Everything you need to know
The most successful legal teams know that managing contracts well is only one part of the formula for success. To get and stay ahead, legal needs an in-depth understanding of what’s going on inside the organization’s contracts, from renewal dates to risk profiles, in order to make data-driven decisions that move the business forward. Enter: contract analytics.
What is contract analytics?
Inside a contract is a world of data that businesses can leverage to make strategic decisions. Contract analytics, an essential part of the contract management process, is the practice of analyzing contracts and turning contract data into business intelligence.
Contract analytics for legal teams involves uncovering that crucial insight about deals and business partnerships in a way that looks towards the future and enables smarter decision-making. Contract analytics tells the story of how well your business is performing and where there are opportunities for growth.
Good contract storage is essential to contract analytics. A centralized and searchable contract repository enables legal teams to understand trends inside their agreements, such as termination dates, obligations, compliance, and so on. Contract management analytics gives businesses a competitive advantage.
How can in-house teams use contract analytics software?
Contract analytics software is technology that helps legal teams like yours parse their executed agreements. The best contract analytics software typically uses a centralized contract repository to store agreements, AI and machine learning algorithms to analyze agreements, and dashboards to help teams visualize the contract analysis and data.
How AI helps teams improve contract analytics
AI allows legal teams to analyze contracts and produce business intelligence in a fraction of the time it would take to do manually.
Contract analysis software uses machine learning, specifically natural language processing (NLP) algorithms, to read and review contracts and understand the trends within them. In fact, NLP can take a first pass at reviewing a contract to determine whether or not the terms within the agreement are consistent with other contracts of its kind — and to catch mistakes that human lawyers may have missed. After a contract has been executed, AI can extract critical data that provides insight into contract milestones, obligations, and important dates.
Teams can use AI contract analysis to comb through their contracts more quickly and organize, sort, and categorize them according to predetermined criteria, allowing you to turn contract data into actionable insights that benefit the business.
Why a contract repository is essential to contract analytics
A central contract repository stores all your business agreements in one place, removing the need to scour personal drives, emails, and Slack threads for any particular contract. It provides visibility into the contracts across your business, which is the foundation for contract analytics.
Most contract lifecycle management (CLM) software comes equipped with a repository out of the box, but it’s even better when the repository allows you to conduct dynamic searches within the contracts themselves. After all, what’s the point of a CLM repository if you have to open each contract one at a time to see which ones have a Force Majeure clause and which don’t?
AI-powered contract repository software can help you find the contracts you need faster. With this powerful software, legal teams can spot trends quickly, generate reports faster, and keep track of important contract data all in one place.
Why contract analytics software isn’t complete without dashboards and reporting
Contracts hold key data that’s useful to every department in the business. When finance asks how much revenue is coming in, leadership needs insight into liability clauses across contracts, RevOps inquires about opportunities for upselling, or sales needs to carve out territories based on historical deal data, all that information can be found inside contracts.
Back in the day, if any of these business units needed a report on this data, they’d have to wait weeks (if not months) for legal teams to comb through their contracts and manually generate reports with these findings. Worst of all, by the time they received the requested reports, the data would likely be out of date.
Good contract analysis software allows you to generate accurate reports within minutes. Plus, in your CLM, you can configure dashboards to display essential contract data and help you visualize business data, empowering your team to make crucial data-driven decisions without the headache.
How contract analytics provides competitive advantage
Approximately 71% of companies can’t find 10% or more of their contracts. Not only does this put you at risk of breach of contract, but it also means your response to your contracts will be reactive rather than proactive.
So, knowing where your contracts are and being able to analyze their contents quickly immediately gives you a competitive advantage. Some of the benefits of automated contract analytics include:
Lower contract risk
Having contracts scattered across your business’ digital assets — or worse, inside a filing cabinet — puts your business at risk, since it makes it more difficult to know whether you’re actually fulfilling the terms of the agreement. It also makes it hard to assess what terms are live at any given time and even harder to streamline terms updates.
Centralized contract storage keeps all your agreements in one location and lets you keep track of how well you’re fulfilling the terms of the contract, reducing risks of non-compliance or breach of contract.
Contract analytics also helps you improve consistency within your contracts. Using AI for contract review illuminates differences in the language across contracts. For example, you can use it to see whether every executed contract has the updated severability clause or if the confidentiality clauses use consistent language across agreements.
Plus, after completing the contract analysis, AI can help you make changes quickly and efficiently. With contract analytics software, legal can rest easy knowing that all your contracts are up to date and secure.
More strategic insight
Thorough contract analysis also helps identify opportunities for revenue growth, expansion, and long-term planning. Contract analytics allows you to look ahead and be proactive, for example, by analyzing termination dates, sales and CS teams can work together to ensure a customer is on track to renewing and what opportunities for upselling and cross-selling exist. And when the data shows you that your contract volume has surpassed the number of team members you have available to execute them, you can start planning where you’ll expand your team.
How to leverage contract analytics for legal KPIs
Access to contract data and analytics also helps legal determine what KPIs to report on. Contract analytics produces important data on team productivity and efficiency. With performance and process metrics from contract analysis, you can deduce and implement legal department KPIs.
The legal KPIs that are relevant to your team will depend on your business objectives. For example, companies that have market expansion as a primary goal might care more about volume of executed contracts than contract review time, where businesses that manage a ton of data are more invested in how well contracts comply with regulations.
Sample KPIs for legal departments include:
- Number of contracts executed per quarter or year
- Number of contracts added each quarter or year
- How long it takes to execute an agreement
- Most common contract types
- Number of contracts for each contract type
- Volume of internal vs external contracts
- How long it takes to redline a contract.
Once you’ve determined what KPIs and metrics are important to your legal department, you can use contract data to measure how well you are performing against goal. This is crucial for creating a long-term vision for your legal department.