Inceasing Revenues: The Sales Department Business Case for Contract Automation

I discussed the law department business case for contract automation with a focus on cost reduction. Now, I want to look at opportunities for the sales department.

In a 2007 report, Sell-Side Contract Management: Opportunity-to-Order Optimization [subscription required], the Aberdeen Group determined that the #1 reason for improving the management of sales contracts is to reduce revenue leakage.

Sounds like a good reason. But what does it mean in dollar terms?

Let’s revisit Company X from the law department business case: the assumption was that Company X does US $10Bn in annual revenues, and the conclusion was that Legal could save over $1M per year by improving its contracting.

Now, we’re going to look at Company X from the sales perspective. According to the Aberdeen report, on average:

  • 67% of revenues are based on contracts (for Company X that’s $6.7Bn per annum)
  • 5-9% of revues are leaked away due to contracting problems such as incorrect charges, missed milestones, inconsistencies in pricing, transactional errors, and penalties (for Company X, that’s $335M-$603M each year)

As with the law department scenario, the question is how much that $335M+ can be reduced. Again, I would argue that improving the process should be able to reduce leakage by 10% which, in the case of Company X, means additional revenue of over $30M per year.

Once again, the notes from the law department business case bear repeating:

  • Your mileage may vary: the above assumptions are, by definition, highly generalized. I’m simply trying to provide an example so you can decide whether it’s worth gathering specific data to analyze your own situation.
  • The calculation excludes other potential benefits of document assembly such as reduced risk, faster cycle times, and improved client service, all of which strengthen the business case.

Ultimately, the goal is to improve the process across functions so that Sales, Legal, Pricing and other departments can work together seamlessly.

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