November 13, 2024

contracts Consulting best practices contract lifecycle management cost savings

The performance metrics for general counsels have long included risk, compliance, and spend. But another metric has been gaining rightful attention and importance: cycle time for executing commercial contracts, both buy-side/procurement and sell-side/revenue-generation.

The prize for doing so is substantial. Particularly on the sell-side, reducing cycle times does much more than accelerate revenue growth and lower cost-per-transaction. Just as importantly (if not more so), it:

• boosts customer satisfaction and retention by reducing transaction friction; and
• transforms the law department from a cost-to-profit centre by increasing cash flow and reducing float (and the expenses it incurs)^[1], thereby increasing capital available for innovation, investment, and growth

Thus, conventional wisdom holds that the right place to start is on the sales side and through direct application of one or more of the following techniques to the sales operations process:

• simplifying the terms and content within the contractual agreements
• shifting from overly rigid, company-favoured positions to more balanced or even customer-favoured positions
• allowing more third-party paper to be received and accepted by the company
• installing self-served, ‘click to accept’ sales agreements (subject to certain limits) for sales professionals

These are all important ideas. But the sequence and manner in which you gain the necessary momentum and trust to apply sales-side techniques is critical. Our 20+ years working with dozens of companies and managing over 10 million agreements for them has consistently shown a better and more successful route to achieving sales contracting efficiency.

The approach we speak of should be centrally led by the GC, leveraging contract data and insights to strategically improve procurement contracting and then concluding with sales, but with sales as the ultimate target throughout. It comprises four critical steps:

1. Gain key insights from your key agreements. How can you reduce or improve anything if you don’t know what’s in your contracts? For example, do you know which customers are contracted on what terms? Do you know which terms, both detrimental or beneficial, are present across which contracts? Do you know which terms are most heavily negotiated or cause the most friction in your contract negotiation? Do you know which sales commitments are ‘tied back’ to and dependent upon supplier agreements?First things first, get your contracts into a repository and use AI-powered services to unlock basic contract insights. Use those insights to drive which agreements and clauses to concentrate on getting right for maximum impactful, particularly by focusing on enhanced speed and value in the transactions process. Ideally, your organisation manages or leverages an ongoing and outsourced solution or service to continuously store and extract information out of key agreements.
2. Outsource buy-side contracting, freeing up time for legal to support sales-side negotiations. Compared to the sales side, the buy-side is usually higher volume, less risky for initiating innovation, and more welcoming to stakeholders. The typical combination of higher volume coupled with less frequent change on buy-side transactions makes this area of the business a more productive environment to implement some of the items mentioned above (templates, playbooks, tech, etc.), in addition to outsourcing the work to a law company who will sign up for cost and productivity outcomes.
3. Cross the aisle and ‘sell’ buy-side results to the sales team. Once your work on the buy-side has freed up staff time, shown an overall reduction in cycle times, and lowered cost-per-transaction and deviations from key terms, then it’s time to take the next step by donning sales attire and ‘selling’ the sales side. Show them the results, the process, and the technology you used to optimise the contracts and how that has resulted in faster cycle times and resources potentially available to help with sales-side transactionsWe strongly recommend that the General Counsel centrally broker and lead discussion and knowledge transfer with Sales Operations leaders.
4. Optimise sales contract operations, at scale, by outsourcing remaining routine work. Salespeople need to be selling – and every moment spent on contracting and contract administration steals time from sales.Once you implement the sales operational improvements, start scaling the solution for maximum impact and revenue generation. The contracting element of selling is a ‘context’ activity and thus should be right- or out-sourced to resources who are faster, cheaper, and more effective at managing and tech-enabling those activities. Existing sales operations resources (including any previously freed-up procurement resources) should be reallocated to strategically impactful selling activities and negotiations, since they already know the business and people (some may even be suitable as junior salespeople). Elevating and scaling the current sales operation model to ultimately generate more revenue, and thus more profitability, is the optimal endpoint to your journey.

We’ve executed this strategic and company-wide approach at multiple Fortune 500, multi-national organisations and have seen tremendous results. Numerous Sales and Sales Operations teams have delivered cycle time reductions exceeding 10% (we’ve seen up to 30%!), resulting in revenue and profit growth for their company.

If you are a General Counsel interested in driving this path to deliver speed and profit to the company, email us at sales@elevate.law and we will be happy to spend time with you and your team on our experience and results.

[1] Float income is generated through returns generated by having more cash faster into the company and delivered through shorter contracting cycle times. Consider a 0.3% – i.e., one calendar day – reduction in cycle time at a company with $5B annual revenue. With business lending interest rates currently around 5%, this means ~$700k additional profit (viz., 1/365^th of company revenue times the interest rate, i.e., ($5,000,000,000 x 0.05) / 365, or $684,932).