KPIs to Measure the Performance of Your Contracts

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A contract is critical to the success of your business since it ensures the authenticity of an agreement between a company and its clients, sellers, partners, or employees. Without an effective contract management system in place, your business may be exposed to risks throughout multiple facets of your operations—from missed deadlines that impact your cash flow, compliance issues, inefficient approval workflow, ineffective reporting strategy, and more. 

Having a standardized contract management system in place allows your business to oversee the terms and conditions being met by all parties involved; that’s why integrating Key Performance Indicators (KPIs) can enhance the effectiveness of your contract outcomes. But seeing as the nature of contracts varies, what are the relevant KPIs your business should use as reference points? 

1. Annualized Contract Value (AVC) 

When renewing or drafting new contracts, looking at the AVC reveals the annualized revenue per customer contract, which is critical in determining the ROI of your agreement within a time-sensitive setting. It considers the profits gained due to the agreement, which is an excellent point to consider when comparing the rates of recurring contracts against new contracts. 

AVC can also bring to light the lost revenue of unrenewed contracts, allowing businesses to easily identify whether the cost is variable since the AVC highlights at what point does your production remain profitable. 

2. Terminated Contract Remaining Value (TRV) 

TRV is critical for service-related contracts since it emphasizes outstanding bills and unbilled amounts throughout the contract lifecycle, both of which can prevent lost revenues from moving forward. This metric reveals the financial value of your clients or customers, making it a crucial KPI that can lead you to higher-quality consumers. 

3. Order Value Variance from Original Contract Value (OVV) 

OVV reveals inefficiencies in your contract’s effectiveness and quality, putting a greater emphasis on improving your client communication, contract goal assessment, scope management, and ability to fix errors within the contract’s contents.

4. Compliance 

Contracts are legally binding agreements that ensure all parties involved fulfill their end of the bargain. Without committing to the agreed terms and conditions, you or the other party fails in complying with the contract. With that in mind, including your contract compliance as a part of your KPI ensures you can stay on top of your organization’s ability to employ or stay in line with policies. 

The Bottom Line: Gaining the Best Possible Value from Contract Agreements by Optimizing Your Contract Management Process

Looking at the right KPIs allows you to identify areas that need improvement in your contract management. When done correctly, your contract performance can lead to desired results with minimal time to signature, lower risks, established relationships with recurring vendors or counterparties, and maximum compliance regarding contract obligations, all within a more streamlined approach. 

Where Can I Get a Contract Management Software?

Dealing with contracts can be quite intimidating. With all the legal jargon and details you need to include, automated contract drafting and contract management is the answer to your contract development woes. 

Anapact is a contract management software that provides effective contract management solutions for small and medium-sized businesses. We strive to reduce your risks, empower your team, and streamline your workflow with our contract management software. Try our software today!

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- About the Author

Picture of Louis Balla
Louis Balla
Louis is the Co-Founder of Anapact and partner at Nuage, a top rated ERP consulting firm based in Venice Beach, California.