What’s in this guide:
What is contract lifecycle management?
Some organizations have so many contracts to manage that they need to hire dedicated contract managers or procurement specialists whose job it is to vet vendors for multiple criteria, approve contract values, track contract fulfillment, and collaborate with all stakeholders to support accurate renewals.
What is the difference between a contract management system and a contract lifecycle management system?
A contract management system typically refers to software that is designed for creating contracts and collecting electronic signatures, while a contract lifecycle management system is designed for tracking where contracts are, who is responsible for them internally, the point of contact at the vendor company, when the contract will renew, etc.
A CLM is very similar to a CRM in that it tracks the progress of different accounts—but instead of tracking leads and customers, you’re tracking contracts and deals.
Industries using CLM
CLM platforms are used by large organizations across a variety of industries, and by small companies in highly regulated spaces like fintech or education.
Here are some examples of industries that utilize CLM systems:
Schools and universities
The importance of contract lifecycle management
“The largest companies in the world still rely on spreadsheets, email and other point solutions for critical information like key contract terms and actual vs committed spend data. Enterprises lack data centralization. Most contract lifecycle management tools are built for legal use cases, not vendor management or procurement.”
- Brandon Card, CEO of Terzo
Legal teams need to manage contracts for both corporate and governmental compliance. We tend to think of contract lifecycle management as something that only matters for legal purposes.
But that’s not the case. If CLM is kept only within the legal department, that means managers in other departments will struggle to make the most of their contracts and will waste money on unnecessary renewals.
For example, let’s say that a company has purchased project management software for the entire organization. But only two departments actually enjoy and use that particular software. 75% of the seats the company has paid for aren’t being used. IT, procurement, and department leaders need to be aware of contract usage in order to prevent wasteful contracts from reoccurring, as many will automatically renew (even large, complex enterprise projects).
All in all, the benefits of great CLM practices include:
Maximize usage of current contracts
Ensure compliance with government regulations
Comply with corporate policies
Monitor vendor relationships and performance
Keep renewals to necessary expenses only
Proactively assess and mitigate risks
The stages of contract lifecycle management
Contract lifecycle management tracks contracts as they progress through different stages. Both buyers and sellers at different companies will have their own processes for tracking these stages, but they tend to align with these main phases:
Internal contract approval
Negotiation and sign-off
Rollout or execution
Ongoing management and compliance
Stage 1. Initiation
The initiation stage can begin in a variety of ways.
Maybe the relationship started with a cold email campaign or a meeting at a trade show.
During this stage, the buyer collects input from stakeholders, determines their core needs, and reviews their budget. Meanwhile, the seller offers consultative guidance and collects information that will help them during contract creation.
Stage 2. Contract authoring
The next step in the contract lifecycle management process is to create a new contract.
Many vendors—whether for software, products, or services—write up contracts inside of their proposal software.
This offers a few benefits:
Contracts are more likely to close, because they include case studies, expected impact, project process, and other important details in the proposal
The legal team can provide contract templates or a plug-and-play clause library for sales reps to use (saving time for everyone involved)
Proposals and contracts are consolidated in one location so there are fewer steps for the buyer
Stage 3. Internal contract approval
Contract compliance isn’t just something that the buyer is monitoring.
Internally, sales professionals need to work with the legal team to make sure that the entire contract will protect both parties.
The legal team might require contract review for each and every new contract or just for ones that use new language.
And marketing or brand teams might review the proposal that goes along with the contract to check that it aligns with the brand guidelines.
Contract workflows can be automated to remove bottlenecks caused by multiple approvals. With Proposify, you can set up contract approval workflows so that the right people will receive notifications when they need to review a proposal and its contract.
Stage 4. Negotiation and sign-off
After the internal approval process, it’s time for the external approval process.
The sales rep or account executive will send the proposal and contract to the client for sign-off.
Negotiation and contract changes are common. In fact, agreements with 4 or 5 revisions are more likely to close than those with no revisions at all.
The seller might need to shorten or lengthen the contract time, add deliverables, or update the number of stores, employees, or other resources covered by the contract.
Stage 5. Rollout or execution
Next, it’s time to deploy the solution.
For software, that might mean rolling out the platform to a pilot group before rolling it out organization-wide.
For a hands-on project, that would mean completing the work outlined in the contract, whether it’s a marketing project, construction, or something else.
During this phase, both buyer and seller will be watchful of contract scope. The buyer will want to make sure that they’re getting everything they paid for, while the seller will be watching out for scope creep.
Stage 6. Ongoing management and compliance
The length of this stage depends on the type of contract. If it is a short, one-off project that lasts a couple of months, there won’t be much work to do.
But if the contract lasts a year or longer, the contract manager or procurement specialist will want to verify…
That the vendor company’s practices are still in line with corporate policies.
That the vendor company has not been involved in any PR scandals or legal issues that would breach the contract or else result in some sort of internal risk mitigation.
That the vendor company is satisfying their agreement for ongoing project or service maintenance
Stage 7. Pre-renewal
It’s smart to prepare for a renewal a month or more in advance.
During this stage, sellers will check in with their accounts and make sure that they’ve been successful with the service or solution. In some companies, customer success will own the renewal process.
Meanwhile, savvy buyers who are using CLM software to track their contracts should be discussing usage with all stakeholders and evaluating the need to renew.
Stage 8. Renewal
During the renewal stage, a new contract will be written up, whether to simply extend the coverage or to amend the deliverables and work described.
Then, the lifecycle goes back to Stage 5 and cycles through execution, management, and compliance again.
CLM software will offer different features depending on the target user.
Sellers will focus on tracking in-progress and pending contracts, while buyers will need to track signed contracts and ongoing engagements.
Sellers need features that help them close more deals.
When you include proposals and contracts in one place, you can put all of the information that encourages clients to work with you alongside the final sign-off.
With Proposify, you can add multi-page contracts and TOCs to your proposals.
You can also check when your lead has viewed the proposal and contract. This will help you know which leads to follow-up with and what to say. If they’ve viewed it multiple times, you might ask if they need any changes.
And with contract analytics, you can check your average closing rates and viewing rates for different types of contracts so you can benchmark your results and optimize your proposals and terms.
Contract lifecycle management software is designed to make it easy for buyers to store contract data so no expense goes to waste.
For each contract, you should note the internal point of contact so that when a procurement specialist gets a notification that the contract is going to end or renew soon, they know who to reach out to for discussions on the cost of the potential renewal.
With Terzo, for example, you can see all of your active contracts in one place, forecast your spending for years in advance, and see the lifecycle of individual contracts:
Next steps: how to begin implementing CLM best practices
Use these tips to make the most of your engagements, no matter what side of the deal you’re on.
Use a dedicated proposal and contract software with features for reviewing buyer activity and streamlining operations.
Create a library of on-brand assets for proposals and contracts.
Implement a contract approval workflow.
Use contract analytics to know when a prospective buyer has viewed a contract (so you know who to follow up with and offer revisions to).
Create a process for adding value to the client throughout the contract to increase the chances they will renew, and make sure its clear who owns upsells within your organization.
Use software to track all of your vendor contracts in one place.
Within your contract management solution, make sure to include the internal point of contact who signed off on the engagement.
Track contract end dates and renewal dates.
Create a company policy for how to handle vendor relationships that break conditions during the engagement.
Managing contracts is a complicated process that requires not only collaboration from the legal department but sales and procurement as well.
The larger your company is, the more contracts you have, and the more you need to track them proactively.
For proposals, contracts, esignatures, and closing analytics all in one place, check out Proposify.