Episode 45
E45: Contracts and Your KPIs
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
Transcript
Hello.
Speaker:Today I wanna talk about the role
Speaker:that contracts and processes play
Speaker:in meeting your K P I objectives.
Speaker:So KPI P I stands for Key Performance
Speaker:Indicator KPIs, provide targets
Speaker:for teams to shoot for milestones
Speaker:to gauge progress and insights that
Speaker:help everyone in your team.
Speaker:make better decisions.
Speaker:KPIs are distinguished from
Speaker:other metrics in your business by how
Speaker:useful they are in helping you measure
Speaker:your progress toward achieving your
Speaker:strategic goals.
Speaker:Some examples to illustrate
Speaker:the difference between KPIs and
Speaker:other metrics.
Speaker:An indicator is simply a metric
Speaker:used to make some measurement in
Speaker:your business.
Speaker:As we know, some of them can be
Speaker:meaningless, such as how many likes
Speaker:your LinkedIn post received.
Speaker:How does knowing the number of likes
Speaker:your LinkedIn post received help you
Speaker:make progress toward achieving your
Speaker:strategic goals?
Speaker:I'm gonna guess none.
Speaker:Conversely, a performance
Speaker:indicator tracks a measure related to
Speaker:your organization's performance.
Speaker:For example, how many hours your
Speaker:employees worked on a project.
Speaker:Now, even if you don't bill by the
Speaker:hour, and I know you don't, it's
Speaker:important to know this so that you
Speaker:can measure the profitability
Speaker:of the project if the resource
Speaker:is required to.
Speaker:Execute the project, exceed the value
Speaker:of the project, then you know you
Speaker:have some problems.
Speaker:There are some action items that
Speaker:come off of that that you need to.
Speaker:Make some adjustments.
Speaker:You need to raise your rates or you
Speaker:need to increase the efficiency
Speaker:of Delivery.
Speaker:Maybe you need to use a less
Speaker:expensive resource for delivery,
Speaker:such as if you are doing a hundred
Speaker:percent of delivery.
Speaker:Maybe some part of that can be done
Speaker:by a less expensive resource, such as
Speaker:an assistant or maybe automation.
Speaker:or even maybe another partner
Speaker:who's not as expensive as
Speaker:you are, or both Of course.
Speaker:So when a performance
Speaker:indicator is critical to your
Speaker:business, such as something
Speaker:that affects profitability,
Speaker:then it rises to the level of a
Speaker:key performance indicator.
Speaker:So in other words, key performance
Speaker:indicators are a subset of
Speaker:performance indicators that
Speaker:are most critical to your business.
Speaker:KPIs help you measure
Speaker:progress toward achieving your
Speaker:strategic goals.
Speaker:And these KPIs will cut across all of
Speaker:your organization financial KPIs,
Speaker:customer related KPIs, process
Speaker:related KPIs, and of course people
Speaker:related KPIs cuz we know our people
Speaker:are our most important asset.
Speaker:So today we're going to cover
Speaker:two main areas.
Speaker:Both related to your customers.
Speaker:Where we have KPIs that are related
Speaker:to our contracts.
Speaker:those two areas are customer acquisition
Speaker:costs and customer lifetime value.
Speaker:So since I know nobody wants to
Speaker:listen to a lecture on a podcast, this
Speaker:conversation will be intentionally
Speaker:superficial.
Speaker:But the point is to help you start
Speaker:thinking about.
Speaker:All the places that contracts
Speaker:and SOPs have a material impact
Speaker:on your business.
Speaker:You know, contracts aren't just about
Speaker:intellectual property.
Speaker:Of course, they're very important, but
Speaker:they're not just about intellectual
Speaker:property.
Speaker:They affect.
Speaker:Many, many areas of your business,
Speaker:including those that are important
Speaker:towards achieving your strategic
Speaker:goals and, are contributors to, uh,
Speaker:creating KPIs that help you hit them.
Speaker:just generally when we think about our
Speaker:KPIs, we wanna have KPIs that measure.
Speaker:And drive the right behavior that we
Speaker:want from our team.
