Did you know there's a treasure trove of useful contract data hiding right in plain sight?
It's data that can unlock new avenues for growth, streamline operations, and even give you a competitive edge.
The challenge, however, lies in the complexity and time required to extract these insights manually. But contract management software can help you analyze all the information hidden in each and every one of your contracts — and actually use it.
With contract analytics, you can transform dense contract text and metadata into actionable insights. Not only will it make managing contracts easier but it will turn your documents into strategic leverage that can help you grow your business.
Table of Contents
- What Is Contract Analytics?
- Key Components of Contract Analytics
- How To Use Contract Analytics To Grow Your Business
- Learn How ContractSafe Can Help Your Small Business
What Is Contract Analytics?
Contract analytics is the process through which businesses can turn their contracts into actionable insights by extracting key data points from contracts, analyzing this information, and then using it to make informed decisions.
It's about much more than knowing what your contracts say. Contract analytics involves leveraging contracts to drive growth, mitigate risks, and find opportunities that might have been hiding just below the surface.
Is There a Minimum Volume of Contracts Needed for Analytics To Be Effective?
Just like in statistics, a low volume of contracts may not provide actionable insights because it is difficult to draw meaningful conclusions from a small sample size.
With a low volume of contracts, it is difficult to identify patterns and trends that can be used to improve contract management. It’s even more difficult to identify risks and opportunities that could have a significant impact on the business.
Simply put, the more contracts you have, the more comprehensive view you can get of your contracting practices.
While there’s no specific number, businesses should consider the volume of contracts they have before diving into analytics. If you don’t have a ton of contracts, you may consider focusing on perfecting other contract management strategies, like fine-tuning your intake procedures or improving your contract review process.
No matter how many contracts you have, you can use contract management tools to monitor and report on data. You’ll still gain insights now and set yourself up for success with large-scale analytics later.
When you have a solid foundation, not only will you be able to build a scalable contract management process, you’ll also be able to use contract analytics to its full potential.
Key Components of Contract Analytics
The real power of contract analytics lies in its three foundational pillars: data extraction, analysis, and risk identification. Together, they form a solid framework that enables businesses to dive deep into their contracts and highlight opportunities to grow their business.
Extract Data
The first step is to pull critical information from your contracts. This includes information like:
- Contract type
- Contact name
- My company
- Counterparty
- Effective date
- Termination date
- Autorenew (Yes/No)
- Renewal term (length, if auto-renew is yes)
- Deadline to non-renew (date, if auto-renew is yes)
- Includes confidentiality (yes/no)
Contract management software with AI can help streamline this process with the help of optical character recognition (OCR) technology.
Here’s how it works:
OCR technology captures the text from contracts, whether they’re screenshotted images, PDFs or Word files, and converts it into a digital format that can be processed by AI. This is important because AI needs to be able to understand the content of a document in order to analyze it and make decisions.
When the text has been converted into a digital format, AI can be used to extract key information from the document, such as the contract terms, the parties involved, and the dates of execution. This information can then be used to create a structured database that can be easily searched and analyzed.
One thing to keep in mind is that you will always need to review the data that AI has pulled.
Analyze Data
Once data is extracted, the next step is to analyze it.
This stage interprets the extracted information to uncover trends, opportunities, and potential risks hidden within your contracts.
Analysis should cover metrics like:
- Contract performance
- Time to execution
- Number of contracts executed
- Renewals
- Compliance
- Value of contracts
- Type of contract
By evaluating these metrics, you can get a better idea of how to improve.
If you notice that time to execution is slower than industry benchmarks, for example, you can investigate the bottlenecks in your contract process and implement more efficient review cycles or automation tools.
Or, if you see a decline in the average monthly value of your contracts, you might reassess your pricing strategy or explore new markets to ensure you're maximizing contract value.
This analysis helps not only pinpoint areas for immediate improvement but also strategize for long-term growth.
By understanding the underlying trends and patterns in your contract data, you can make informed decisions that drive your business forward.
Spot Risks Early
Early risk identification through contract analytics equips businesses with the foresight needed for proactive contract management and effective mitigation strategies. This process shows potential areas of concern, such as noncompliance, financial liabilities, and other contract-related risks, allowing businesses to address them before they escalate.
Here are steps to incorporate into your risk identification process:
- Implement regular reviews: Scan your contracts for risk indicators, such as unusual terms, clauses, or missed compliance requirements. This continuous oversight ensures risks are identified as soon as they arise.
- Automate alerts and reminders: Configure your contract management platform to send alerts when a renewal or obligation date is approaching or a contract needs to be reviewed or signed.
- Utilize dashboards: Make the most of your contract management software dashboard to better understand how your contracts are performing and where they are in their lifecycle.
- Set up workflows: Create review and approval workflows in your contract management platform to guide responsible parties through predefined steps to ensure they stay on track.
- Analyze historical contract data: Use these insights to refine your contract creation and review processes, minimizing the likelihood of similar risks in future agreements.
Following these steps not only protects your business from potential legal and financial pitfalls but also supports more informed strategic decision-making.
Highlight Opportunities
Analytics isn’t just about finding risk; it can also help you spot opportunities for growth.
By digging deep into your contract data, you can uncover valuable insights to propel your business forward.
- Spot upselling and cross-selling opportunities: Analyzing contract terms and customer history can reveal products or services your clients might need but aren't currently utilizing. This insight allows for targeted upselling or cross-selling strategies tailored to each customer's unique needs.
- Identify renewal and expansion potential: Keep an eye on contract end dates and performance metrics to proactively engage clients about renewals. Analytics can help you identify which contracts are ripe for expansion, ensuring you're ready to propose enhanced terms or additional services at the right time.
