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To Maximize Growth, Get Sales and Finance in Sync

How do you know if your business is struggling? If you are not growing, if your sales are not bringing in the cash, or if you don’t have enough cash to pay your bills, then it’s likely that things need to change. One of the first steps is getting sales and finance working together. The sales team needs to track revenue accurately; the finance team should be seeing the same numbers.

In many small companies, the finance and sales teams work in silos. The numbers that go into each department’s reports are completely different: One shows revenue, another shows profit; one lists accounts receivable (A/R), the other A/P (accounts payable). Without a common set of numbers for all employees to see, it’s difficult to make good decisions.

Here are five suggestions that can help you get the two teams working together:

1) Align metrics. Create common measures to which both departments contribute, such as revenue or margin per employee. Everyone should have a clear understanding of how they fit into the company’s business model, and what their contribution is to the overall growth of the business.

2) Work together. Meet regularly to review performance. Salespeople should know what a profitable customer looks like, and finance should understand trends in pricing and volume. At a minimum, create a monthly meeting between key contributors from both groups—quarterly is even better.

3) Use automation tools that work for you. Today, companies of all sizes use all manner of software tools to track sales and finance. Depending on the size of your business, utilize more than one if necessary. Some companies like Xactly use compensation management software to make it easier to align commissions with company goals.

4) Put together a complete picture for yourself and other leaders. Your sales team may have access to all the tools needed to understand their performance, but do they have visibility into how it fits in with company goals? Is finance providing the necessary information? If not, what are you doing about it?

5) Create a culture that rewards collaboration. It’s up to your leadership team to foster an environment where collaboration is a priority. Sales and finance working together can help you make better decisions, avoid costly mistakes, and grow your business.

Now that we’ve talked about what to do to get sales and finance in sync, let’s talk about why it matters. The average company spends nearly 30 percent of its top line revenue on overhead costs such as sales and marketing, R&D and general administrative costs. That means that every dollar in sales only brings 70 cents of profit to the bottom line.

As a result, companies are looking for everyday ways to increase the effectiveness of their labor force—and that’s where alignment between sales and finance can pay off big time. By putting effort into aligning your sales and finance teams, you can increase the productivity of your labor force by leaps and bounds.

Consider this scenario: Two companies have the same revenue, but Company A has $1 million in profit while Company B has $100,000. To get to that level of profit, Company A had to make three times as many sales as Company B. Here’s how.

Company A is a manufacturing company in a commodity-driven industry, and its salespeople sell on price. They key to success with these customers is driving down costs, which reduces the selling price—in other words, competing on cost becomes part of the selling process. For every dollar in revenue, the company spends $0.70 on overhead and only keeps $0.30 as profit, which means it has to make three times as many sales as Company B (which sells a lifestyle product) to make the same amount of profit.

Company A’s average transaction size is $500, its close rate is 30 percent and its discount rate is 20 percent. For every salesperson making 50 sales per month, this company spends $2,500 in commissions and incurs expenses of $1,250 for the average transaction size—that’s 70 percent of its profit right off the top.

If Company B sells to 300 customers in a month (50 each), it will spend an average of $5 per transaction and generate a profit of $100. On the other hand, Company A must spend an average of almost $27 per transaction to get that same sales volume from its lower-priced customers—meaning it will spend 80 percent more on commissions and expenses. In the end, Company A’s profits are three times smaller than Company B’s.

When sales and finance work together, companies can better understand how to allocate resources and make better decisions about investments in financial tools and technologies—enabling them to become more profitable.