[Updated June 27, 2011: Prompted by Paul’s and Eric’s comments, I revised this post to make my point clearer.]
I keep half an eye on the LinkedIn Contract & Commercial Management group, and today I noticed that someone had posted the following question:
What is the best metrics or KPI (besides order volume or revenue) to measure the performance of ‘standardized contracts programs’? In other words, how do we measure the success of standard contract templates? Does it vary with type of business or customer (channel partner or end-user)?
The limited discussion thus far has focused on the “adoption rate,” namely the extent to which customers are willing to use the seller’s template rather than offering their own terms, as well as how much negotiation a template generates. For what it’s worth, here’s my take on this:
Although it certainly makes sense to think in terms of the “success” of template, that tells only part of the story, as it puts the focus not on the template itself but on reactions to it.
Instead, I’d ask, How effective is the template? In other words, does the template articulate the deal in sufficient detail to avoid creating problems through uncertainty, while avoiding getting bogged down in minutiae? Does it address risk, but without being unduly risk averse? And does it use clear and modern language and a logical layout?
That inquiry requires that you make your own internal assessment. Once you start actually using the template, you’re able to measure that assessment against how the marketplace responds. In other words, how are buyers responding to different deal points, and why? Factors to consider include those mentioned in the discussion on the LinkedIn group, as well as those mentioned by Paul and Eric in their comments to this post. If you’re replacing a longstanding template with a new template, you might get a lot of feedback. If you’re systematic about tracking such matters, you’ll be in a good position to adjust your template appropriately.
But ultimately, putting together a good template is a sufficiently nuanced undertaking that it’s unrealistic to expect that how others react will give you anything other than a rough guide to how good a job you did. And you can forget about metrics—some sort of numerical measure of quality. For example, readability scores are of little use, as I discussed in this July 2006 post on AdamsDrafting.
Instead, the best way to ensure a successful template is to make sure that the people putting your templates together have suitable expertise in the kind of deal involved and suitable expertise in contract language. Generally, the former kind of expertise is easier to come by than the latter—in terms of their drafting, the overwhelming majority of commercial contracts leave a lot to be desired.
I’m sure that’s a less clear-cut answer than the person posing the question had in mind, but what can I say—contacts are complicated.
Oh, and here’s another way to assess your templates: ask me. I’ll tell you, at no cost, what I think of what your templates say and how they say it.
Ken:
I find that the readability score in Word are not useful when applied to the entire doocument. But, when creating a form that I want to re-use a lot, I have found it useful to select each paragraph of text and check its separate readability score. This helps me find the paragraphs where I am not seeing the needless complexity. Once I re-re-re-re-read a paragraph that I wrote, I am convinced that it is good writing, even when it is not. The readability score helps me find the places where I am deluding myself.
This doesn’t really address the originl point of your post, though. You can’t turn that kind of paragraph checking into a key performance indicator.
Chris
Ken,
I don’t think that you are answering the question “how do we measure the success of a standard contract template?” You seem to be answering the question, “what will make a contract more likely to be successful?”
From the board discussion that you cite, it sounds like they are trying to figure out the desired outcome, so they will know if a contract template has satisfied it. I think their answers are right on point–widespread adaptation, and lack of a lot of people wanting to use their own forms. I would add to their list (a) once the contract is signed, not a lot of time spent discussing how to interpret it and (b) lack of fights/litigation over the meaning of the contract. Or how about this one: fits the vast majority of needs so that we’re not constantly having to add language for particular deals.
Paul: I guess I thought the question left some room for maneuver. I took the liberty of interpreting it as “How can we tell how good our templates are?” Ken
There’s a bunch of different issues swirling in this post. On the topic of measuring the success of a form sales/purchase contract, I’ve often considered the following two metrics for success:
1) what percent of business partners sign our form untouched?
2) what is the average/median time from delivery of our form to signing of the contract? i.e. the velocity. Shorter velocity means quicker revenues.
Eric.