Speaker:That's why a lot of these, KPIs will be
Speaker:around efficiency or utilization and
Speaker:about effectiveness.
Speaker:So we can measure how effective
Speaker:and efficient, what we are doing
Speaker:is so, First bucket, customer
Speaker:acquisition costs.
Speaker:So customer acquisition
Speaker:costs, that's the total cost that
Speaker:are accumulated through the process
Speaker:of closing a deal or gaining
Speaker:a new customer.
Speaker:these costs include research, marketing,
Speaker:and sales.
Speaker:They may also include,
Speaker:legal costs.
Speaker:So since if you have to, hire a lawyer
Speaker:for your contracts or if there are
Speaker:some clearances perhaps that need
Speaker:to happen before you can close a deal.
Speaker:So those are all those costs.
Speaker:Associated with that, acquisition.
Speaker:we're gonna talk about three
Speaker:KPIs associated with customer
Speaker:acquisition costs, sales cycle, time
Speaker:spent selling and conversion rates.
Speaker:First sales cycle.
Speaker:Sales cycle is the total amount of
Speaker:time it takes for your organization
Speaker:to close a deal.
Speaker:there are, six key steps,
Speaker:finding leads.
Speaker:Connecting with the leads, qualifying
Speaker:the leads, making presentations,
Speaker:overcoming objections, and
Speaker:then finally closing the deal.
Speaker:And so we look at that sales cycle, we
Speaker:measure it in terms of number of days.
Speaker:You might measure that per salesperson
Speaker:or through your whole organization,
Speaker:especially if you're the only
Speaker:salesperson.
Speaker:And hopefully it is a number of days,
Speaker:but it might not be.
Speaker:You may have very large engagements
Speaker:that have much longer sales cycle,
Speaker:and the fact that they're long is not
Speaker:an indicator of any type of failure, but
Speaker:just the nature of your business, such
Speaker:as if you're doing, million dollar
Speaker:deals, those are gonna take more than
Speaker:a number of days probably to close.
Speaker:It may be measured in weeks or months,
Speaker:but regardless, the shorter the
Speaker:sales cycle, the more, profitable,
Speaker:and so the lower your customer
Speaker:acquisition cost is.
Speaker:All the resources of your sales
Speaker:team while they're still trying to
Speaker:close that sale.
Speaker:the number of touchpoints
Speaker:required, each touchpoint is
Speaker:another cost.
Speaker:And so that will increase
Speaker:your customer acquisition cost.
Speaker:And the sooner that you close a deal,
Speaker:obviously the sooner you can move on to
Speaker:another, project and therefore
Speaker:increasing revenue.
Speaker:The time spent selling another
Speaker:important K P I.
Speaker:So obviously, the more time your
Speaker:sellers are spent selling, the more
Speaker:likely they're to close deals, and the
Speaker:more quickly they can close deals.
Speaker:Now it seems.
Speaker:Obvious.
Speaker:However, there are a number of
Speaker:studies that show that sellers spend
Speaker:only about 35% of their time selling.
Speaker:They are getting caught up in
Speaker:administrative tasks.
Speaker:They're getting caught up in,
Speaker:finding and delivering
Speaker:collateral, creating new collateral.
Speaker:So we're gonna talk about, ways
Speaker:that we can make these processes
Speaker:more efficient so that your sellers
Speaker:can spend more time selling.
Speaker:And then the third K p R we're gonna
Speaker:talk about is conversion rates.
Speaker:conversion rate that's defined as
Speaker:a percentage of leads that turn
Speaker:into customers.
Speaker:along with, sales cycle and times
Speaker:been selling, the longer it takes
Speaker:for lead, to become a customer,
Speaker:the higher the customer acquisition
Speaker:costs and the more time you can
Speaker:spend selling, hopefully the more
Speaker:quickly you can convert that lead
Speaker:into a customer.
Speaker:So that conversion rate is an
Speaker:indicator of your.
Speaker:Marketing effectiveness,
Speaker:your ability to get enough leads in
Speaker:the door and your sales effectiveness,
Speaker:your ability to convert those leads
Speaker:into customers.
