One of the biggest challenges legal teams face when trying to justify the budget for adopting a tool like SpotDraft is making a business case for a contract management system.

Typically, legal functions within organizations are considered cost centers. And consequently, they often have a lot less available budget than sales or other departments, which are revenue generators.

Part of the reason legal teams have difficulties getting a budget approval is due to a lack of understanding in the broader company for the work they do. Legal is often judged by their contract turnaround time, with little insight into what goes into the contract management process.

And here’s the thing: Getting a budget for a new CLM solution doesn’t just help legal — it has positive effects on the business at large. Faster contract turnaround makes for a more efficient sales team and the ability to take on more contracts. 

When budgeting for a CLM solution, you should consider budgets from all the departments ultimately using the CLM — Sales, Business Development, Partnerships, Legal, and even HR. When it comes to making a solid argument to justify the purchase of the solution, we’d always be sure to include all teams it will impact.

Why do businesses need a Contract Lifecycle Management Solution?

What if you were to carry on as usual without implementing a CLM solution? Most businesses will reach a point where they find some issues creeping in that can have adverse effects on financial and administrative well-being.

Contract management demands close attention to stay on top of things. For example, inconsistencies in contracts or contract renewals can be costly to the business, while inefficient processes can slow employee productivity and leave them unhappy at work. Missed milestones or defaulted payment deadlines can also cause havoc.

The first step to making a successful business case for implementing a contract management system at your workplace is identifying all the problems it could help your teams solve. Below are some examples of pressing problems that a CLM can help ease:

#1 Rapid scaling of business teams

Have you ever been in a situation where the business team is scaling much more rapidly than the legal team? There comes a point when contract managers cannot keep up with the request volume, causing contract turnaround times to be significantly slower.

If your business relies on the rapid closure of sales contracts, you’ll feel this pain acutely. You’ll find a limit beyond which you can’t put through any new ones.

Outside of sales, teams like procurement or business development can find themselves stuck in a contract rut. It’s hard to move anything forward without enabling the pace of contract management to pick up.

#2 Challenges with tracking key dates

Missed contract milestones and deadlines can be a nightmare for your bottom line. Suddenly, you have expiring contracts auto-renewing or contractual obligations not met on time. 

It becomes hard to keep track of important dates without a CLM software solution, specifically if your company handles a sizable volume of contracts. Contracts may be in different places, and critical dates may be out of sight and out of mind.

#3 Measuring and justifying legal team spending

If your CFO asks for a justification of legal team spending, or if you’re trying to present a business case for hiring new contract managers, it’s challenging to provide accurate data without a CLM that tracks the numbers.

A Contract Lifecycle Management software allows you to track primary metrics such as contract review requests and the processing time for turning around new requests. Contract performance data such as this helps justify why you might need additional personnel.

The benefits of a CLM software solution for businesses

An important aspect of building a business case for investing in a contract management system is outlining its benefits in day-to-day operations, how it reduces administrative tasks, and how it contributes to overall business outcomes.

Specifically, how will the company see a return on their investment?

CLM solutions pack in features that power the efficiency of the contract management lifecycle. Centralized access, efficient financial management, reduced contract risk, and scalable systems. These are some excellent benefits to expand upon with the CFO’s office, along with

#1 Simplified tracking of cash outflows

Tracking cash outflows is one of the priorities of the CFO office. This activity isn’t always easy to hold a grip on when those outflows relate to various contracts. Getting the correct data often involves manual work and sourcing information from the different places contracts are stored.

A Contract Lifecycle Management solution like SpotDraft keeps all contract information on one centralized platform, allowing easy tracking of procurement contract outflows. CLMs offer an instant and seamless way to generate reports, saving a massive amount of time.

Reduced Sales Cycle Times

How do you grow your topline faster? One way is by reducing the sales cycle time, and a great way to do that is to improve the efficiency of the contract management process.

A contract lifecycle management tool allows business units to “self-serve” contracts, particularly those high volume contracts. They can use predetermined templates and criteria, offering faster contract closure and compliance with company policy.

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Visibility Over the Contracting Lifecycle

If you’re in the position where you need to add headcount, most CFOs will go for a data-driven approach. Some strategic questions to ask are as follows:

Why do we need help? 

Where are the bottlenecks? 

How will additional headcount help to resolve those issues?

A CLM provides visibility over the entire contracting lifecycle so that those bottlenecks are recorded and apparent. For example, you could show how an additional person in the legal team might allow improved contract turnaround time.

Improved Renewal and Expiration Management

Contracts usually have notice periods and expiration dates. If these lie out of site across disparate hard drives, inboxes, or filing cabinets, it’s easy for those key dates to slip below the radar. And before you know it, a contract auto-renews, making the company liable for obligations to complete cash payouts.

CLM software ensures that companies don’t accidentally auto-renew a contract due to a lack of visibility over the key dates. The software alerts users to dates so that they can take action on time.

-> Read Now: Get an in-depth view of contract renewal

Also read: 8 Top Contract Management Software Platforms

Lower Risk of Non-compliance

No company enjoys receiving fines or penalties associated with contract non-compliance. This event usually happens when there is a lack of visibility over the contracts.

CLM software lowers the risk of non-compliance, helping companies keep more revenue in their pockets.

Why businesses choose contract management systems

There are several reasons why top-performing businesses adopt contract management software as a replacement for traditional processes. With high business costs and increasing budget cuts posing significant challenges for most companies, contract management systems offer a way to save money and improve revenue yield. 

