What Affects the Cost
As with most software, the major factors that suppliers consider when determining pricing for contract management software are feature sets, scalability and user capacity. Significant weights are also given to the level of support provided by the supplier to the organization and how the particular supplier’s solution will integrate into existing processes and systems, including expert guidance in the vendor selection process (if undertaken by the supplier) and in establishing the contract management system and configuration standards . Pricing also may be impacted by the supplier’s position in the market relative to the organization’s needs and where the supplier stands in relation to market dynamics, such as interest rates and financing terms.
Compare the Pricing Options
As an organization prepares for implementation of a contract management solution, they are often faced with the perplexing question, "How much do I have to spend?" Pricing for contract management software varies widely within the marketplace. This is due to many different factors, but here are some of the more common considerations.
Subscription Based Pricing Model – Subscription based contract management solutions offer a pay as you go "per fee basis" and is the most common pricing model utilized in the market today, especially for cloud based contract management solutions. The subscription price can range from literally nothing per month per user (open source products) to over $200 per month per user. Other subscription based models evaluate price on yearly agreements and based on organization size. An organization may be charged a set fee per seat for unlimited users or have a total annual fee up to all users within the organization.
One Time Payment – Another pricing model is the one-time fee system or perpetual license model. This pricing type requires only one contract per organization and the one-time (upfront) license fee payments oftentimes ranges from $20,000 on up depending on the vendor selected. Many large companies prefer this model as costs can be budgeted as a capital expenditure for the fiscal year, rather than as an operational expense which is often also allocated monthly to an operational budget. This model can result in large sums out-of-pocket, but could be overall, less expensive than the subscription based model over time.
Custom Enterprise Pricing – Some suppliers will create custom enterprise pricing to meet explicit requirements of the customer. These variables include (but are not limited to) the ability to import prior contracts, special modules (ex: MSA management), migration of legacy data, consulting/training, helpdesk services, etc. Pricing for these types of services is normally a one-time payment during implementation. All of these items are factored into the supplier’s pricing.
Analyzing the Price-Value Equation
When determining the pricing of a contract management system, a company should do due diligence on pricing online, by looking at blog posts, articles and perhaps contacting consultants. The company should narrow down their search to two or three vendors selling products that should meet their needs, based on the product features, support options and any integrators they believe are necessary. In addition, an early focus on pricing helps a company build an accurate budget for implementation. However, what often happens is that a company will do its due diligence on a product, including review of a free demo, (a free demo is not sufficient), then it goes ahead for quite a bit of time making a great deal of effort to explore a full fledged implementation, which often involves many meetings, internal deliberation and in some cases meetings with upper level management or even investors. Then, if there are two or three other ‘good options’, there’s a great deal of discussion about that and after one meets a thorough clorox of that particular product, complete with an individual or two who are very supportive of it, the ‘champion’ decides to go ahead with that product. At that time, someone says, "You know, we should probably find out how much it costs." Phone calls flying back and forth, follow ups and eventual heart break ensue. Not to be dissuaded, the company painstakingly reviews a proposal, possibly discounted somewhat and then with the heart of a lion, full of loyalty, goes ahead. A company’s experience here is not unique. What happened here is that despite diligent efforts to investigate the product, (and also being driven to the product champion’s view of what the best product is, rather than being agnostic and objective), the company missed the true cost of the product and it was only discovered after the fact. A very unfortunate development. The only way for a company to hedge itself against the above is to do a cost-benefit analysis at the beginning and then revisit that cost-benefit analysis periodically afterwards, to see the extent to which payback has been achieved and compare the expected payback against the actual payback. Since each company will have a different number of contracts, types of contracts, etc. the cost-benefit analysis looks at three things: 1) Annual Cost per Contract; 2) Annual cost per task performed; and 3) Activity Analysis, looking at yearly activity of the last three years for the elected individual. (We recommend three years, but you may choose less.) Thus, the cost-benefit analysis would show an annual cost of 100 contracts, $5000, and then Three (or five) activity analyses, showing the following: It is our experience, supported by the Canada/U.S. Free Trade Agreement, that a well priced and well chosen contract management system will yield positive results. And it is our observation that a company with a thoughtful budget, and an objective decision maker, usually does better than one where the chief executive officer chooses the product based on his or her own criteria and that decision in turn drives the budget. There are no guarantees, but the diligent effort is well worth it.
Costs that Often Get Overlooked
There may be extra charges not included in the advertised cost—things like one-time implementation fees, or charges for extra features. There will definitely be ongoing costs: for training, customer support (if you are not supplementing your staff with a dedicated contracts staff member) and upgrades. Costs often fall into three buckets: fixed costs, variable costs, and costs of ownership and operation . Fixed costs include initial purchases and one-time expenses, such as implementation and installation costs of new technology. Variable costs include the incremental expenses that a company incurs through the use of a technology, such as additional seats, storage and features. Costs of ownership and operation include both the operational budget (i.e., resources and expenses incurred to optimize technology) and capital budget (e.g., repairs).
How to Get More Value for your Money
One of the easiest ways to start negotiating with a vendor is to simply ask for a discount. A nice, polite example might be: "I see that the base price point is $100 per month per user. If I sign up for a year and make an up front payment, would you take $80?" There’s no harm in asking. In fact, you are far more likely to receive a discount on a product if you simply ask than if you simply sign up and start paying full price. (This advice even holds true with your local barber or hair stylist!)
Many contract management software vendors charge a lower rate if you sign up for a longer period. Some of the savings generated by paying in advance may also be passed along to you as a discount.
Another way to save money is to bundle contract management software with other services from the same vendor. For example, several vendors offer document template automation combined with contract management software. If you sign up for both services, you’ll probably be able to negotiate a lower price than if you only used one of these products.
Remember that some vendors may only quote their base price up front, but will offer discounts based on number of users or annual revenue later in the sales process.
Trends Affecting the Price
It is no secret that the field of contract management software has become increasingly competitive over the past few years. The improved capabilities and reduced costs of cloud solutions have attracted the entry of many new companies to the space. These new entrants (for example ContractPodAI and Juro) have brought with them a bevy of innovative products. Contract Lifecycle Management has seen the introduction of AI for assistance with contract review, chat-bots for provisions analysis, self-service contract assembly, visual workflow features, big data analytics, and many other recent developments. In their effort to differentiate their products with contemporary features, innovators have reduced prices for contract management software in a way that makes it much more accessible than ever before.
Another reason for downward pressure on contract management software pricing is the greater specialization of providers. Larger, more mature legal departments now have contract management requirements that were not previously satisfied by current offerings . This has led to the emergence of more specialized solutions tailored to a narrower set of corporate spending requirements. One example of this is the proliferation of solutions that focus on IP licensing rather than general-purpose contract lifecycle management. Other examples include contract data extraction solutions, contract negotiation solutions, and those targeting specific industries such as government contracting.
Moreover, there are a number of trends driving down overall solution costs. A number of solutions are available within the price range of even the smallest legal departments. With any innovation or new trend not all solutions are created equal, the key to finding winners is in carefully evaluating the landscape of solution providers. This is particularly helpful for the larger workforce as companies with 100 employees or more can typically afford price points ranging from $20/user/month – $60/user/month. Smaller companies may have less capacity for a legacy system often encountering a more solidified market that only tends to churn minimally.