What is Contract Lifecycle Management (CLM)?

Imagine this: You're a sales rep juggling multiple deals at once, and you fumble a few key details on an important contract. Deadlines are missed, compliance issues arise, and before you know it, nearly half the contract's value is gone.

It's a costly mistake, and it's all too common. According to a recent KPMG report, up to 40% of a contract's value can be lost due to contract lifecycle management inefficiencies.

Improving your contract lifecycle management goes beyond just keeping your documents organized. It's about building an efficient, repeatable process that boosts productivity, ensures compliance, and drives growth.

Contract lifecycle management (CLM) is the process of managing a contract from its creation through execution and renewal. CLM aims to ensure contracts are efficient, compliant, and effectively managed throughout their lifecycle. It also simplifies how you handle agreements from start to finish, makes your business run smoother, and helps you maintain good relationships with your customers.

With CLM, you can simplify operations and close deals faster. CLM software helps standardize and centralize the process so sellers can focus on engaging with clients. Let's explore some of the specific benefits:

CLM provides a process for keeping track of all your contracts so you always know their status — from drafting and signatures to approvals and renewals. This visibility helps you stay on top of deadlines and ensures that renewals aren't delayed or missed so you can close your deals on time and reduce revenue leakage.

CLM helps you keep your contracts aligned with legal requirements, reducing the risk of errors that could lead to disputes or fines. It helps ensure that every contract adheres to regulations and your company's policies. This can protect your business from potential legal issues and help maintain your reputation.

CLM software eliminates the need for costly and outdated steps such as mailing documents or using courier services for physical signatures. Everything is digital, and the details are standardized and automated. This means your team can skip the manual review process for each contract. This not only speeds up timelines but also significantly cuts down on administrative costs. More time saved means more time your team can spend focusing on engaging clients and driving business growth.

Understanding the CLM process is essential for ensuring that your contracts are crafted, negotiated, and approved efficiently. Let's talk about what's involved in each stage.

Start by drafting your contract. Use templates that incorporate preapproved clauses and terms to ensure compliance and business goal alignment from the start. For example, your team might use a standardized template that includes all legal terms, pricing structures, and predefined service level agreements (SLA). Templates allow you to quickly tailor specifics, like scope of services and client details, without having to start from scratch every time.

Once the contract is drafted, it enters negotiation. This is where the terms are discussed and adjusted based on feedback from legal, finance, and the client. Effective contract lifecycle management tracks each change, so if a client requests a change to the SLA or payment terms, alterations are easily documented and tracked. This transparency helps all parties understand how the terms have evolved and can expedite agreement. From here, the contract must be routed internally for approvals, and CLM automation can handle this as well.

Once all parties have agreed to the terms of the agreement, the contract is routed (electronically, of course) for signatures. This is the execution phase of the contract. A good storage solution in an accessible and centralized repository is recommended as well so that the contract can be referenced by anyone who might need access during the next stage(s).

The final stage of the contract lifecycle involves monitoring for compliance and performance against contract terms once the contract is active. This ensures obligations are met and identifies when renewals or audits are necessary. This is one of the most critical and valuable functions that a good CLM solution can help perform. In addition, necessary analytics are generated during this phase of the contract lifecycle.

CLM software is more than just a contract management tool — it's a powerful way to boost your sales revenue. Here's how:

• Accelerate deal closures: CLM software can help you speed up the contract process from draft to signature and turn deals around more quickly. This efficiency can make renewals simpler for your clients, leading to higher renewal rates. Faster deal closures also mean more cash flow to invest in generating new leads and pursuing more sales opportunities.
• Improve contract accuracy: Automated templates and standardized processes help you avoid mistakes, which can slow down or jeopardize deals. Accurate contracts not only contribute to cost savings — they also help build the customer trust and satisfaction crucial for lasting relationships and repeat business.
• Create a better customer experience: CLM software helps you streamline your contract management process, making it painless and sleek. A smoother process means a better experience for everyone involved. Great experiences build trust, keep customers happy, and can open the door to more sales.
• Provide strategic insights: Analyzing different contract terms and their outcomes can help your team understand what works best. For example, if data reveals that clients who agree to quarterly business reviews (QBRs) are 50% more likely to renew their contracts, your team can prioritize including QBR clauses in future contracts to strengthen client relationships and increase renewal rates.

Effective CLM can transform the way your organization manages contracts, making the process more efficient. Here are some best practices to consider when setting up your CLM process.

The first step to setting up a successful CLM process is understanding what your current contract management system lacks. Identifying your pain points helps you customize a CLM process that can alleviate them effectively. When setting up your process, prioritize the issues that are causing delays and bottlenecks — like finalizing signatures, errors in the drafting phase, or ensuring accurate compliance.

Successful implementation takes a team. Bring in stakeholders from across your organization, including sales, legal, and finance teams, to understand their perspective. Discuss each team's needs to ensure the system can properly support them. Then, define clear objectives for your CLM process. For example, you may choose to tackle things like speeding up the sales cycle, reducing errors, or improving compliance. A collaborative approach ensures that your system meets the needs of your organization and facilitates smooth adoption and integration.

Pick a CLM solution that fits your needs but is also flexible enough to grow with your business. It's important that the software integrates with your other tools — like your CRM and financial systems — to simplify data entry and reduce errors. More on this below.

Implementing a software program is not enough to ensure success. You must start by defining good practices and solid processes that align with business goals. Only then can you begin to build a technology solution that supports your needs as well as ensures consistency and compliance by all users.

The only way to be truly successful with a new process and system is to use it. All users across the organization must be provided sufficient communication, training, and support throughout the implementation timeframe. And you must continuously track the performance of the processes and system you put in place. Then, look to make adjustments and improvements as needed to ensure it continues to meet your needs over the long term. Your business will continue to evolve, and your system should evolve with it.

The right CLM software should help streamline your existing sales process and increase efficiency. Here are some must-have features that can really make a difference:

• CRM integration: Look for CLM software that's compatible with your CRM. This will help you manage contracts in the same place that you interact with customers. Having all customer-related data in one place makes it easier to manage renewals and track relationships.
• Templates: Your CLM software should come with pre-approved contract templates to speed up the process, ensure consistency, and help prevent mistakes.
• Electronic signatures: With built-in integration to electronic signature providers, contracts can be signed digitally.
• Obligations and performance tracking: Contract management tools let you track what you've agreed to and monitor your progress. This helps you catch potential problems early and keeps everyone on the same page.
• Collaboration tools: Negotiating contracts is easier when all stakeholders can make and track changes within the software. When all parties can see adjustments in real time, agreements often come together faster.
• Automation: Expedite contract updates and renewals with automation. By choosing a system that ensures contracts are always up-to-date, you can avoid the need for manual updates and potential errors.
• Alerts and notifications: Automated reminders for key dates and obligations should be built in to let you know when you need to pay attention or take some action. This is part of the automation function.
• Centralized repository: The CLM software should provide a secure and searchable storage for all contracts, or you can use your integrated CRM for this function.
• Analytics and reporting: Advanced reporting capabilities to track contract performance and compliance metrics should be a standard part of any CLM software package to ensure you are able to communicate your successes at all levels of the organization.