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. Thank you friends.