In this episode, I talk about the role that contracts and processes play in meeting your KPI objectives.

Key Performance Indicators (KPIs) are those metrics that are most critical to your business. KPIs are used to help you measure your progress toward achieving your strategic goals. KPIs apply throughout your business from four perspectives: financial, customer, process, and people.

Today I cover contracts and their impact on KPIs in the following areas:

• Customer Acquisition Costs (CAC)

• Customer Lifetime Value (CLV)

You will be surprised to learn all of the ways that contracts and SOPs have a material impact on your business. In other words, contracts aren’t just about intellectual property.

If you have more questions regarding this topic,  don’t hesitate to reach out to me.

Connect with Erin and find the resources mentioned in this episode at hourlytoexit.com/podcast.

Erin's LinkedIn Page: https://www.linkedin.com/in/erinaustin/

Think Beyond IP YouTube Page: https://www.youtube.com/channel/UCVztXnDYnZ83oIb-EGX9IGA/videos

Music credit: Yes She Can by Tiny Music

A Team Dklutr production

Hello.

Today I wanna talk about the role

that contracts and processes play

in meeting your K P I objectives.

So KPI P I stands for Key Performance

Indicator KPIs, provide targets

for teams to shoot for milestones

to gauge progress and insights that

help everyone in your team.

make better decisions.

KPIs are distinguished from

other metrics in your business by how

useful they are in helping you measure

your progress toward achieving your

strategic goals.

Some examples to illustrate

the difference between KPIs and

other metrics.

An indicator is simply a metric

used to make some measurement in

your business.

As we know, some of them can be

meaningless, such as how many likes

your LinkedIn post received.

How does knowing the number of likes

your LinkedIn post received help you

make progress toward achieving your

strategic goals?

I'm gonna guess none.

Conversely, a performance

indicator tracks a measure related to

your organization's performance.

For example, how many hours your

employees worked on a project.

Now, even if you don't bill by the

hour, and I know you don't, it's

important to know this so that you

can measure the profitability

of the project if the resource

is required to.

Execute the project, exceed the value

of the project, then you know you

have some problems.

There are some action items that

come off of that that you need to.

Make some adjustments.

You need to raise your rates or you

need to increase the efficiency

of Delivery.

Maybe you need to use a less

expensive resource for delivery,

such as if you are doing a hundred

percent of delivery.

Maybe some part of that can be done

by a less expensive resource, such as

an assistant or maybe automation.

or even maybe another partner

who's not as expensive as

you are, or both Of course.

So when a performance

indicator is critical to your

business, such as something

that affects profitability,

then it rises to the level of a

key performance indicator.

So in other words, key performance

indicators are a subset of

performance indicators that

are most critical to your business.

KPIs help you measure

progress toward achieving your

strategic goals.

And these KPIs will cut across all of

your organization financial KPIs,

customer related KPIs, process

related KPIs, and of course people

related KPIs cuz we know our people

are our most important asset.

So today we're going to cover

two main areas.

Both related to your customers.

Where we have KPIs that are related

to our contracts.

those two areas are customer acquisition

costs and customer lifetime value.

So since I know nobody wants to

listen to a lecture on a podcast, this

conversation will be intentionally

superficial.

But the point is to help you start

thinking about.

All the places that contracts

and SOPs have a material impact

on your business.

You know, contracts aren't just about

intellectual property.

Of course, they're very important, but

they're not just about intellectual

property.

They affect.

Many, many areas of your business,

including those that are important

towards achieving your strategic

goals and, are contributors to, uh,

creating KPIs that help you hit them.

just generally when we think about our

KPIs, we wanna have KPIs that measure.

And drive the right behavior that we

want from our team.

That's why a lot of these, KPIs will be

around efficiency or utilization and

about effectiveness.

So we can measure how effective

and efficient, what we are doing

is so, First bucket, customer

acquisition costs.

So customer acquisition

costs, that's the total cost that

are accumulated through the process

of closing a deal or gaining

a new customer.

these costs include research, marketing,

and sales.

They may also include,

legal costs.

So since if you have to, hire a lawyer

for your contracts or if there are

some clearances perhaps that need

to happen before you can close a deal.

So those are all those costs.

Associated with that, acquisition.

we're gonna talk about three

KPIs associated with customer

acquisition costs, sales cycle, time

spent selling and conversion rates.

