Legal and sales departments should no longer work in silos. Legal teams always have one goal in mind: the execution of a contract. The same is true for sales teams. Both drive toward this goal, and their cooperation adds to the smooth performance of the entire company.
Since sales and legal are interrelated, measuring sales KPIs can add value for legal teams. And vice versa, specific legal metrics can showcase bottlenecks and improve sales workflows.
In this article, we introduce you to the most important KPIs, both legal and sales. Read on to understand how these metrics determine the success of the departments.
Typical Legal Metrics That Impact the Sales Cycle
Contracts govern nearly 60-80% of business transactions. As such, they are essential for the efficient execution of most business activities, particularly sales.
Conversely, legal metrics are critical for sales teams. Using legal KPIs is effective in avoiding misdirections, accelerating the sales process, and increasing company revenue.
Check whether your legal team uses these metrics to track and improve their performance:
- Contract quantity
- Contract quality
- Internal vs. external agreements
- Contract review time
- Average close time
- Number of version updates
- Number of redline updates
- Annual contract value
- Economic value generated by the legal department
For a fuller list of legal metrics, download our Legal Department Metrics cheat sheet. You can use it to determine if your benchmarks are on the right track.
Sales Metrics That Help You Succeed in Your Legal Efforts
The legal department must be able to speak a similar business language as the sales team to guarantee their contribution to the company’s value.
Which sales KPIs should you measure to impact your legal processes? We compiled the top 12 sales KPIs you can use to increase contract quantity and quality. Follow them so your company succeeds in its legal efforts.
Sales cycle length
The length of the sales cycle is the average number of days or months it takes to close a deal.
Total # of days / Deals won = Sales cycle length
This KPI is useful for making sales forecasts. In addition, you can use it to measure a legal team’s efficiency. A long sales cycle may indicate poor contract management, decreasing their average annual revenue by 9%.
Quota attainment
Sales quota attainment calculates how much of the total sales target a sales team achieves for a given period.
Actual bookings / Quota in a set time period = Quota attainment
With a sales quota attainment measure, you can also evaluate the legal department. Specifically, you can track whether their contract templates help or prevent salespeople from closing deals.
Win rate
Sales win rate indicates the percentage of deals closed based on the total number of sales pitched.
Closed-won deals / (Closed-won deals + Lost deals) = Sales win rate
This KPI may depend on the duration of the negotiation and the total lifecycle length for each contract. For legal teams, a low win rate may indicate poorly designed contract templates and inefficient change management tools. Contract lifecycle management (CLM) software helps get rid of tedious contract processes and potentially increase a win rate.
Deal slip rate
The deal slip rate is the percentage of committed deals that don’t close within the expected time frame.
There are numerous reasons for a high deal slip rate, including continuous and inefficient negotiation, unrealistic contract dates, and contract compliance issues. If the legal department knows when a sale is failing, they can reevaluate their processes and turn things around in their favor.
Number of deals lost to competition
This KPI captures the number of deals your teams have lost in a given period.
One cause of a large number of lost deals is poor contract management. This includes the lack of contract version control and missed contract deadlines, reviews, and terminations.
If you’re losing deals, it’s time to consider an all-in-one centralized system. CLM software makes it easy for legal and sales teams to dynamically update contract versions and to know the status of all current and pending contracts.
Average profit margin
This is the average profit generated by selling a particular product or service in a given period.
Net Income / Revenue x 100 = Net profit margin
Profit margins generally vary across different products. If you know what products to focus on, you can optimize your sales and contract lifecycle management for each product/service.
For example, after analyzing the profit margin across products or services, the legal team may find it inappropriate to spend a lot of time on low-margin projects. In the future, they can refuse to work with high complexity-low profit products and services and spend their time on something more cost-effective.
Total revenue
Total revenue calculates the money a business earns from selling a product or service.
Price of the product x Number of products sold = Total revenue
Total revenue is critical to assessing the effectiveness of legal and sales teams. If this metric appears insufficient, business owners can evaluate their teams’ strengths and rethink their teams’ workloads.
Percentage of revenue from existing customers
This metric is more than its name suggests— it also indicates your customer retention rate. The percentage shows how effective sales and legal teams are at maintaining customer loyalty.
Revenue from existing clients / Total revenue = % of revenue from existing customers
In fact, the probability of selling to existing customers is 60-70%, while the probability of selling to new clients is about 5-20%. For this reason, legal teams should pay close attention to retention strategy outcomes. They must revisit critical contract deliverables and milestones, revise predefined contract templates based on those outcomes, conduct timely contract reviews, and maintain control over contract compliance.
