On his blog, Law Department Management, Rees Morrison shared that Mark Harris, the CEO of Axiom, referred to a surprising finding from one of his company’s projects. Harris referred to long-term contracts and their “revenue leakage.”
One company, he said, that spent more than $100 million a year on its commercial contracts suffered revenue leakage from them estimated at 5-7 percent. Harris did not elaborate, but it may be that failures to renew or to raise rates or shift costs accounted for that lost income.
Morrison adds that, "Somehow, better contracts should put fingers in some of those dikes or better oversight of executed contracts could [result in] law departments that can claim a portion of the saved money as profit centers."
Tim Cummins quickly weighed in on the Commitment Matters blog saying, " I observe that it is interesting that Mark cites 5 – 7% because that aligns exactly with a number IACCM has been highlighting for several years. It is indeed common as an average (not a maximum) and it comes from a mix of sources. Among them are the missed revenue opportunities due to poor negotiation practices; the inefficiencies generated through failure to align business terms with economic cost; and the many inefficiencies and missed opportunities in post award contract management."
Not surprising, it is our contention that the way to stop this revenue leakage is to automate your contracts process so you can capture and report on all of the data points AND better track negotiations. By capturing the data contained within the contracts, you are able to easily conduct analysis, gain visibility into the terms, set triggers such as renewals, and better manage your executed contracts.
And not only can you report on contracts coming up for renewal – but more importantly - which of those contracts are due for fee increases based on specific clauses and negotiated milestones. Or, you can report on any obligation or key event provision that isn't part of your standard contract.
To learn more about stopping revenue leakage by automating your sales contracts, download these new white papers: Four Ways to Improve Compliance and Reduce Revenue Leakage and Sales Contract Competence: On Time and Compliant.