First sales cycle.

Sales cycle is the total amount of

time it takes for your organization

to close a deal.

there are, six key steps,

finding leads.

Connecting with the leads, qualifying

the leads, making presentations,

overcoming objections, and

then finally closing the deal.

And so we look at that sales cycle, we

measure it in terms of number of days.

You might measure that per salesperson

or through your whole organization,

especially if you're the only

salesperson.

And hopefully it is a number of days,

but it might not be.

You may have very large engagements

that have much longer sales cycle,

and the fact that they're long is not

an indicator of any type of failure, but

just the nature of your business, such

as if you're doing, million dollar

deals, those are gonna take more than

a number of days probably to close.

It may be measured in weeks or months,

but regardless, the shorter the

sales cycle, the more, profitable,

and so the lower your customer

acquisition cost is.

All the resources of your sales

team while they're still trying to

close that sale.

the number of touchpoints

required, each touchpoint is

another cost.

And so that will increase

your customer acquisition cost.

And the sooner that you close a deal,

obviously the sooner you can move on to

another, project and therefore

increasing revenue.

The time spent selling another

important K P I.

So obviously, the more time your

sellers are spent selling, the more

likely they're to close deals, and the

more quickly they can close deals.

Now it seems.

Obvious.

However, there are a number of

studies that show that sellers spend

only about 35% of their time selling.

They are getting caught up in

administrative tasks.

They're getting caught up in,

finding and delivering

collateral, creating new collateral.

So we're gonna talk about, ways

that we can make these processes

more efficient so that your sellers

can spend more time selling.

And then the third K p R we're gonna

talk about is conversion rates.

conversion rate that's defined as

a percentage of leads that turn

into customers.

along with, sales cycle and times

been selling, the longer it takes

for lead, to become a customer,

the higher the customer acquisition

costs and the more time you can

spend selling, hopefully the more

quickly you can convert that lead

into a customer.

So that conversion rate is an

indicator of your.

Marketing effectiveness,

your ability to get enough leads in

the door and your sales effectiveness,

your ability to convert those leads

into customers.

So if you're not getting enough

leads, then that's telling you you had

a pipeline problem.

If you're not converting enough,

then that tells you that something

along in that sales process isn't

working.

Either you're not having enough

touchpoints or your touchpoints

aren't effective.

So, to summarize, sales cycle, time

spent selling and conversion rates,

all those are KPIs that will affect

your customer acquisition costs,

which of course we want to be, as

low as possible.

what is the role that contracts

and the related processes play

in, customer acquisition costs?

So let's talk about resource

availability.

We just talk about that 35% of time

that salespeople are spending selling.

one way to get them spending more

their time selling is making sure

that they aren't wasting a lot of

time searching for.

Creating, updating the collateral

that they're using for sales.

And so the time that they are saving

or lost during the sales process is

directly related to that resource

availability, existing collateral.

You may have some standard pieces of

collateral and can they find it easily.

is that existing collateral

constantly being updated?

You making sure that any, data or

numbers that are changing, make sure

those are updated.

Don't make your sales reps do that.

Are there any links in there

that need updating?

Make sure those are updated.

Is any branding change?

Make sure that's up, updated.

If you have any new testimonials and

things like that, new case studies,

make sure that's all up to date

so that you're.

Salespeople can find it, access

it, and engage with the client as

easily as possible.

I'm a huge fan of having an inventory

of these things.

I call it IP inventory, but,

other types of content management

tools will work as well to make

sure that everyone knows and the

business knows what's available,

and then can easily access it.

That we're not recreating

the wheel.

Now sometimes though, you will

want to recreate the wheel will not

recreate the wheel, but personalize,

customize some of that collateral.

When you have big dollar engagements,

you'll absolutely be creating,

personalized collateral for

those prospects.

Having personalized collateral will

reduce, sales cycles, will

increase conversion rates, but we wanna

make sure it's still effective

and efficient.

even though it's customized, we

want a process for customization.

So making sure that we have those things

in place so that our salespeople

can easily and efficiently,

personalize our collateral and

get that shared with the clients.

And then, again, all these pieces

of content, whether it's our standard

content or our personalized

content, making sure that it is not here.

There're everywhere to have one place

that we can find all this material

so that our sales team can use it very

effectively, whether they're on the road.

so they can access it.

