There's an old and oft-cited saying in business: “If you can measure it, you can manage it.” Measurable results, it is widely accepted, enables clearer visibility of performance and provides valuable quantitative data to evaluate what is working and what is not. And as software and systems continue to evolve, the availability and breadth of data and analytics have vastly expanded, empowering organizations to set, track and report more Key Performance Indicators than ever.

Key Performance Indicators or “KPIs” are measurable data metrics used to determine how effectively a business or business unit is achieving its most important objectives. Modern and mature businesses mandate a broad range of KPIs across most functions. For example, common sales KPIs include quota attainment, bookings growth, percentage of deals won, annual recurring revenue, retention and churn. Common marketing KPIs include net promoter score, marketing qualified leads, sales qualified leads, customer lifetime value and site traffic to lead ratio. Common IT and Support KPIs include availability, incident response time and client satisfaction. Common Human Resources KPIs include employee satisfaction and engagement and employee turnover. These and other responsible business units rely on KPIs to demonstrate their performance on a data metrics basis.

In-house legal departments, on the other hand, have been late KPI adopters and many have generally avoided the same data measurement and reporting mandates of their peer departments. Organizations may not readily recognize the application of metrics and analytics to legal work and performance. But, as this article will describe, KPIs can generate valuable and illustrative data for legal departments to better measure the quantity and quality of the support the commercial legal/customer contracting function provides to the business. Below are a few examples for consideration.

Before describing the commercial legal KPI examples, though, it's important to note that the value and credibility of any KPI often requires paring it with one or more other KPIs. A quantity-based metric by itself may demonstrate volume but begs the question “at what cost?” High quantity output at the expense of good quality work is hardly an outcome worthy of reporting let alone celebrating. On the other hand, high quality work at the expense of timeliness or completion could do more to illuminate misalignment with business objectives than illustrate any positive organizational result. Instead, it's typically necessary to measure both quantity and quality in order to generate credible and contextual data.

Contract Quantity

Perhaps the simplest and most obvious commercial legal metric is the number of contracts a business closes in a fiscal quarter and/or fiscal year. Closed or executed contracts is indication of commercial legal work volume. Closed contracts can include product sale agreements, license agreements, subscription agreements, services agreements, order documents, statements of work, nondisclosure agreements, and so forth—whatever contracts the legal department is called upon to develop, draft, review, redline and negotiate with customers, suppliers, subcontractors or partners. A closed contracts KPI demonstrates not just workload, but workload that is tied to revenue and business won. Admittedly, though, it's an incomplete measurement of commercial legal work volume. Not every contract undertaken and negotiated will close, and usually that result is by no means Legal's fault. A closed contracts metric necessarily ignores the time and efforts expended on deals that don't close. And while those efforts are worthy of thanks, they are frankly not worthy of reporting. In the same vein, a sales organization doesn't get credit for a huge pipeline if they don't meet their sales quota. Reporting and seeking recognition for commercial activity which does not tie to revenue is unproductive at best and naive at worst. It's tantamount to finger pointing—as if to say “well I did my part, don't blame me.” Surely that is not a healthy or trust-building approach with internal partners. However, reporting commercial activity that directly ties to closed transactions and revenue shows contributions to and alignment with desired business results. Tracking this data quarter over quarter has another meaningful effect. It shows differences in commercial legal activity by quarter. Say, for example, the data shows first quarter volume is historically light whereas fourth quarter volume is historically high. With those trends understood, a legal department could ensure hiring and staffing plans adjusted according to expected workload. Or it could defer non-commercial projects from the fourth quarter to the first quarter so as to ensure effort is duly on winning business in the fourth quarter and affording non-commercial projects sufficient time and attention in the first quarter. Closed contracts also enables a manager to better oversee attorney workload and balance work among the team. In sum, a closed contracts KPI provides clarifying data of workload and effort while simultaneously directly evidencing contributions to the desired business outcomes of winning deals and generating revenue.

