Identifying the ROI from your CLM implementation
Is a digital CLM solution a wise investment for your business? Our framework helps you understand and showcase the significant returns from a CLM implementation, including cost savings, increased efficiency, and reduced risk.
- Stage 1
- Stage 2
- Stage 3
- Stage 4
Stage 1
Evaluate your existing CLM process
According to a recent study by World Commerce and Contracting, “Poor contract management continues to cost companies 9% of their bottom line.” However, little more than 20% of businesses quantify contract management costs and benefits. If you don’t have a monitoring process yet, you can start by following industry standards. Some of the parameters commonly used throughout the business world include:
- The time consumed on your CLM activity.
- The number of employees assigned to each activity.
- The costs incurred to complete each task, like remunerating employees.
- Additional costs, such as seeking outside legal support.
- The estimated opportunity costs, such as missed renewals and unfulfilled obligations.
Stage 2
Identify the right CLM solution for your needs
Now that you've evaluated your existing CLM process, you know your bottlenecks and process inefficiencies. You need to implement a CLM solution that mitigates your current challenges and caters to your broader organizational goals. These are some of the benefits you can expect from a typical CLM solution:
Reduced manual efforts
Because the entire contract lifecycle is automated—including contract creation, approval workflows, notification alerts, and auto-renewals—CLM solutions considerably reduce manual efforts.
Time saved
Contract managers save a lot of time with automated contract creation, including having a central repository to store and retrieve contracts, using electronic signatures that reduce email, print, and fax cycles, and keeping track of contract status using a dashboard.
Reduced costs
Organizations witness a sizable reduction in all CLM-associated costs as a result of improved workforce productivity and avoiding penalties. CLM solutions provide real-time visibility into contract performance, allowing organizations to identify any areas of overspending in order to take corrective action.
Increased revenue
CLM solutions help organizations adapt and respond quickly to changing market conditions, allowing businesses to capture more revenue opportunities. They also ensure faster revenue recognition as a result of shorter contract cycle times and eliminating missed renewals with automated alerts.
While we've considered the quantifiable benefits, evaluating ROI for any CLM implementation is incomplete without considering the qualitative benefits. Though difficult to attribute and measure, these qualitative benefits significantly impact all of the parameters we just discussed. Below are the key qualitative benefits you should consider when evaluating the ROI of CLM implementation.
Improved compliance and reduced risks
CLM solutions improve compliance and reduce risk in the following ways:
- Standardizing all processes associated with contract management.
- Improving visibility and control through granular auditing and tracking.
- Ensuring fulfillment of contractual obligations through robust obligation management capabilities.
- Advanced CLM tools also provide sophisticated data protection capabilities.
Increased business agility
CLM solutions provide real-time access to contract data, allowing organizations to make more informed decisions and respond quickly to market flux.
Improved performance control
CLM solutions can track all contractual activities and provide actionable insights, allowing organizations to more accurately monitor their contract performance.
Improved business relationships
Because contract managers can have all of the relevant information at their fingertips, they can fulfill their contractual promises on time, every time. Also, a CLM solution's ability to track all past communications with suppliers fosters stronger business relationships, leading to more retention and increased revenue.
Stage 3
Do a cost-benefit analysis
While identifying the right CLM solution and evaluating alternatives, you need to estimate your costs, such as the total cost of ownership, and implementation and post-implementation costs.
Reaping the desired benefits for the costs incurred would depend upon the CLM maturity of your organization. Suppose you're at a basic level of CLM implementation, where you’re only looking at productivity gains. In that case, the CLM maturity will be faster. Whereas, when you’re looking at a higher level of CLM implementation, such as compliance and risk mitigation and advanced data protection, the CLM maturity will be slower. Thus, you need to assess the ROI over the long term to get a broader perspective.
Stage 4
Iterate your process periodically
Once you've implemented CLM in your organization, you can validate your actual values with the projected values. If your ROI falls short of projections, identify the discrepancy and modify your implementation accordingly. Now that you have an established process to optimize your contract ROI, you can iterate the process periodically to level up your CLM maturity and ensure continuous ROI improvement.