Speaker:So if you're not getting enough
Speaker:leads, then that's telling you you had
Speaker:a pipeline problem.
Speaker:If you're not converting enough,
Speaker:then that tells you that something
Speaker:along in that sales process isn't
Speaker:working.
Speaker:Either you're not having enough
Speaker:touchpoints or your touchpoints
Speaker:aren't effective.
Speaker:So, to summarize, sales cycle, time
Speaker:spent selling and conversion rates,
Speaker:all those are KPIs that will affect
Speaker:your customer acquisition costs,
Speaker:which of course we want to be, as
Speaker:low as possible.
Speaker:what is the role that contracts
Speaker:and the related processes play
Speaker:in, customer acquisition costs?
Speaker:So let's talk about resource
Speaker:availability.
Speaker:We just talk about that 35% of time
Speaker:that salespeople are spending selling.
Speaker:one way to get them spending more
Speaker:their time selling is making sure
Speaker:that they aren't wasting a lot of
Speaker:time searching for.
Speaker:Creating, updating the collateral
Speaker:that they're using for sales.
Speaker:And so the time that they are saving
Speaker:or lost during the sales process is
Speaker:directly related to that resource
Speaker:availability, existing collateral.
Speaker:You may have some standard pieces of
Speaker:collateral and can they find it easily.
Speaker:is that existing collateral
Speaker:constantly being updated?
Speaker:You making sure that any, data or
Speaker:numbers that are changing, make sure
Speaker:those are updated.
Speaker:Don't make your sales reps do that.
Speaker:Are there any links in there
Speaker:that need updating?
Speaker:Make sure those are updated.
Speaker:Is any branding change?
Speaker:Make sure that's up, updated.
Speaker:If you have any new testimonials and
Speaker:things like that, new case studies,
Speaker:make sure that's all up to date
Speaker:so that you're.
Speaker:Salespeople can find it, access
Speaker:it, and engage with the client as
Speaker:easily as possible.
Speaker:I'm a huge fan of having an inventory
Speaker:of these things.
Speaker:I call it IP inventory, but,
Speaker:other types of content management
Speaker:tools will work as well to make
Speaker:sure that everyone knows and the
Speaker:business knows what's available,
Speaker:and then can easily access it.
Speaker:That we're not recreating
Speaker:the wheel.
Speaker:Now sometimes though, you will
Speaker:want to recreate the wheel will not
Speaker:recreate the wheel, but personalize,
Speaker:customize some of that collateral.
Speaker:When you have big dollar engagements,
Speaker:you'll absolutely be creating,
Speaker:personalized collateral for
Speaker:those prospects.
Speaker:Having personalized collateral will
Speaker:reduce, sales cycles, will
Speaker:increase conversion rates, but we wanna
Speaker:make sure it's still effective
Speaker:and efficient.
Speaker:even though it's customized, we
Speaker:want a process for customization.
Speaker:So making sure that we have those things
Speaker:in place so that our salespeople
Speaker:can easily and efficiently,
Speaker:personalize our collateral and
Speaker:get that shared with the clients.
Speaker:And then, again, all these pieces
Speaker:of content, whether it's our standard
Speaker:content or our personalized
Speaker:content, making sure that it is not here.
Speaker:There're everywhere to have one place
Speaker:that we can find all this material
Speaker:so that our sales team can use it very
Speaker:effectively, whether they're on the road.
Speaker:so they can access it.
Speaker:If they're in the middle of a call
Speaker:and someone asks a question and that
Speaker:there's, something that can help
Speaker:illustrate a point.
Speaker:Or to help overcome an objection.
Speaker:These are all things you wanna
Speaker:have available to your sales team.
Speaker:Then for the contracts in
Speaker:particular, making sure that you have
Speaker:standard term sheets here, that when
Speaker:they're going out in the field or, having
Speaker:their conversations, I'm dating myself
Speaker:with going out in the field.
Speaker:do, people still go out in the field,
Speaker:and That part of that negotiation
Speaker:process, that they know exactly what
Speaker:the parameters are, where they
Speaker:can give, where they can't give.
Speaker:And more importantly, that
Speaker:they don't promise something that
Speaker:you can't deliver.
