In the one corner we have our CRO, or sales director, whose function invariably involves spending company money to attract new clients and customers to the business. And in the opposite corner, we have the CFO, finance director or financial controller, whose greatest responsibility is to keep a tight rein on spending.
So how do we make sure that they aren’t arch rivals each fighting their own corner, but are colleagues working collectively to make their business successful?
Any CFO hoping to bridge the gap between Sales and Finance needs to invest their time in technology.
Sophisticated technology can help dictate where best to allocate capital and, as a result, help you to seize business opportunities, generate profitable growth, journey to smarter sales planning and optimisation and execution.
Here are seven reasons why CFOs should use technology to help gain a better grip on sales incentive commissions and wield it to the company’s advantage.
1: Plans and afterthoughts
When it comes to incentivising salespeople to generate revenue, the tendency is to separate this process from other business operations. Unfortunately, sales commissions then become an afterthought, with little consideration to the underlying data.
This can have potentially dire outcomes, from frustrated sales reps to serious margin shortfalls, leaving you with a sales team that is completely out of sync with the company’s business objectives and, as the year progresses, misalignment creeps in.
The message here is that you cannot separate the commission plan from the strategic plan – you must look at all the components of the the incentive plan individually, then map them back to the business objectives to ensure strict alignment.
2: The power of three
A commission plan with too many incentives is sure to end badly. Incentives need to be transparent, orderly, easy to digest, and have minimal components. If sales incentive commissions plans have north of 6 components, reps won’t know where to focus. This means that their ensuing choices may not align with what the strategic plan calls for.
The optimum number of incentives is three; if you offer more measures than that, no one will be able to hit those goals.
For an incentive to motivate a sales rep, it must be both clear and achievable, otherwise you’re effectively throwing money away on an easy objective.
3: Too much, too many
Are too many people, including the wrong reps, being rewarded? If Finance is compensating sales team members whose contributions aren’t crystal clear, then there is a very good chance that the company is oversharing its wealth with individuals whose efforts pale in comparison to others.
It makes no sense to compensate everyone with the same rewards, even for a big deal in which many people were involved. The sales rep that just happened to meet a future customer at a trade show is not as important as the sales rep that closes the deal after the introductions are made. Each one deserves a piece of the pie, just not the same size.
4: Ditching the disincentives
The connection between sales behaviour and rewards can be a powerful motivator or a destructive de-motivator. In order to procure the former, certain such practices must be discouraged: holds and releases, capped commissions, and delayed payment.
If your sales reps did what they were supposed to do and the time has come to pay them, then pay them – now!
Cash flow is an accounting problem, not a sales problem. Don’t make the sales rep a collection agent harassing the customer base to write cheques. Pay your reps as early as possible. Fail to take this advice and salespeople tend to coast. Capping commissions virtually guarantees a rep’s deceleration; they won’t reach their full potential and neither will the company.
5: Purposeful Profits
There is a negative flipside to the commission-cap: unexpectedly high incentive pay-outs that undermine the budget and take a whack at profits. Accelerators, or inexpensive sales techniques relative to their ability to quickly generate revenue, are a great motivating tool for the sales force to go the extra mile. Unless, of course, they end up going 12 miles and the budget strains from the cost.
The solution to this is scenario planning. “What if?” exercises that postulate the possibility of a few high performers earning far more than was planned in the budget must guide the development of the incentive plan.
6: Metrics! Metrics! Metrics!
Gut instinct, intuition, and conjecture are no replacement for solid metrics. Data is sustenance, the bigger the better. This is what gives meaning to big data – plans, performance, pay outs, and positions compared across thousands of data points over time.
A commission plan must be built on a solid foundation of data; this foundation should support the capture and analysis of both internal and external data, all of it quantified to improve decision-making confidence.
7: Wading through the muck
Companies need tools to discern sales commission data, a process that ensures that each and every payment can be traced back to the source, such as a particular behaviour or business event.
All too often, sales reps receive their commission cheques at the end of the quarter on deals that closed months before. Unable to backtrack into the commission cheque, the sales rep has no idea how the cash lines up, or how much money they are making.
Elevate incentive sales commission to a key metrics of company performance; settle on a strategy and outline the incentives that will bring it to fruition.