When deliberating on investment in upgrading the contract management technology, businesses often postpone the best and settle for the status quo. However, a savings estimate can turn the tables on budget shortages and help you get the buy-in of key decision-makers. So, let’s look at the six ways you can calculate the savings that a contract management solutions generates.
6 Ways to calculate your savings
1. Savings in legal operations
According to a report by Goldman Sachs, using a contract lifecycle management system reduces the average number of hours spent on contracts by 20%. So, about 20% of the time devoted to the contract management process can be reallocated to tasks that were been outsourced.
Savings value = Yearly man-hours devoted to contract management * Average hourly pay * 20%
2. Prevention of losses
IACCM mentions that organizations lose 9.2% of revenue every year due to poor contract management. If 50% of this loss can be prevented by using an intelligent contract management solution, we can get a rough estimate of the savings potential.
Savings value = Annual revenue * 9.2% * 50%
3. Savings in sales operations
According to Aberdeen Group, the usage of a contract management tool results in a 24% reduction in the sales cycle. The time saved will result in about a 20% increase in sales with the same team size. It may also bring in 20% savings in sales operations costs.
Savings value = Total annual sales man-hours * Average hourly pay * 20%
4. Well-negotiated contract renewals
When renewable contracts are negotiated with more foresight and insight, organizations can capture higher savings from the same set of customers. (Let’s assume 5% leverage in negotiations being caused by an efficient contract management system.)
Savings value = Annual renewed revenue * 5%
5. Avoidance and recapture of penalties
By enforcing penalty clauses more efficiently, contract management systems bring in huge savings. Increased regulatory stringencies and large amounts of fines levied on non-compliance is a big challenge for companies. An intelligent system looks after the contracts and digs at the clause level. It also alerts you in time to take corrective actions.
Savings value = Average yearly penalties paid + Annual penalties captured
6. Consolidated purchasing
Just like in the case of revenue capture, contract management software also facilitates easy identification of savings opportunities among procurement contracts. It does so by way of consolidation as segregated, decentralized buying gives way to bulk purchases and more handsomely negotiate savings. (Let’s assume 0.3% of total procurement savings realized through consolidation.)
Savings value = Total procurement value * 0.3%
The above six are some of the quick, easy, and valid ways of also evaluating ROI from a contract management solution. For a more comprehensive and customized business case with intricate figures calculated just for your organization, get in touch with us! If you are interested in a self-service model, here’s an online ROI calculator we created just for that!