If they're in the middle of a call

and someone asks a question and that

there's, something that can help

illustrate a point.

Or to help overcome an objection.

These are all things you wanna

have available to your sales team.

Then for the contracts in

particular, making sure that you have

standard term sheets here, that when

they're going out in the field or, having

their conversations, I'm dating myself

with going out in the field.

do, people still go out in the field,

and That part of that negotiation

process, that they know exactly what

the parameters are, where they

can give, where they can't give.

And more importantly, that

they don't promise something that

you can't deliver.

sometimes things get a little, heated

in the middle of a negotiation.

Sales people are pleasers, they wanna

make sales, and so make sure they

understand, what the parameters are.

So having those standardized term

sheets avoids any conflicts there.

Having a streamlined contract creation

process, you wanna have standardized

proposals.

If you have the type of, business where

you are sending out proposals, even if

they are customized, you still wanna

have a template that everyone's using.

And also when it comes time for.

Signing, having standardized

services agreements, and in the event

if your clients are large corporate

clients, the likelihood of

them having their own services

agreements, that they're going to

require you to sign, that doesn't mean

you're completely at their mercy.

You wanna have your own s o w templates

that are specific to your services.

You I review.

Hundreds of large corporate

agreements.

All the time, and they're very

generalized.

They want that same vendor agreement

or that same supplier agreement.

They send it over to you and almost

none of it applies to your services.

So make sure you have some

exhibits that can.

Easily be attached to customize it to

what you're doing.

Have your own s o w templates that

talk about your services, have

your own operating procedures or terms

and conditions so that you can just

attach those as exhibits that don't

have to be overly negotiated so you

can get to the finish line quickly

and start working on your projects.

and then in terms of closing, what

differentiators do you have?

Obviously you have your reputation,

but there's also some objective

differentiators that are important,

certainly in the current environment

of information and data security.

Do you have like ISO certifications

for instance?

Or do you have just, policies regarding

information security and technology?

If you are going to have access

to their network, there's definitely

going to have, their own requirements

regarding that And the further along

and having your own systems in place

that you can show them, the more

comfort they get.

If you will be handling any

personal data, you're going to

be have to show them that you

comply with.

Data security laws, and data processing

laws and large public companies.

International companies will

also have, codes of conduct

requirements, ethical,

requirements, um, E S G requirements.

These are all things, if you

already have these things in place,

that will also smooth the route

to close and Reduce that customer

acquisition cost.

All right.

So now the next bucket, customer

lifetime value.

Customer lifetime value is the

predicted dollar value that you'll

derive from future transactions with

the customer during the course of your

entire relationship.

Unlike customer acquisition costs,

which we wanna reduce, obviously

customer lifetime value, we want

to increase.

The longer that customer stays

with us, the more profitable

that customer is.

So losing a customer is cost of business

much more than just the direct revenue

that you use.

there are some costs of acquisition

that you need to recover, so you

need to make sure that that customer

stays around long enough to recover

those costs.

And second, a business is not

sustainable if you can't have some

measure of customer retention and

repeat business.

It's a very difficult business

if every sale is a one-off sale.

And of course, every time a

customer leaves team morale suffers.

So generally, across a wide range of

industries, just a 5% improvement in

customer retention rates yields

25 to a hundred percent increase in

profits and that's very impactful.

Couple of reasons why, the carrying

cost of keeping a new customer is

a fraction of the cost of bringing

on a new customer.

So when your sales and marketing costs

to an existing customer go pretty

close to zero, all of that money save

drops directly to your bottom line.

Also a happy customer is like

an noncommissioned sales rep, right?

They are singing your praises to

other customers and, they are

providing referrals.

They provide opportunities

for upsells and cross-sells.

They are your own personal market

research panel that you can go to

for feedback and product suggestions.

And of course, the longer they're

with you and they continue to open

their wallet to you, the more

entrenched you come with that customer.

So the KPIs that we're gonna talk

about in connection with customer

lifetime value, customer complaints,

client churn rates, and cross-selling

and upselling.

First customer complaints.

this is a leading indicator of client

satisfaction.

So measuring complaints is

critical to ensuring that our

quality matches our customer's

expectations and requirements.

So you can pick up a change in complaint

levels much earlier than a change

that you might see through a customer

satisfaction survey or by

looking at your client retention

metrics where.

