Sales and finance – now there’s a tale of sibling rivalry if ever there was one.
On the one hand, you’ve got finance teams reviewing finance data and results, taking a detailed and systematic view of how the business can operate more effectively. This might be investing in new technology and infrastructure to drive growth or reviewing cost models to see where efficiency savings can be made without impacting the business.
On the other hand, you have the sales team, who target the needs of their customers. They focus on building customer relationships, understanding their problems, and developing innovative solutions to win business and earn commissions. There’s often a belief that there are always more deals to be had if only the company could invest more in marketing to generate more leads by doing more events and engaging more in customer hospitality.
That isn’t to say that either side is wrong. It’s more that both sides are looking at the same challenge – how to take the business forward – from vastly different perspectives.
If a business – and CEO - places too much weight on either side, it will likely run into difficulties in one way or another. Listen too much to the finance team, and you risk investing too little in sales and marketing activities. Listen exclusively to the sales team, and you may spend too much for too little return, and your business will come to a standstill.
In many ways, the relationship between the sales and finance functions is the most critical in a company. Get it right, and the business will thrive. If it becomes too adversarial, it can be problematic for the whole company.
Let’s explore what both sides need to do their job well and how they can help each other to be more effective. Let’s also explore how technology can help deliver this harmonious relationship.
What the Sales Team Needs (and How Finance Can Help It)
The needs of the sales team in generating revenue are significant. Let’s explore them in detail.
Leveraging Data for Enhanced Chances of Success
There are typically only 200 selling days yearly once you consider vacations, weekends, and public holidays. This means a sales team has to engage with the right opportunities as quickly as possible.
Clearly, the role of the marketing function is to help define the opportunity and the target market and generate leads that the sales team can close.
The more tightly a market is defined, the more effective sales and marketing campaigns will be. It can be defined as a geographical area, a demographic segment, a specific industry sector, or the size of an organization, whether by headcount or turnover. It should also include the target personas most likely to be the decision-makers and influencers in the buying process. This approach provides a framework that helps develop campaigns that get a sales team off to the flying start they need.
You can extend this approach to capture how people buy your products and services to make your campaigns even more effective. Are they responsive to promotional campaigns and discounts? Do they buy from you on a limited but regular basis? Do they buy directly from you or via a third-party business partner? Do they prefer buying online, or do they prefer to have a personal relationship with a salesperson?
If you align how people buy with your sales and marketing process, prospects will likely find engaging with you a more valuable and worthwhile experience, rewarding you with their business and loyalty.
Customer and market data is central to helping companies achieve all this in the tight timescales they have to work to. This data can be found in various platforms, including CRM platforms, eCommerce platforms, and industry databases.
It can also be found in the applications run by the finance function.
These finance applications are rich with information about customer buying behavior. You can see what customers purchased and when. You can see the average order value and how large the margins were on specific products and transactions, both at the time of sale and over your customers’ lifetime. You can see how customers timed their orders, when they upgraded, and when they ceased being customers. You can also see where the revenue came from, whether online, directly, or indirectly through a third party.
Incorporating this insight into your sales planning can only make your sales team more effective.
Delivering More Revenue
As well as fine-tuning the go-to-market plan of a business, there’s scope for the finance team to help the sales team to take a strategic approach to develop the business.
To illustrate this, let’s explore a common topic of discussion between sales and finance: profit margins.
Salespeople promoting products are typically rewarded based on their gross revenues. This doesn’t always fully reflect the cost of delivering the products themselves. While a cost element is likely to be an implicit element of their sales quota, they can – in principle – close business with little or no profit. For some companies, this might be a deliberate strategy to build market share. For many others, it’s unsustainable and is a situation where the finance function will likely begin to flex its muscles.
Depending on the strategic direction of the business, a CFO may wish to prioritize margin protection over growth or growth at the expense of profit margins. However, if there’s an opportunity, the CFO will try to balance the two to achieve profitable and sustainable growth over the longer term.
Let’s see how that might work.
Depending on how your product is configured, it might be more valuable – or more profitable – for customers in the retail sector compared with the distribution sector, for example.
The data the finance team can give you about this situation can help you understand whether you should develop a strategy to target retail customers with a different, more valuable offering while perhaps offering a less complex product set to distribution customers.
This can help equip your sales, marketing, and product teams to develop subtly different offerings at different price points based on customer buying behavior and the margins they generate.
This data can even be used for ‘what if’ scenario planning to see which product and pricing mix options create the best outcome for the business.