Customer acquisition cost
Customer acquisition cost (CAC) is the average amount a company spends to acquire a new customer. To calculate CAC, divide the total amount spent on personnel, legal involvement, advertising, etc., by the number of acquired customers.
(Cost of sales + Cost of marketing + Associated costs) / # of new customers acquired = Customer acquisition cost
This metric can help you determine if investments in your teams are paying off. Typically, manual processes increase the number of hours legal and sales departments spend on their work. This increases CAC.
If your CAC is high, and your teams are not delivering the expected results, it’s time to take corrective measures. You should evaluate your teams’ work, the degree of automation, identify performance bottlenecks, and optimize processes to lower CAC while increasing conversion rates.
Percentage of time spent on manual data entry
If this KPI is high, you risk extending the lifecycle of your contract. In the best case, this leads to an increase in the deal slip rate; in the worst case, it leads to a higher number of lost deals.
Time spent on manual data entry / Total time spent = % of time on manual data entry
In a fast-paced business environment, document automation is already a matter of survival for sales teams. Yet some sales departments spend a lot of time managing data manually.
By automating your sales and legal activities with a CLM platform, you’ll get:
- Centralized cloud storage
- Contract templates and drafts
- Collaboration tools
- Notifications and reminders
- Analytics and reporting
Worth checking, isn’t it?
Percentage of time spent creating a contract
As indicated above, manual contract management extends all lifecycle stages, including drafting and revising. The duration of contract creation, thus, depends on the degree of enterprise automation.
Time spent creating a contract / Total time spent = % of time spent creating a contract
Relying on Excel, or even worse, paper-based systems, could cost you a lot of time and money. Fortunately, a proper CLM system can make your contract execution fast and practically error-free.
For instance, companies that have already implemented the AXDRAFT CLM software show the following results:
- 80% faster workflows
- Five minutes average document drafting time
- 17% increase in revenue
What’s more, teams can really enjoy their work thanks to streamlined contract management.
Year-over-year growth
Year-over-year growth (YOY) compares the KPIs from a period with the same period in the previous year.
Current fourth-quarter earnings – Last year’s fourth quarter earnings = Year-over-year growth
You can apply this metric to any business area you can measure. For example, you can measure the effectiveness of your sales and legal teams and related KPIs, such as contract quantity and quality, average close time, customer acquisition cost, and average profit margin.
Year-over-year growth helps you figure out if certain aspects of your business are improving or slowing down your growth. Then, you can take appropriate action and strengthen your business operations.
Conclusion
Sales and legal teams share a single goal: closing the deal. Smooth cooperation between these departments brings positive business results.
Measuring sales indicators like quota attainment, win rate, and deal slip rate can improve your sales team activities and reveal bottlenecks in your contract lifecycle management. To consolidate these gains, consider automating your contract management.
Sales and legal often have a shaky relationship, but it doesn’t have to be that way. The proper contract management software will level out the bumps and add flexibility. Don’t just take our word for it. Request an AXDRAFT demo and check it out yourself!
The legal department is linked to sales. To gain better insight into legal operations, legal should pay attention to sales metrics. For example, a high deal slip rate may indicate unrealistic contract dates and contract compliance issues. In addition, the legal team can determine how much time they should spend on a project based on the profit margin it generates.
Legal metrics allow you to accurately assess your legal department’s activities and identify potential issues in managing the contract lifecycle. Some of them are
- Contract quantity
- Contract quality
- Internal vs. external agreements
- Contract review time
- Average close time
- Number of version updates
- Number of redline updates
- Annual contract value
- Economic value generated by the legal department
Sales teams communicate with potential customers, who must at some point be ready to sign a contract. Salespeople guide customers through various types of contract terms, such as fixed-price, cost-reimbursement, and time and material contracts. Contract management, in turn, falls on the shoulders of legal departments. They focus on maintaining legal certainty in all activities: drafting and reviewing contracts, confirming roles, responsibilities, and milestones, managing legal risks, etc.
Legal departments align with a company’s strategy and values, which the sales teams in particular pass on to their customers. This is why it is so important for sales and legal teams to work together.
Contracts are crucial in sales because they form the basis for successful negotiation. They outline contractual obligations and rights, specify payment terms, and provide details about the delivery of goods and/or services.
The main role of contracts is to protect the rights of both parties and to ensure that their intentions are carried out in accordance with the terms of the contract.