How Contract Lifecycle Management Software Works with CPQ Software
March 27th, 2023 | 9 min. read
By Garth Hoff
Contract management can be complex and time-consuming, and, if carried out inefficiently, can at worst have a detrimental impact on win rates and your bottom line. Given the importance of speed and accuracy in the sales cycle, we find it surprising that 65% of teams still use spreadsheets and email to manage agreements.
Contract Lifecycle Management software can be a powerful tool to transform the way businesses with a high volume of deals and complex contract terms manage their contracts.
Here at Pricefx, with over 10 years’ experience helping enterprise-level companies make their pricing easier with our cloud native pricing software, we believe there is always room to introduce more efficiency into the pricing process, and this includes contract management workflows. This is where a third-party tool like Contract Lifecycle Management software comes in to help.
In this article, we will explore what CLM software is, how it works, and its benefits, as well as discuss how CLM augments your Configure Price Quote (CPQ) software.
Contract Lifecycle Management (CLM) Software: What is It and How it Works
Contract Lifecycle Management (CLM) software refers to any application that streamlines and automates end-to-end contract processes, from preparation to sign-off to storing and reporting of contracts.
Contract management can be near-impossible to carry out with manual methods alone, which is why there are a number of CLM software solutions on the market. Icertis, Conga, and SAP Ariba are examples of popular CLM software tools out there for you to use.
Who uses CLM Software?
A wide range of companies operating both in the B2B and B2C space use CLM software; having a central repository to store bids, supplier data, negotiated prices, and contract terms is the common requirement for companies opting to use CLM.
Procurement, sales, legal and other support teams in the contracting process for sellers and buyers are usually the roles which work with CLM directly. These teams collaborate to use CLM for managing procurement and sales contracts, licenses, and agreements.
Contract Lifecycle Management Step-by-Step
The lifecycle in Contract Lifecycle Management systems refers to the following steps in an end-to-end contract process:
When a party requests to start the contractual process and enter a legal relationship, the procurement team requests information to store in their CLM system that will be used later to author the proposed contract.
Otherwise known as the drafting stage, contract authoring is the process by which contracting parties collect and record the clauses, terms, and conditions in a contract document, as well as identify the signing parties involved. Businesses can accelerate this process by using pre-approved contract authoring templates stored in the clause library of their CLM software.
3. Review and Negotiation
Once a contract is drafted, it will then be passed between internal and external stakeholders for further revisions and negotiations. The revision stage is the point at which all parties narrow down the agreement items in the contract, for example, clarifying terms or updating contract language.
Negotiation primarily involves redlining, when decision makers exchange multiple copies of the contract back and forth with their suggested updates. Any changes applied to the contract during redlining are kept in a central location in the CLM software to ensure nothing is lost or duplicated.
The contract approval process varies in complexity depending on the size of the organization, with various legal stakeholders brought in for different elements of the contract. CLM software can be used here to set up an approval framework and automatically assign permissions to these stakeholders to review and approve their respective contractual domains.
Contract execution, or the point at which a contract becomes legally binding, requires final sign-off from all parties. This can be a complex process in itself when electronic signatures are involved, as this signature type requires compliance with laws that vary by jurisdiction. CLM software smoothens this process by ensuring signatures are compliant and automating the request for signature process.
Legal teams need to regularly access and review reports on how many contracts are stored and what types, as well as have full visibility on the degree of compliance of their customers with the obligations stated in their contracts. CLM software can be used as a vehicle for automated and in-depth reporting as well as serve as a central location for all reports associated with the contracts a business has on file.
Contract Lifecycle Management vs. Configure Price Quote: What’s the Difference?
Contract Lifecycle Management and Configure Price Quote (CPQ) are both systems used by procurement and sales teams to support the early stages of sales cycles. It’s important to understand what each solution is meant to be used for in order to leverage them to bring maximum value to your contractual process.
Although both CLM and CPQ software streamline and automate the contracting process, they do so in different ways; while CPQ software is your strategy and pricing process tool, CLM software is your paper, legal, and compliance process tool.
What exactly does this mean in practice?
Your Configure Price Quote software is not a central repository for contracts, clause library, redline tool, or contract execution tool – this is CLM’s job. You can use CPQ software on its own and still have multiple places to store your contractual data or employ manual methods to author and track your contracts. In the same way, CLM is not meant to be used as a pricing solution, sales quoting tool, price optimization engine, or margin analytics tool. While CLM works solely with contractual agreements, CPQ is a pricing tool first, which brings in customer and sales data to configure the right price for each customer subsegment and automates quotes based on these insights.