Speaker:sometimes things get a little, heated
Speaker:in the middle of a negotiation.
Speaker:Sales people are pleasers, they wanna
Speaker:make sales, and so make sure they
Speaker:understand, what the parameters are.
Speaker:So having those standardized term
Speaker:sheets avoids any conflicts there.
Speaker:Having a streamlined contract creation
Speaker:process, you wanna have standardized
Speaker:proposals.
Speaker:If you have the type of, business where
Speaker:you are sending out proposals, even if
Speaker:they are customized, you still wanna
Speaker:have a template that everyone's using.
Speaker:And also when it comes time for.
Speaker:Signing, having standardized
Speaker:services agreements, and in the event
Speaker:if your clients are large corporate
Speaker:clients, the likelihood of
Speaker:them having their own services
Speaker:agreements, that they're going to
Speaker:require you to sign, that doesn't mean
Speaker:you're completely at their mercy.
Speaker:You wanna have your own s o w templates
Speaker:that are specific to your services.
Speaker:You I review.
Speaker:Hundreds of large corporate
Speaker:agreements.
Speaker:All the time, and they're very
Speaker:generalized.
Speaker:They want that same vendor agreement
Speaker:or that same supplier agreement.
Speaker:They send it over to you and almost
Speaker:none of it applies to your services.
Speaker:So make sure you have some
Speaker:exhibits that can.
Speaker:Easily be attached to customize it to
Speaker:what you're doing.
Speaker:Have your own s o w templates that
Speaker:talk about your services, have
Speaker:your own operating procedures or terms
Speaker:and conditions so that you can just
Speaker:attach those as exhibits that don't
Speaker:have to be overly negotiated so you
Speaker:can get to the finish line quickly
Speaker:and start working on your projects.
Speaker:and then in terms of closing, what
Speaker:differentiators do you have?
Speaker:Obviously you have your reputation,
Speaker:but there's also some objective
Speaker:differentiators that are important,
Speaker:certainly in the current environment
Speaker:of information and data security.
Speaker:Do you have like ISO certifications
Speaker:for instance?
Speaker:Or do you have just, policies regarding
Speaker:information security and technology?
Speaker:If you are going to have access
Speaker:to their network, there's definitely
Speaker:going to have, their own requirements
Speaker:regarding that And the further along
Speaker:and having your own systems in place
Speaker:that you can show them, the more
Speaker:comfort they get.
Speaker:If you will be handling any
Speaker:personal data, you're going to
Speaker:be have to show them that you
Speaker:comply with.
Speaker:Data security laws, and data processing
Speaker:laws and large public companies.
Speaker:International companies will
Speaker:also have, codes of conduct
Speaker:requirements, ethical,
Speaker:requirements, um, E S G requirements.
Speaker:These are all things, if you
Speaker:already have these things in place,
Speaker:that will also smooth the route
Speaker:to close and Reduce that customer
Speaker:acquisition cost.
Speaker:All right.
Speaker:So now the next bucket, customer
Speaker:lifetime value.
Speaker:Customer lifetime value is the
Speaker:predicted dollar value that you'll
Speaker:derive from future transactions with
Speaker:the customer during the course of your
Speaker:entire relationship.
Speaker:Unlike customer acquisition costs,
Speaker:which we wanna reduce, obviously
Speaker:customer lifetime value, we want
Speaker:to increase.
Speaker:The longer that customer stays
Speaker:with us, the more profitable
Speaker:that customer is.
Speaker:So losing a customer is cost of business
Speaker:much more than just the direct revenue
Speaker:that you use.
Speaker:there are some costs of acquisition
Speaker:that you need to recover, so you
Speaker:need to make sure that that customer
Speaker:stays around long enough to recover
Speaker:those costs.
Speaker:And second, a business is not
Speaker:sustainable if you can't have some
Speaker:measure of customer retention and
Speaker:repeat business.
Speaker:It's a very difficult business
Speaker:if every sale is a one-off sale.
Speaker:And of course, every time a
Speaker:customer leaves team morale suffers.