It's obviously too late after

you've lost them.

customer complaints is an early

indicator regarding client satisfaction

that helps us react and correct quickly.

So we definitely wanna keep a track

on those client churn rates.

That's the percentage of

customers that fail to make a

repeat purchase or discontinue

your service during a certain

period of time.

So that provides insights on how

the business is performing.

Of course, it is an indicator

of customer dissatisfaction.

Indication of product quality,

maybe that shows that your prices

aren't favorable.

They get in there and then they see

that they're not really getting

the value that they thought they

would, so they're not renewing.

Maybe competitors are coming in with

better offers, so you're losing them

to competitors, if they aren't, doing

repeat business.

you need to keep marketing to your

clients and maybe your marketing,

game falls off once you sign them on.

Or it could be just a natural part of

the life cycle.

But we do wanna make sure we are paying

attention to these and understanding

why it's happening, so we know what we

might need to fix.

Do we need to create a better

renewal program?

Do we need to make sure we're

staying more customer-centric

after they sign so that they are

keeping us in mind, so we can reduce

churn rates and therefore maximize

our renewal revenue?

And then the last one is that we're

talking about, there's many more,

but the one we're talking about today

is cross-selling and upselling.

So that is getting additional

value from your existing customers

and providing additional value

to your existing customers so that

you increase that repeat business.

You're exposing your customer to more of

your, service and product portfolio.

You're creating a deep relationship.

Enhancing the customer experience.

if you aren't getting cross sells

and upsells, then you are failing in

one of these areas and you need to

make sure that you are looking to see

how you can, do that and you Many

product and service ladders are built

on the assumption of cross-selling

and upselling.

That is an important part of growing

your business.

So if those things aren't working, then

we definitely need to figure out what's

going on there.

maybe the upsell opportunities aren't

truly upsells.

Maybe that really, is one

service doesn't really follow

on the next one.

And so we need to look at that to

make sure we have appropriate ladders.

So the role of contracts in the

customer lifetime value, process

many things.

First, contracts set expectations

from the beginning, you the transaction

or, and the utility of a contract does

not end at signing.

You once you sign that contract,

That is the place where you set

expectations.

You want to make sure that the

client clearly understands what

the process will be, so that there

are no surprises.

In addition, once that contract is

signed, you want to make sure that

there is a handoff process from

your salesperson.

To the team that will be

doing delivery.

So that, that is seamless.

You never, want to have bumps in that

because you want customer confidence

to be high that the time when they are

second guessing a purchase and we've

all done this, know, whether it's

in our businesses or personally.

Once we sign on the dotted line and

we start to second guess ourselves.

Don't let that happen.

Make sure you have a process in place

to make it smooth.

No surprises, happy customers give

you the benefit of the doubt as

the, engagement moves along.

maybe you introduce the delivery

team so that they really feel like

they understand who's working on

their, engagement.

Contracts provide transparency again,

you making sure that they understand

the entire journey.

and a lot of times this will be done

through a kickoff, meeting, again

to talk about the process and

introduce the team.

you wanna make sure you have your, very

clear performance and delivery

process in place.

You want to make sure that the

contract lays out all of the

milestones when you expect to have, them

to be hit, what will be delivered, who

it's delivered to, what the acceptance

process is when you expect to have,

questions, when they have their

questions to you.

when you have time to turn that back

around, if there are any issues to turn

that back around.

There should be no surprises in that

process, and that should be laid out

in your s o w if not in the agreement.

Of course, you have to have a dispute

resolution process.

the more complicated the engagement I.

There's possibility that

there'll be some miscommunications

and we wanna make sure those things

are resolved as soon as possible

to maintain a good relationship so that

we, have a long-term relationship

with that client.

And then, Equally important as

onboarding is offboarding, making

sure you tie up any loose ends,

making sure you remain a resource

for your client.

This also makes it easy for you

to do have those cross cells and

do those upsells.

You wanna also, be able to come to

them for referrals, you want them

to consider you, for them to be a

referral source and of course,

a testimonial process as well.

It increases their value because

it helps you

obviously,

sell and reach new markets.

So I hope this was helpful to you.

Again, this is just an overview some

examples of the way that contracts do

help you hit some of your key performance

indicators.

Don't think of them as just,

intellectual property tool,

but it is also a.

Performance tool.

Until next time.