activities).
Consequently, the more focused your staff is on learning the ropes, the less attention they can pay to their own job. CLM platforms such as ContractWorks have proven track records of success, and they’re capable of not only letting lawyers be lawyers, but also empowering other departments.
What is ContractWorks?
ContractWorks is an end-to-end CLM platform that empowers legal teams with the features they need to stay organized, drive operational efficiency, and fulfill all contract management stages.
In addition to being cost-effective and security-focused, ContractWorks CLM allows legal teams to leverage automation to cut down on time-consuming menial work and gain greater savings in time and money. For example, ContractWorks CLM provides reporting and contract repository capabilities that ensure legal teams keep ahead of critical dates, generate tailored reports, and avoid wasting precious time on simple document search.
Legal teams can even swiftly draft contracts by answering simple questions. The answers are then automatically inserted into a pre-approved, compliant legal template.
At the same time, contract data is saved to ContractWorks CLM. That way, if another document needs to be created for the same client, the data can quickly be pulled and added to any future document.
Not only does this sort of automation save time, but it also helps teams avoid costly errors and poor data management.
Compared to the financial fallout of document errors, any contract lifecycle management software is likely to recoup the initial investment (and more). Just ask TransAlta and Kodak, who lost $24 million and $11 million respectively due to “minor” Excel errors.
However, such gains are more theoretical in nature, and they’re unlikely to prove to be a sufficiently compelling selling point that will convince Finance to fork over the necessary budget.
So let’s consider a more concrete, tangible ROI.
Did you know that a lawyer’s average hourly rate is $90? That means if a lawyer spends two hours on one routine document (NDA, DPA, etc.), your organization gets charged $180.
Now imagine that your lawyer has to process one document each workday. Assuming 20 workdays per month, your bill reaches ~$3,600, and for 260 workdays per year, your bill skyrockets to $46,800.
And this is for one lawyer and one document for each workday. If there are five lawyers on your team handling one document a day, your bill works out to $234,000.
According to PricewaterhouseCoopers, the average Fortune 2000 organization maintains between 20,000 and 40,000 contracts at any given time. Smaller organizations naturally process much fewer contracts, so for our ROI estimate, we’ll use 2,500 – the max number of documents provided under ContractWorks Standard plan.
If your organization processes 2,500 simple contracts each year, the minimum your organization must fork over on contracting is $450,000. This amount grows relative to the number of complex contracts you create.
But even 100 standard NDAs would lead to an annual bill of $18,000.
By comparison, subscribing to ContractWorks for one year is just $8,400 (at $700/month) for 2,500 documents and an unlimited number of users.
For less than half the cost, not only would your legal team be able to handle all 100 simple NDAs, but they would be able to process another 2,400 documents at no extra cost. What’s better is that the contracts can be of any length and complexity.
Just looking at the raw numbers, the ROI of ContractWorks can be anywhere between $9,600 to $441,600 per year, depending on the number of contracts created. And that doesn’t factor in all the hours lawyers save that can be put towards activities that generate growth and add to the company’s bottom line (If you’re curious, the break-even point is approximately at contract #53).
That’s just for the smallest Standard plan. ContractWorks also offers two more plans – Professional and Premium. At $900 per month, Professional contains all the same features as the Standard plan, but with 10,000 documents and twice as many e-signature licenses.
And at $2,000 per month, Premium provides (including but not limited to):
20 e-signature licenses
Advanced document editor
For the full list of features included in each plan, visit our pricing page.
Plus, ContractWorks comes with a small learning curve, no implementation fee, free onboarding, and a 60-day trial period. So all the hidden costs such as onboarding, tutorials, and lost productivity are kept to a bare minimum.
The numbers above are a simple approximation of one possible ROI. There are several other factors that you should account for if you want a more precise ROI, such as:
Total number of customer contracts in your organization
Percentage of revenue managed by contracts
Percentage of contracts that are renegotiated annually
Penalties and losses due to non-compliance or breaches
Average contract cycle time
Lost income due to contract mismanagement
Employee costs per day/per hour
There are also several strategies for boosting the ROI and ensuring your software spend is moving in the right direction. For example, you can monitor a contract’s effectiveness, efficiency, and risk.
You might even consider accounting for the resources you don’t spend thanks to CLM contract automation and AI functions. One contest between AI and lawyers witnessed the former find 94% of a contract’s loopholes in 26 seconds, whereas humans found just 85% in 92 minutes. This sort of data provides insight into both time and cost savings.
Not only does ContractWorks help you cut costs, save time, and enable faster end-to-end contracting, but it opens up countless opportunities as legal teams gain time to put towards strategic endeavors. By freeing your legal team from having to manually resolve contracting needs, they can focus on value generation for your organization.
If you’d like to learn more about how ContractWorks can help your company, book a demo with our team.
The Buyer's Guide to Contract Management Software
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