Sales Compensation Management Insight
One area valued highly in the finance function is getting value for money from any business expenditure. A high cost for any business is its sales compensation model.
A well-developed and defined compensation model, thoroughly aligned with the business’s needs, will reap significant rewards. In contrast, one which does little to help the company grow and is based on outdated assumptions will likely be more expensive and less successful.
However, there’s a balance to be struck between the expectations of the finance function and the experience and insights provided by the sales team.
While sales managers will want stretching targets to maximize revenue growth, they’ll want to avoid unrealistic targets that their sales teams will feel are unattainable and who’ll vote with their feet.
Finance teams must also ensure that their revenue expectations are reasonable and achievable. While the customer is sensitive to their suppliers looking to increase their costs at an affordable rate, they are very sensitive to attempts at increasing costs unreasonably, especially if they are ‘locked in’ to using a product or service for some reason.
The ideal approach will be for companies to model their sales incentive plans based on the needs of the business. This way, they can develop models based on commission levels, bonus structures, sales targets, and other incentives that fully reflect the market opportunity and business needs.
Another area where finance can help the sales team is understanding broader strategic developments in the market. Finance teams don’t just compile reports and say yes or no to new investment opportunities.
They often have expertise that looks outwards at new business opportunities, whether it be mergers, acquisitions, or spin-offs, for example. Equally, it might be seeing how new ways of doing business might impact a company; for example, product-led selling models, which have the potential for faster customer acquisition and higher margins.
In short, the finance function can be a source of intelligence that can help the sales and marketing function develop initiatives to take the business further and farther in its planned development direction. You can use your sales, marketing, and finance data to see how well these ideas might apply to your business.
How Sales Can Help the Finance Function
This situation is a two-way street. The finance team has an important task to do, and it’s every bit as necessary as the sales and marketing teams. Their job is to manage the cash flow and finances to ensure the business remains solvent. To a significant extent, their job is to look for trouble that could catch the company out, which is where a bone of contention can lie between sales and finance: sales forecasting.
The Value of Effective Sales Forecasting
Forecasting is a staple for most salespeople and their managers. Each salesperson will submit a sales forecast every week or month to their sales manager, who in turn rolls the consolidated forecast to their director or VP of Sales. As well as the sales forecast, there’ll likely be an ‘upside value’ covering deals that could close if circumstances were favorable. A sales forecast is the sales team’s commitment to the business per week, month, or quarter. Hopefully, a sales team will hit quota, but if it can’t, it must meet its forecast.
Getting visibility into what makes this number up is a challenge for finance. Their concern is that there’s more hope and optimism behind these sales commitments rather than firm customer commitment. Let’s be clear; sales teams take their forecasting responsibilities very seriously. But sometimes, this can – and does – go wrong.
The issue is that the finance function – like any management function – doesn’t like surprises. If there’s bad news, the preference is for it to be given early, especially when guidance has to be given to shareholders and the financial markets.
Another challenge is that the more distant the timescale being forecast, the less accurate a sales forecast becomes. If the finance team is looking at the business case for an investment, having a detailed analysis of the potential market can help swing the decision one way or the other.
Giving the finance function ready access to the sales forecasting and the metrics and data that helped to create the sales quota and territory plans initially helps them understand the market dynamics and opportunities.
Generating Value for Money
We’ve already touched on the finance function’s need to get more value from corporate spending. Finance teams always advocate automating manual processes to eliminate errors and mistakes and allow staff to focus more on their ‘day job’.
Automating sales planning, sales incentive management, and commission management helps everyone. It helps sales managers take a more systematic approach to sales planning and allows salespeople to better understand their commission models and quota achievement. It reduces the workload of the sales operations team while helping the sales team as a whole focus more on the needs of their customers.
Leveraging Technology to Align Sales and Finance
There’s a surprising amount of common ground between sales and finance, and it’s a relationship that can work for them both – and the wider business – if approached the right way, using technology that’ll work for both.
Data lies at the core of achieving this, with data captured and consolidated from various systems, including CRM systems, industry datasets, and finance systems.
Modern SaaS-based sales analytics platforms can capture and consolidate large volumes of sales, customer, and industry data in one place. Managers can use AI capabilities to navigate all this data to understand and master the trends and dynamics of the sales and marketing process.
Designed for non-IT users, these toolsets help with issues like data integration, data analytics, ‘what-if’ modeling, and sales planning. They help you sift all your sales and marketing data to access new insights and opportunities to build your business.
Learn more about using insights from sales and finance to create more effective compensation plans in our eBook, How to Create Better Comp Plans.