Interviewing the Sales Function: Achieving Accurate Financial Projections
Financial forecasts often miss the mark due to friction between finance and sales. Sales teams may overestimate revenue potential, leading to unreliable projections. To avoid this, CFOs and financial leaders should collaborate with sales, treating them as strategic partners, to develop accurate and actionable projections.
The Sales & Forecasting Dilemma
Sales teams often resist forecasting because it creates pressure and accountability. Financial leaders rely on sales projections to drive EBITDA improvement, but inaccurate forecasts can damage the finance-sales relationship. Instead of assigning blame, engage the sales team to refine projections.
The Sales Team’s Crucial Role in Projections
- Marketing & Sales Alignment: Improve projection accuracy by aligning sales and marketing strategies.
- Production & Inventory Impact: Sales forecasts influence production schedules, inventory planning, and resource allocation.
- Regular Forecast Adjustments: Review forecasts at least monthly or quarterly, especially when closing significant deals.
Key Questions to Guide Sales Team Interviews
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- Short-Term vs. Long-Term Sales Cycles: Understanding the team’s focus helps finance adjust projections. For long sales cycles, prioritize pipeline metrics over monthly revenue.
- Sales Team Motivation: Align incentives with company goals to improve performance. If focused solely on revenue, they may push low-margin products.
- Solution: Incentivize based on profit margin or cash flow impact.
- Commission Structure Adjustment Example:
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- Scenario 1: 10% Commission on Every Sale
- Revenue: $100
- COGS: $45
- Margin: $55
- Commission: $10
- Overhead: $20
- Net Income: $25
- Scenario 2: 10% Commission Based on Profit Margin
- Revenue: $100
- COGS: $45
- Margin: $55
- Overhead: $20
- Net Income: $29.50
- Commission: $5.50
- This adjustment encourages sales teams to focus on high-margin deals, improving profitability and cash flow.
- Organizational Improvements: Sales teams offer unique insights into customer needs, pricing, and market demand. Implement 5-8 actionable suggestions based on their feedback.
- Finance’s Support Role: Provide clear performance metrics aligned with business objectives and incentives that drive profitability and cash flow, not just revenue growth. Sales should also have access to financial data for better pricing and sales decisions.
A well-aligned finance and sales team leads to more accurate projections, better cash flow management, and stronger company performance. Collaboration empowers financial leaders to create a data-driven strategy that benefits all.