Speaker:So generally, across a wide range of
Speaker:industries, just a 5% improvement in
Speaker:customer retention rates yields
Speaker:25 to a hundred percent increase in
Speaker:profits and that's very impactful.
Speaker:Couple of reasons why, the carrying
Speaker:cost of keeping a new customer is
Speaker:a fraction of the cost of bringing
Speaker:on a new customer.
Speaker:So when your sales and marketing costs
Speaker:to an existing customer go pretty
Speaker:close to zero, all of that money save
Speaker:drops directly to your bottom line.
Speaker:Also a happy customer is like
Speaker:an noncommissioned sales rep, right?
Speaker:They are singing your praises to
Speaker:other customers and, they are
Speaker:providing referrals.
Speaker:They provide opportunities
Speaker:for upsells and cross-sells.
Speaker:They are your own personal market
Speaker:research panel that you can go to
Speaker:for feedback and product suggestions.
Speaker:And of course, the longer they're
Speaker:with you and they continue to open
Speaker:their wallet to you, the more
Speaker:entrenched you come with that customer.
Speaker:So the KPIs that we're gonna talk
Speaker:about in connection with customer
Speaker:lifetime value, customer complaints,
Speaker:client churn rates, and cross-selling
Speaker:and upselling.
Speaker:First customer complaints.
Speaker:this is a leading indicator of client
Speaker:satisfaction.
Speaker:So measuring complaints is
Speaker:critical to ensuring that our
Speaker:quality matches our customer's
Speaker:expectations and requirements.
Speaker:So you can pick up a change in complaint
Speaker:levels much earlier than a change
Speaker:that you might see through a customer
Speaker:satisfaction survey or by
Speaker:looking at your client retention
Speaker:metrics where.
Speaker:It's obviously too late after
Speaker:you've lost them.
Speaker:customer complaints is an early
Speaker:indicator regarding client satisfaction
Speaker:that helps us react and correct quickly.
Speaker:So we definitely wanna keep a track
Speaker:on those client churn rates.
Speaker:That's the percentage of
Speaker:customers that fail to make a
Speaker:repeat purchase or discontinue
Speaker:your service during a certain
Speaker:period of time.
Speaker:So that provides insights on how
Speaker:the business is performing.
Speaker:Of course, it is an indicator
Speaker:of customer dissatisfaction.
Speaker:Indication of product quality,
Speaker:maybe that shows that your prices
Speaker:aren't favorable.
Speaker:They get in there and then they see
Speaker:that they're not really getting
Speaker:the value that they thought they
Speaker:would, so they're not renewing.
Speaker:Maybe competitors are coming in with
Speaker:better offers, so you're losing them
Speaker:to competitors, if they aren't, doing
Speaker:repeat business.
Speaker:you need to keep marketing to your
Speaker:clients and maybe your marketing,
Speaker:game falls off once you sign them on.
Speaker:Or it could be just a natural part of
Speaker:the life cycle.
Speaker:But we do wanna make sure we are paying
Speaker:attention to these and understanding
Speaker:why it's happening, so we know what we
Speaker:might need to fix.
Speaker:Do we need to create a better
Speaker:renewal program?
Speaker:Do we need to make sure we're
Speaker:staying more customer-centric
Speaker:after they sign so that they are
Speaker:keeping us in mind, so we can reduce
Speaker:churn rates and therefore maximize
Speaker:our renewal revenue?
Speaker:And then the last one is that we're
Speaker:talking about, there's many more,
Speaker:but the one we're talking about today
Speaker:is cross-selling and upselling.
Speaker:So that is getting additional
Speaker:value from your existing customers
Speaker:and providing additional value
Speaker:to your existing customers so that
Speaker:you increase that repeat business.
Speaker:You're exposing your customer to more of
Speaker:your, service and product portfolio.
Speaker:You're creating a deep relationship.
Speaker:Enhancing the customer experience.
Speaker:if you aren't getting cross sells
Speaker:and upsells, then you are failing in
Speaker:one of these areas and you need to
Speaker:make sure that you are looking to see
Speaker:how you can, do that and you Many
Speaker:product and service ladders are built
Speaker:on the assumption of cross-selling
Speaker:and upselling.
