Sales Genie » Interview Sales Function
The Purpose of Interviewing The Sales Function
Most projections go wrong because of the sales team…
CFOs are responsible for improving EBITDA, not revenue. Because of this strict difference in roles, financial leaders tend to put the pressure on the sales team to make a decision in this projection process.
Sales Hates Forecasting
Simply put, salespeople really hate projections. Financial leaders put pressure on the sales force to make a determination about sales. This becomes an accountability mechanism. It can become problematic when the sales force overestimates sales and is not able to reach their goal.
Oftentimes, CFOs blame sales for making the wrong assumptions about sales. This causes relational issues.
Collaborate with Marketing
Your sales team is a critical piece in your projections. Instead of blaming them for their wrong projections, look at them as team members. Partner with them because you need them to hit the numbers that they gave to you to use in your projections.
This might mean adjusting the product mix currently being offered to something that would significantly improve your financial situation.
Production, Inventory, and Resource Planning Rely on Forecasts
Everything within a company depends on the sales forecast. As a financial leader, you have a huge responsibility. Focus on accurately predicting what resources you need and avoid guessing.
Frequency & Time Period
Interviewing your sales team should always happen at the beginning of the year or period. You should try to review it monthly for the next month’s projections. If you’re not able to do that, review your forecasts at least once a quarter for the next quarter.
Work with your sales department to adjust projections whenever you review those projections. If there is a change in sales (such as that $2 million work order that just came in the door), adjustments to your projections will need to be made.
How to Interview the Sales Function
There are many questions that you can ask to nurture the relationship between the CFO/Controller and Sales.
Does your sales team focus more on short- or long-term sales cycles?
It’s important that you understand how your sales team functions. If your sales team is continually maintaining or growing revenue, adapt to how they function rather than change their way of doing things. What is most effective for your product and your company? Is it reasonable for your company to have short or long term sales cycle? Identify which camp you fall into then adapt your accounting to that camp.
Keep in mind what’s appropriate. If it takes 3 months to sell a toothbrush, you may want to discuss that this length of time doesn’t make sense for the product itself.
What motivates your sales team?
It’s your responsibility to improve profitability and cash flow. If your sales team would perform better with incentives, then it would be appropriate to consider and develop an incentive program that would a) improve profitability and b) improve cash flow.
For example, ABC Company granted a 10% commission on every sale made. They utilized this method regardless of the dollar amount that was sold. The salespeople of ABC Company were selling 5% more than the previous month but were selling only low margin items. Because of the way commission was set up, cash was tied up by the sales force, limiting the amount of profit that was available to reinvest back into the company. This created a situation of low profitability and limited cash flow.
ABC Company, knowing that the sales force wants a reward for their behavior, could reward a commission based on a target DSO or a profit margin (i.e. know your economics when calculating this). ABC Company could award 10% of the profit margin instead of 10% of revenue. This would motivate the sales team to sell higher margin items.
Example 1: 10% Commission on every sale made.
Revenue $100
COGS $45
Margin $55
>> Commission = $10
Overhead $20
Net Income $25
Example 2: 10% Commission based on Profit Margin.
Revenue $100
COGS $45
Margin $55
Overhead $20
Net Income $29.5
>> Commission = $5.50
Get your sales team to focus on the bottom line!
What ways do your sales team see that the organization could do better?
Interview your sales team to find how the organization could do better. Take all of the suggestions they give you and prioritize them. Take 5-8 actionable items and start planning how you could implement these suggestions.
Sales and accounting have two different perspectives. Take advantage of that! Sales might see ways of improving profitability and cash flow that you’re not able to see.
What could YOU as the financial leader do for your sales team?
Provide incentives for your sales team. Measure their progress. Provide specific goals that will help cash flow and profitability.