- Use insights to benchmark against competitors: By analyzing the market and your own contract trends, you can see where you stand against competitors. This analysis might highlight strengths to capitalize on or areas for improvement to stay competitive.
- Enhance strategic partnerships: Contract analytics can help you understand which partnerships bring the most value to your business. With this knowledge, you can strengthen these relationships through strategic alignment and collaborative growth initiatives.
Each of these opportunities contributes to immediate revenue growth and lays the groundwork for long-term business expansion and success.
How To Use Contract Analytics To Grow Your Business
Contract analytics is more than a tool for managing risk — it's a catalyst for small business growth. By harnessing the power of data-driven insights extracted from your contracts, you can unlock new opportunities, enhance efficiency, and sharpen your competitive edge.
Here's how to leverage contract analytics to propel your business forward:
1. Optimize Contract Lifecycles
Identifying and eliminating bottlenecks in the contract creation and execution stages is crucial for streamlining operations and unlocking growth opportunities. Contract analytics can help identify where issues arise, such as inconsistencies in contract creation or data gaps in the extraction process, like missing contract types or dates. This can lead to reduced bottlenecks and better contract management overall.
Contract analytics plays a pivotal role in this optimization process by providing the insights needed to make informed decisions quickly and with greater intelligence.
Using contract analytics, you can identify where delays are happening — be it in drafting, approval, or execution — and streamline these processes for quicker turnaround times.
An essential part of this optimization involves monitoring contract end dates and renewals.
This proactive approach secures your contractual relationships and opens the door to better terms and opportunities for growth.
Identifying process problems in contract management is crucial for ensuring efficiency and optimizing operations. Contract analytics can help identify where issues arise, such as inconsistencies in contract creation or missing information. This can lead to improved processes, reduced bottlenecks, and better contract management overall.
Contract analytics plays a pivotal role in this optimization process by providing insights into various aspects of contract management. By monitoring contract end dates and renewals, you can ensure that contractual relationships are secured and opportunities for growth are not missed.
This proactive approach not only helps in maintaining compliance but also enables organizations to negotiate better terms and conditions during contract renewals.
2. Improve Contract Negotiation and Management
Knowledge is power. When you go into a contract negotiation with a clear understanding of how your contracts are performing, you can negotiate better terms.
If analysis reveals that a client frequently pays invoices late, for example, you could negotiate terms that include late payment fees to encourage timely payments.
Or, if you've experienced issues with product quality from a supplier, you could introduce quality assurance clauses that specify standards and include penalties or rights to return goods that don't meet those standards.
This capability not only leads to more advantageous outcomes but also bolsters contract compliance and performance across the board.
But it doesn’t stop there.
Creating templates based on the most successful contracts can streamline the drafting process, ensuring consistency and reducing the time from initiation to signature.
This approach improves the quality of new contracts and enhances overall contract management practices, making them more efficient and effective.
3. Streamline Operations and Reduce Costs
Streamlining operations and reducing costs are major benefits of contract analytics.
Here are some steps you can take to help cut costs and streamline operations using analytics:
- Automate routine contract reviews: Using analytics tools can drastically speed up the review process for routine contracts, freeing up legal and administrative teams to focus on more complex tasks.
- Identify and eliminate unnecessary services: Contract analytics can reveal services or products that are no longer necessary or not utilized to their full extent, like software licenses or a subscription that got lost in the mix.
- Consolidate supplier contracts: Contract analytics can uncover opportunities to consolidate multiple contracts with the same supplier into a single, more efficient agreement. This consolidation often leads to volume discounts and reduces the administrative burden of managing multiple contracts.
Leveraging contract analytics in these ways will allow you to streamline your operations and reduce costs while enhancing your overall contract management strategy.
4. Enhance Decision-Making With Data-Driven Insights
Enhancing decision-making with data-driven insights through contract analytics involves defining and tracking key performance indicators (KPIs) relevant to the business's contract lifecycle and overall performance.
Here's a list of KPIs and how they can enhance your decision-making:
- Contract turnaround time: Faster turnaround times can lead to quicker business operations and improved market responsiveness.
- Compliance rates: High compliance rates minimize legal risks and ensure operations stay within established guidelines, which is essential for maintaining business integrity.
- Cost savings: Highlighting cost savings demonstrates the tangible impact of contract management on reducing expenses and enhancing profitability.
- Renewal rates: This indicates the health of business relationships and the ongoing value derived from contracts, essential for long-term revenue stability.
- Contract leakage: This indicator refers to the loss of value from contracts due to noncompliance, inefficiencies, or missed opportunities. Reducing contract leakage is vital for maximizing the expected benefits from agreements.
- Contract value: Understanding contract value aids in evaluating the financial impact on the organization and guides future investment and resource allocation decisions.
Vendor performance: Monitoring this KPI ensures businesses receive the value they expect from contracts, which is key to sustaining productive supplier relationships.
KPIs like these allow you to unlock valuable insights into your contracts’ performance, facilitating better strategic decisions, improving operational efficiency, and fostering long-term business growth.
Learn How ContractSafe Can Help Your Small Business
ContractSafe is one of the best contract management software out there. It makes contract analytics simple and effective. Its intuitive design and industry-leading suite of features ensure you’re equipped with the tools you need to grow your business.
Here’s what you get:
- Reporting: Get clear insights with easy-to-understand reports.
- AI data extraction: Turn contracts into actionable data effortlessly.
- Customizable dashboard: See the metrics that matter most to you.
- Alerts and reminders: Never miss a key date or deadline again.
- Contract repository: Centralize your contract storage for quick, secure access to all your documents in one place.
With ContractSafe, you can harness the power of contract analytics to scale your business, uncover new opportunities, and make better decisions.Want to give it a spin? Try it out now for free.
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