Here’s why:

#1 Scalability

Contract management systems are scalable, allowing organizations to onboard contracts at high volumes without significantly increasing workload. As organizations grow, they often face a surge in contractual obligations that require effective oversight.

A contract management solution like SpotDraft can adapt to this growth, allowing for efficient handling of complex contracts and ensuring that organizations can grow their operations without being hindered by administrative burdens and repetitive tasks.

#2 Integration with other tools

Contract management systems often integrate seamlessly with various business applications.  So, if your company's current tech stack includes tools like enterprise resource planning (ERP) and customer relationship management (CRM) systems, a robust contract lifecycle management software will fit into the ecosystem.

This facilitates a smooth exchange of relevant data, fostering a more cohesive workflow across the board.

#3 Robust automation functionalities

Automation is one of the key features of contract management software tools. This functionality allows you to streamline routine processes like:

• Contract approval: Automatically route contracts to key stakeholders for approval based on predefined rules, including automated notifications for effective follow-ups.

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• Contract reviews: Accelerate legal review processes by automatically highlighting areas of potential risk and even suggesting relevant adjustments.
• Contract generation: Automatically populate contract templates with the right contract terms and relevant data, reducing the chances of human error and inconsistencies during contract creation.
• Contract tracking: Consistently monitor each contract's renewal date and performance metrics, providing real-time insights into contract status and compliance.
• Contract storage: Automatically organize and store contracts in a centralized contract repository, ensuring easy accessibility and compliance with data retention requirements.

This minimizes risks associated with manual contract management, streamlines contract administration, and empowers you to focus on other valuable areas of your responsibility.

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 #4 Secured, unified, and accessible repository

‍A centralized and secure repository for contracts is essential for effective management. A contract management software provider like SpotDraft offers a unified platform where you can securely store, access, and track your contracts.With SpotDraft, for instance, you can set role-based permissions for contracts so only the right stakeholders can access relevant documents. You can also accelerate accessibility using robust search and filter functionalities. That way, you will never waste time trying to locate contracts manually.

Building a  business case for contract lifecycle management software

With more legal departments reporting budget cuts across the world, proving a business case for contract management software has become increasingly difficult.

Legal teams recognize the need for contract lifecycle management systems, but presenting this to decision-makers convincingly is a challenge that demands a careful approach.

Here are proven steps you can follow:

#1 Clearly define the “why”

Start by articulating the specific reasons your organization needs contract management software.

Identify the pain points associated with your current processes, such as too many manual processes, lack of version control, challenges with compliance, and more.

Highlight how these issues can negatively impact the organization's bottom line and operational efficiency. This sets the tone for making your business case for contract management software and captures the interest of decision-makers.

#2 Use numbers to put things into perspective

Decision-makers are often drawn to numbers. They want to feel the tangibility of your claims. It might be true that inefficiencies in contracting processes could be costing your organization. But how can you put that into perspective?

You should take advantage of the numerous reports that support your claim. For instance, a World Contracting and Commerce (WCC) study revealed that poor contract management processes cost organizations up to 9% of their revenue.

Presenting this statistic, along with other relevant metrics, can help key stakeholders grasp the financial implications of inaction.

#3 Reference available industry reports to highlight the value of a CLM

Cite reputable industry reports that underscore the benefits of contract lifecycle management (CLM) systems. For instance, studies show that organizations leveraging CMS experience enhanced efficiency, improved contract negotiation, cost savings, better compliance, and reduced legal risks.

Use industry reports to provide external validation, so your case can be more persuasive.

#4 Provide an analysis of ROI, taking advantage of benchmarks

To truly convince decision-makers, you need to demonstrate the financial value of an effective contract management system. Run a comprehensive analysis of the potential ROI, considering factors such as cost savings from reduced manual labor, increased revenue from faster contract execution, and improved contract risk management.

Use benchmarks from similar organizations to provide a realistic estimate of the expected benefits.

#5 Address potential challenges associated with adopting the CLM and how you plan to tackle them

No business software implementation is without challenges and financial risk. You need to be upfront about that.

Explain the potential for obstacles such as resistance to change, data migration issues, and integration complexities. Address these concerns head-on by outlining your plan to overcome them using strategies like training sessions, phased rollouts, ongoing support, and pilot programs.

This demonstrates your preparedness and reassures stakeholders of your well-rounded awareness and commitment to a successful implementation.

How to Calculate the ROI of a CLM

Finally, you might want to put the ROI of implementing a contract management system in numbers while making a business case.

First of all, how much do contracts cost you without a CLM? You need to factor in how many hours you spend on contracts and the value per hour. This weight varies with the complexity of the contract. However, the World Commerce and Contracting Association (WCCA) estimates that a typical contract costs an organization 40 hours and $6900. Further, it contributes to 9.2% of annual revenue leakage.

Consider factors such as:

• Sales cycle time
• Administrative time
• Costs associated with renewals
• Penalty costs 

CLMs heavily reduce those cost factors. Moreover, SpotDraft can save an average of 70% off the total cost of processing any contract. For most CFOs, this will make it worth investing in a CLM.

Proving the worth of contract management software

If you’re looking to sell decision-makers the idea of bringing in a new CLM system, take note of these points. A CLM is there to solve some significant pain points in companies, going well beyond the legal team.

SpotDraft is a feature-rich CLM software built to streamline your contract lifecycle management and improve company returns. If you’re considering investing in a contract management software and want to know how it can help make your job easier, request a free demo here.