Speaker:That is an important part of growing
Speaker:your business.
Speaker:So if those things aren't working, then
Speaker:we definitely need to figure out what's
Speaker:going on there.
Speaker:maybe the upsell opportunities aren't
Speaker:truly upsells.
Speaker:Maybe that really, is one
Speaker:service doesn't really follow
Speaker:on the next one.
Speaker:And so we need to look at that to
Speaker:make sure we have appropriate ladders.
Speaker:So the role of contracts in the
Speaker:customer lifetime value, process
Speaker:many things.
Speaker:First, contracts set expectations
Speaker:from the beginning, you the transaction
Speaker:or, and the utility of a contract does
Speaker:not end at signing.
Speaker:You once you sign that contract,
Speaker:That is the place where you set
Speaker:expectations.
Speaker:You want to make sure that the
Speaker:client clearly understands what
Speaker:the process will be, so that there
Speaker:are no surprises.
Speaker:In addition, once that contract is
Speaker:signed, you want to make sure that
Speaker:there is a handoff process from
Speaker:your salesperson.
Speaker:To the team that will be
Speaker:doing delivery.
Speaker:So that, that is seamless.
Speaker:You never, want to have bumps in that
Speaker:because you want customer confidence
Speaker:to be high that the time when they are
Speaker:second guessing a purchase and we've
Speaker:all done this, know, whether it's
Speaker:in our businesses or personally.
Speaker:Once we sign on the dotted line and
Speaker:we start to second guess ourselves.
Speaker:Don't let that happen.
Speaker:Make sure you have a process in place
Speaker:to make it smooth.
Speaker:No surprises, happy customers give
Speaker:you the benefit of the doubt as
Speaker:the, engagement moves along.
Speaker:maybe you introduce the delivery
Speaker:team so that they really feel like
Speaker:they understand who's working on
Speaker:their, engagement.
Speaker:Contracts provide transparency again,
Speaker:you making sure that they understand
Speaker:the entire journey.
Speaker:and a lot of times this will be done
Speaker:through a kickoff, meeting, again
Speaker:to talk about the process and
Speaker:introduce the team.
Speaker:you wanna make sure you have your, very
Speaker:clear performance and delivery
Speaker:process in place.
Speaker:You want to make sure that the
Speaker:contract lays out all of the
Speaker:milestones when you expect to have, them
Speaker:to be hit, what will be delivered, who
Speaker:it's delivered to, what the acceptance
Speaker:process is when you expect to have,
Speaker:questions, when they have their
Speaker:questions to you.
Speaker:when you have time to turn that back
Speaker:around, if there are any issues to turn
Speaker:that back around.
Speaker:There should be no surprises in that
Speaker:process, and that should be laid out
Speaker:in your s o w if not in the agreement.
Speaker:Of course, you have to have a dispute
Speaker:resolution process.
Speaker:the more complicated the engagement I.
Speaker:There's possibility that
Speaker:there'll be some miscommunications
Speaker:and we wanna make sure those things
Speaker:are resolved as soon as possible
Speaker:to maintain a good relationship so that
Speaker:we, have a long-term relationship
Speaker:with that client.
Speaker:And then, Equally important as
Speaker:onboarding is offboarding, making
Speaker:sure you tie up any loose ends,
Speaker:making sure you remain a resource
Speaker:for your client.
Speaker:This also makes it easy for you
Speaker:to do have those cross cells and
Speaker:do those upsells.
Speaker:You wanna also, be able to come to
Speaker:them for referrals, you want them
Speaker:to consider you, for them to be a
Speaker:referral source and of course,
Speaker:a testimonial process as well.
Speaker:It increases their value because
Speaker:it helps you
Speaker:obviously,
Speaker:sell and reach new markets.
Speaker:So I hope this was helpful to you.
Speaker:Again, this is just an overview some
Speaker:examples of the way that contracts do
Speaker:help you hit some of your key performance
Speaker:indicators.
Speaker:Don't think of them as just,
Speaker:intellectual property tool,
Speaker:but it is also a.
Speaker:Performance tool.
Speaker:Until next time.
