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Why ‘deal velocity’ should be a shared KPI between legal and sales teams

29 May 2020

by Angus Chudleigh

The end goal for both legal and sales teams is to help their business succeed and thrive in its market. For the latter, this means maintaining and winning a consistent amount of opportunities, at a profitable price, in an efficient time frame. Legal teams, meanwhile, help protect the assets and reputation of the business and spend much of their time doing due diligence and reviewing contracts.

One major problem that emerges time and time again, is a bottleneck within the contract review process. Sales teams send contracts to legal, only to not hear back from legal for days or sometimes weeks due to a pile up of contracts for review. This is harmful to businesses and can lead to revenue forecasted to close in one month, falling into the next month, quarter, or even year. The repercussions of this are clear, with money often spent liberally to ensure that sales teams hit their targets month in and month out. As Michael Lisowski recently told us "As a business leader, I didn't particularly care about the legal team’s efficiency. I cared about sales and revenue growth”. Showing us that for business leaders, the importance really lies in getting a signature as fast as possible.

A recent Gartner study (Legal and Compliance Automation Study - 2019) highlighted that the number one ask of the legal department by other members of executive management is to increase speed. That’s right, the number one ask!

Deal velocity is the speed with which a company can negotiate and then sign a contract to close a transaction. It is absolutely key for any organisation in terms of maximising the full value of a deal, yet it is often overlooked as a KPI that can be measured and improved.

Making deal velocity a joint metric for both your legal and sales teams to focus on will help you to really drive the speed that the business is clearly asking for, and also help to create greater unity between the two departments. Effectively, deal velocity as a shared KPI will speed up both teams in two very clear ways.



Deal velocity

Deal Velocity in Legal

When a sales rep and their prospective client have agreed on the terms of a deal, and a contract is sent for review, there is often a pile up. When you think about the customer experience here, it's really terrible. The commercial deal is agreed and then as the lawyers get involved to negotiate the legal terms of that deal, the back and forth and wrangling over words simply breeds some resentment in both sides. It seems like a bad way to start a relationship.

In most cases the in-house lawyers tasked with contract review are severely outnumbered by their sales colleagues, so it is perhaps unsurprising that the build-up happens.

Yet this problem is exacerbated when we consider what legal teams are tasked with reviewing. Far too often the same clauses that need to be negotiated and amended crop up but are almost always phrased in different ways, making the act of reviewing the contract take significantly longer than it needs to. When we looked at this problem, our data scientists looked at 1.4M contracts and analysed the most mundane of clauses, the choice of law clause. We found 335,000 variations of that simple clause, which were all saying the same thing. If you think about that for a moment, the result is that a lawyer has to read every word of the clause, whereas if it was a standard form and the only variation was the territory then they would only have to read and consider a single word. Now imagine what this variation is like in the more complex clauses.

The aim of automated contract review software like ThoughtRiver is to cut through this mess by providing technology that actually reads and then understands the clauses within the contract much faster than a lawyer. It then surfaces issues that need to be ‘human checked’ to your lawyer, and simply ignores other clauses which are aligned with your company policy or playbook. The really interesting part here is because we ingest each of our clients contracting playbook into their instance of ThoughtRiver, every review is always made against their own playbook and view of risk.

This automation plays a key role in the driving of deal velocity within the legal team. Without it, teams are left scrolling through similar clauses, wasting time and money, on what could easily be handled by an automated contract review tool. In equipping your legal teams with technology like this, you’re ensuring that sales teams can close business quicker, that the business can make money, and that your legal teams can spend more time working on complicated strategic policies that affect business operations.

Deal Velocity in Sales

KPIs to improve efficiency and productivity are nothing new to sales teams. However, it is less common to find a KPI that works in tandem with another department, in the same way deal velocity does. The aim behind this joint metric, is to make the final mile of the deals more transparent for the salespeople and more efficient for the lawyers. It’s a true win win.

As it stands sales reps experience regular frustration with their legal counterparts, who are often perceived, usually unfairly, to be slow with accepting and reviewing contracts. At times this can mean the difference for the salesperson in hitting target, with the bonus of additional commission, and not hitting target and receiving a considerably lower paycheque. The problem for the salesperson is really what I’d refer to as a legal black hole. They receive a new contract for review, they send that into legal for review, and then they simply wait. It could be an hour, more likely a few days, sometimes a week or two before they get a meaningful response. There is a real lack of transparency and often a lack of any SLA.

Forward thinking legal teams that arm their sales teams with a playbook and allow them some autonomy in leading the conversation with common contract clause disputes, find that their sales counterparts can often help to solve many simple issues without troubling the legal team. By simply providing them with a rule book for common disagreements in contracts, sales teams are better equipped to handle these smaller tasks, and can take ownership of what they expect to close for the business with clearer timelines. This is deal velocity.

You can further turbocharge this process by using a technology like ThoughtRiver. Sales reps are able to enter a new 3rd party contract into the system and receive a detailed review back within minutes. If the legal team have allowed, the system can then guide that salesperson through the reasons that certain language has been flagged as a risk and even suggest replacement language that aligns with the company’s playbook. Forward thinking teams can push much of this first pass review (the pre-screen) work to the frontline sales team, while still maintaining the confidence that the review has happened against their policy.

The benefits of deal velocity as a KPI for both your legal and sales teams are huge. Business leaders care about sales, new business, and growth, and by joining the two departments in this way, and investing in contract review technology you can really drive deal velocity. All too often new tech is deemed an unnecessary expense for departments, but it is widely known this is rarely the case with sales teams. Taking a fraction of this budget, reassigning it to legal, and creating a joint KPI that will show the efficiency of this process, will highlight how teams outside of sales can benefit from automation to their outdated systems.

If you want to learn more about the wider benefits of automated contract review technology, then please watch this webinar recording which talks to deal velocity and 4 other major benefits. You can also read about the way a seasoned sales leader things about using deal velocity as a shared KPI in this insightful blog post from our VP, Sales, Kristin Shevis.

 

  

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