Contract Quality

Another deeply illustrative commercial legal KPI is contract quality. It is a measurement of how standard or favorable to the business the resulting terms and conditions are of the closed contracts. Or, alternatively, it captures if nonstandard or risk-inducing terms were added. Contract quality can be measured by creating a list of the most key and important terms of a contract and creating a grading scale. Terms such as limitation of liability, indemnification obligations, termination rights, payment terms, etc., are given a numerical value whereby standard or favorable terms would yield the best grade whereas nonstandard or unfavorable terms will drive a lower grade. A scale can be developed under which, by example, a favorable termination clause is an “A” or a “5” whereas an unfavorable termination clause would be an “F” or a “1”. The scores are then aggregated to generate an overall contract grade. Different terms can be weighted differently as well. If, for example, a business believes its liability exposure in a contract is more important than its payment terms, it can multiply the grade of the limitation of liability term (or discount the payment terms) and cause it to carry more effect against the aggregate grade. In the end, every contract can have a grade or numerical value that demonstrates the favorability or risk of the contract. And that, in turn, demonstrates the quality of work Legal is doing. If the aggregate grade of all contracts closed in a quarter is an “A” or “B”, it stands to reason Legal has done an admirable job negotiating with customers, maintaining contracting standards and mitigating risk. If on the other hand, the aggregate grade for contracts is low, Legal may be permitting too much deviation from its contracting standards and is saddling the business with too much risk. Contract grading is also a metric that can be tracked by the business to determine whether or it not it wishes to continue operating under the specific contract or not. If a low graded contract is up for renewal, the business may wish to elect non-renewal or otherwise to position amendments that will improve the agreement for the good of the business. Organizations can even choose to make a rule: All A or B contracts can stand, but all C, D or F contract require improvement. And contract grading not only has the effect of characterizing the favorability of closed contracts, it also inherently drives a culture of accountability among the commercial lawyers. Knowing their work will be graded after the fact encourages the commercial lawyers to more carefully negotiate contracts in strict alignment with the business' contracting standards. Similarly, the exercise can identify to a manager if an attorney may need additional training and guidance in navigating certain contract issues.

Client Satisfaction

At least one other KPI for consideration is internal client satisfaction. Measuring internal client satisfaction is a powerful mechanism to gain valuable perspective on the perception of the legal department and its work. It generates important and actionable feedback. And, perhaps most important, it provides a clear and predictable forum and mechanism for internal clients to provide that feedback. Contract volume and quality are important, but if the sales organization does not see value in Legal's work, something is wrong. Client satisfaction surveys help bridge the gap between work output and the internal client's impressions of that work. The right number of questions and ideal frequency of a client satisfaction survey program will vary based on business and organizational dynamics. On the one hand Legal should want good, broad and useable feedback on a regular basis. On the other hand, too many questions and too often can cause unresponsiveness. So right sizing the client satisfaction survey program is key. But if other business functions are reporting results and KPIs quarterly, then a quarterly Legal survey is likely best. And on a quarterly (or more frequent basis), the survey should take the responder no more than a couple of minutes to complete. Lastly, audience is important. The entire company will rarely be the appropriate audience for a Legal survey. But for commercial legal support, surely sales (and potentially marketing) are best. To that end, a survey could simply ask everyone in sales to “agree” or “disagree” to certain statements about Legal's commercial support. Those statements should include objective, tactical confirmations, such as “Legal was timely and met deadlines.” Subjective and values-based statements are important too, though, and can include “Legal demonstrated they cared about the sales outcomes” and “Legal enabled me to do my job more effectively.” Lastly, catch-all statements help bring it all together, such as “Legal met or exceeded my expectations.” From there, a tally of “agrees” will generate an aggregate satisfaction result. If 90 percent agreed to, say, 3 of the statements, and 80 percent agreed to, say, the fourth and final statement—then the aggregate satisfaction rating is 87.5 percent. By CSAT standards, that would be a favorable grade. Also, always provide a field or other opportunity for additional comments too. Altogether, the results and comments generate great data to share with both the business at large as well as with the Legal team itself, and compliments and contextualizes the contract volume and quality metrics. Internal clients appreciate a (right-sized) opportunity to share feedback, and the supporting attorneys appreciate hearing how well they're doing from the client's perspective. And the aggregate satisfaction rating becomes a standard by which Legal can strive to consistently meet with their dedicated hard work.

Conclusion

“If you can measure it, you can manage it.” Obviously every business wants to manage its legal function as well as possible, and measuring relevant quantitative data is an invaluable tool to do so. The best legal departments have data to prove they're the best. The best legal departments measure and report metrics in a similar manner as other business units. But the exercise need not be elaborate or burdensome. A few verifiable data sets that duly demonstrate Legal's work and support of internal clients can generate meaningful visibility into performance and perception. As this article has explained, for the commercial legal function, tracking contract volume, contract quality and internal client satisfaction can provide revealing data to validly measure the pace of work and favorability of the contracts the business is entering into while juxtaposed against the internal client's recognition and evaluation of that work. Put together, these three KPIs inform the organization of the overall health and fitness of the commercial legal function. And the quarter over quarter or year over year trends can be tremendously informative too. If, for example, contract volume continues to rise yet quality and client satisfaction are holding steady, it's indicative of a hard working yet well-functioning and scalable team. If, on the other hand, as volume rises, quality or client satisfaction are suffering, it's indicative of a team struggling to keep pace with growth and either training or additional staff may be needed. And in that latter circumstance, where additional headcount (and therefore cost) is needed, it is invaluable to have supporting data to justify the need. In sum, every modern in-house legal department should be utilizing data and metrics for better visibility into its work output, client support and its achievement of objectives, and better management of the team itself.

Todd Hanna is the Vice President, General Counsel and Corporate Secretary of Sovos Compliance, a $1B+ global tax, compliance and business-to-government reporting software company with over 1100 employees in 12 offices across 3 continents. Before Sovos, Mr. Hanna was Managing Commercial Counsel at EMC Corporation and VCE Company.