How much do contracts cost your business?
Contracts protect your business and add risk. They bring in business and cost you time and money.
The key to making sure contracts help rather than hurt your business is to know how much it costs to execute them properly. For that, you need to calculate the sunk cost of managing contracts and evaluate the opportunity cost.
What Is Sunk Cost?
Sunk costs are costs already incurred that can’t be recovered. In the case of small business contracts, it’s the time you invest in executing and managing contracts, including the cost of a lawyer and/or employees who manage your contracts, if that applies to your business.
Definition of Opportunity Cost:
The cost of choosing one activity over another — namely, of spending time on contracts instead of other business-building activities.
Contract Sunk Cost Calculator by Delino
This calculator helps you quickly assess how much it costs you to manage contracts for your business. Simply enter your annual salary (or the salary of the person handling contracts), the number of contracts handled each week, and the number of hours spent per contract.
The calculator will determine your current contract opportunity cost.
Your Time Invested in Contracts
Hours spent on contract review per week
Hours spent on contract review per month
Your Cost of Doing Contracts
Your hourly rate (include 40% tax & overhead)$
Which means you are investing in contract review monthly$
Get more value from every contract
It takes time to negotiate, review, and manage contracts. But it’s essential to invest the time to do it right.
80% of business operations are governed by contracts.
Bad contracts cost businesses 9% of their bottom line.
Improved contract management can save up to 2% of a business’ annual costs.
What most small businesses don’t realize is that every contract you sign adds risk to your business
Contract management is key to keeping your risks low, so you can focus on growth.
If you don’t invest the time needed to read and review every contract that crosses your desk, you could be taking on more risk than your business can sustain long-term.
Is it any wonder 50% of small businesses fold within their first five years?!
How to lower the sunk cost of contracts
To lower your contract costs, you need to spend less time managing contracts and more time on activities that actively grow your business. But you need to do that without taking on more risks than you can manage.
You have three options:
1. Hire a Lawyer
Lawyers understand legalese. They also know the tricks used by other attorneys to get you to accept more risk than you should.
But lawyers focus primarily on legal risks — and there are five other types of risk that also need to be flagged. By ignoring these risks, lawyers can still leave you exposed.
Add to that the cost of hiring a lawyer, and many small businesses choose the do-it-yourself route.
2. Do It Yourself
Entrepreneurs are smart. They’re action takers, willing to do whatever it takes to succeed. That’s why 84% of small businesses do their own contract review.
Only 16% of small businesses have legal representation to help them manage risks.
But without legal training, it’s easy to miss high-risk clauses. Which means you could be taking on unnecessary risks and committing to terms that hinder your growth.
That’s where your third option comes in…
3. Use Delino
Delino is the smart contract review software built exclusively for small businesses to:
- Review your contracts
- Highlight high-risk clauses, missing terms, and redlining tips
- Show you the terms most commonly used by other small businesses like yours
Review contracts faster and more confidently. Try Delino today.
We’re currently accepting a small group of business owners into our invite-only beta. There’s no cost to participate, but seats are limited. To save time and improve your contract review process, apply today.