Using both systems in tandem ensures that each step of the contractual process is carried out in an organized and efficient manner while mitigating the risk of costly inaccuracies in quoting.
Pricefx’s Agreements and Promotions module can also work for your CLM software by setting up discounts tied to specific customers or conditions that can be then incorporated seamlessly into your contracts. Like our Configure Price Quote software, it is not a contract repository, but will impact the pricing conditions outlined in your contractual agreements.
Benefits of Contract Lifecycle Management Software
Contract Lifecycle Management Software is a helpful tool for companies that have too high a volume of customers and contractual elements to process their contracts using manual methods and ad-hoc or decentralized storage practices with the same grade of efficiency and accuracy.
With this in mind, we’ve outlined a key ways companies benefit from incorporating CLM systems into their contractual processes:
Quicker, easier contract creation and sign-off
As negotiated prices, customer data, and contractual elements are stored in a central repository, businesses are able to draft and get customer sign-off on contracts faster than when opting for a more decentralized, manual approach.
Better contract access and visibility
Businesses can access existing contracts easily with CLM software and have the visibility to understand how each contractual agreement affects their bottom line.
Automated contract tracking and reporting
Having full visibility of the audit trail enables companies to easily track and report on where each contract is in its lifecycle without needing to reference multiple systems.
In short, CLM software is popular namely because it enables businesses to house their contractual data in one place, automate contractual processes and easily track and report on how their contracts develop over time.
Key Integration Points of Contract Lifecycle Management and Configure Price Quote Software
While the integration of CLM into your Configure Price Quote (CPQ) software is not a requirement, early adoption of both processes can avoid duplicate work and, if done correctly, can even improve the effectiveness of your CPQ system.
Here are the most valuable CLM-CPQ integration points to consider to understand how CLM can enhance your CPQ software functionalities:
1. Improved accuracy in quoting
Integration with CLM can help the CPQ process when contract terms are required to produce an accurate price quote. Incoterms, payment terms, agreement timing or escalators, effective dates, and other elements of a contract can impact the final price. If any of these items are not properly accounted for in the quote, businesses can inadvertently get the short end of the stick in their agreements.
2. Accelerated deal cycles
Missing CLM data can extend the sales cycle and, in the worst-case scenario, cause strain on the supplier-customer relationship. CLM software integrates cost-to serve elements impacting the price (e.g., delivery terms and frequency) to quickly turn around a quote. Apart from automatically incorporating contractual elements into quoting, CLM also supports shorter sales cycles by automating the contract approval process, giving time back to the sales representatives to sell.
3. Reduction in inefficiency in quoting
An integrated CLM-CPQ system also helps to avoid duplication of effort where gathering (or re-gathering) information on a customer for a quote and contract is needed. A quote will include account, opportunity, pricing, product, and other data that can be passed to the CLM system, which in effect reduces manual efforts and cost.
4. Improved profitability in quoting
Incorporating CLM software into your quoting process protects your bottom line by automatically accounting for the contractual items impacting profitability. Special contractual agreements like extended payment terms, expedited delivery, product testing, and so on, should be reflected in higher costs to serve. If these are not calculated in the quote, businesses miss out on reduced costs and margin expansion.
How to integrate CLM with your CPQ software
Following the integration process of any third-party system, your business should integrate CLM software with their existing pricing software using an application programming interface (API). You will also need to grant the required permissions to users on both sides (e.g, viewing or editing rights of quotes) to enable them to use the platform once it’s up and running.
To ensure your CLM data will communicate properly with that of your other pricing software systems, this data should be clean, have a single source of truth to avoid duplicates, and have an owner, among other elements required of good data.
Improve Your Sales and Pricing Capabilities with Integrated Tools
As you’ve seen, Contract Lifecycle Management software is an invaluable tool for businesses in need of more efficient, streamlined contract workflows, with centralized storage, templated authoring, and automated reporting among the key benefits.
If the benefits and integration points with the pricing process outlined in this article are requirements for your business, it may be time to consider integrating CLM into your pricing systems.
To get started, consider taking a look at our article on how to integrate third-party systems with pricing software, or to dig deeper into how the Configure Price Quote system mentioned in this article works, check out our article below.