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Challenges of lengthy contract cycles and their impact on sales performance

Slow contract processes can hinder your business, making it difficult to close deals and causing frustration for your team and customers. Unfortunately, lengthy contract cycles mean missed opportunities, not to mention unnecessary headaches. 

Modern contract management solutions aim to speed up processes, boost sales performance, and streamline operations. This article dives into the challenges of long contract cycles and the impact of using the right technology. The goal is to help you prepare for what’s ahead with contract cycles for your business.

Understanding lengthy contract cycles

Contract cycles involve multiple stages, starting with drafting and negotiation and ending with renewal or termination. These stages are crucial for improving sales performance and overall business efficiency. Efficient contract management simplifies these processes, reducing bottlenecks that typically hinder business growth and affect profitability. 

But why do contract cycles become lengthy? This could be because of any of the following: 

  • Complexity of Terms: Reading and understanding contracts with many complicated terms and conditions takes longer.
  • Inefficient Processes: Not enough efficient ways to write, review, and approve contracts means slower processes.
  • Regulatory Compliance: It can take longer to negotiate a contract when there are a lot of different regulatory standards in different areas.
  • Stakeholder Involvement: It might take longer to agree when more people are involved.

Some industries encounter bigger challenges with contract cycles than others because of their unique business nature and regulatory environment. Take the following as examples:

  • Technology and software industries face complexities in products and services, with intellectual property concerns being the most important.
  • Construction and engineering projects require multiple stakeholders’ involvement, demanding clear communication and careful attention to detail.
  • The healthcare and pharmaceutical sectors are tightly regulated, and strict compliance with safety standards is mandated.
  • Government contracts typically require comprehensive documentation and undergo thorough approval processes.

Challenges caused by lengthy contract cycles

Problems with sales operations, client relationships, and performance might arise from lengthy contract cycles. Notable difficulties that companies encounter include the following:

  • Delayed Revenue Recognition: Revenue recognition takes longer when contracts take longer to finalise. This delay affects a company’s cash flow and financial planning, hindering effective resource allocation for new opportunities. 
  • Increased Sales Costs: Every stage of the contract cycle requires resources, including time and personnel. Lengthy cycles decrease the profitability of deals, resulting in increased costs associated with sales activities. 
  • Impacts on Sales Forecasting and Planning: Extended contract negotiations and approvals disrupt sales forecasting and planning. With a normal lead possibly taking up to six months to close a deal, and referrals needing roughly one month, the unpredictability of contract closure times further complicates sales strategies.
  • Customer Dissatisfaction and Churn: These days, clients expect swift and efficient service. Lengthy contract processes can lead to dissatisfaction and negatively impact the customer experience, potentially leading to higher churn rates.

Direct impact on sales performance

The impact on sales performance is real and noticeable when dealing with extended contract processes. The key consequences are: 

  • Decreased Sales Efficiency and Productivity: Lengthy contract cycles slow the sales process, decreasing efficiency and productivity among sales teams. This inefficiency results from the extended time spent on each deal. Such time could be better used to work on new opportunities.
  • Hindered Pipeline Management: The sales pipeline gets backed up when contracts take longer to close. As a result, it becomes challenging to manage and forecast sales effectively, impacting sales operations’ overall health and predictability.
  • Strained Customer Relationships: Clients often view the speed of contract processing as an indicator of a company’s operational efficiency. So when contracts take so long to process, customers get frustrated. In the end, client relationships are damaged, and trust and loyalty are lost. 
  • Competitive Disadvantage: In a market where agility and speed are key competitive advantages, lengthy contract cycles put companies at a disadvantage. Of course, competitors with faster contract processes can close deals more quickly. So they capture a market share and position themselves strongly. 

Strategies to mitigate challenges

Improving sales effectiveness and addressing the problems caused by extended contract cycles require an all-encompassing strategy. Contract lifecycle management (CLM) systems are an integral part of the following successful strategies:

  • Implement Automation and Technology: Automating contract management can cut down negotiation time. This means closing deals is faster, which helps keep customers happy. Clearly, a CLM system is vital business software to have when dealing with long contract cycles.
  • Streamline Contract Processes: Simplifying and standardising contract processes can help reduce the time it takes to draft, review, and approve contracts. This means getting rid of steps that aren’t needed and making sure the contracts are easy to understand.
  • Enhance Communication and Collaboration: Improving the communication channels between all parties involved in the contract cycle can speed up decision-making and approvals. Delays can be largely cut down by using collaborative tools and platforms where everyone can see, comment on, and approve documents at the same time.
  • Negotiate Flexible Terms and Conditions: Being open to flexible terms can speed up negotiations. To reach agreements more quickly, businesses should try to understand what their partners and clients really want and need.
  • Invest in Training and Development: Ensuring that sales and legal teams are well-versed in contract management practices can improve the efficiency of the contract cycle. 
  • Regular Review and Improvement: Continuously monitoring and reviewing the contract management process for efficiency and effectiveness ensures that strategies remain aligned with business needs and market conditions.

Beating lengthy contracts: A case study

Tele2’s switch from a slow, paper-based contract system to digital contract management illustrates a dramatic shift in handling business agreements. Previously, Tele2’s approach involved manual creation and mailing of contracts, a process that was not only slow and costly but also provided a less-than-ideal customer experience and was bad for the environment. 

Transitioning to a digital contract management system, Tele2 embraced web-based contracts that could be easily customised and digitally signed, allowing real-time editing without resending contracts. Thus, their contract process became faster, and their sales became more efficient. Their sales staff are also able to better track contract connections. Eventually, their overall sales performance improved. 

Using digital contracts made it possible for Tele2 to conduct business seamlessly, even on the go, thanks to mobile-friendly designs.

Other businesses like Cision, Volue, Beatly, Sessions, Stockfiller, and Eurofins have followed suit in moving toward digital contract management because they recognise the value of streamlining negotiations, enhancing communication, and integrating with CRM systems.

The HR procedures and sales team interactions at Tele2 have become more efficient, thanks to digital contracts. They have made their process more flexible and up-to-date. Clearly, the case of Tele2 proves how digital contract management helps reduce contract cycles.

Moving forward in contract management

Any company serious about boosting their sales and operational efficiency would do well to familiarise themselves with the contract cycle. Tele2’s case shows how important CLM systems and other advanced contract management technologies are in staying responsive, adaptable, and competitive. They can overcome long contract cycles and increase customer satisfaction. 

With the digital transformation continuing to move forward, contract management will remain an important element of sales performance. With faster contract cycles, no more opportunities are missed. So, now is the best time to use it.

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