Sales: Measuring their performance
September 16th, 2010
Copyright © 2010 Integrated Profitability TM
(This article is published concurrently at the “Integrated Profitability” blog. Please visit for the full series of articles.)
Given what Sales people do, their accountability, and the information they use in performing their jobs, what are some of the ways to measure how well they are performing?
The task of measuring sales performance and the subsequent rewarding of that performance is a deep, board, and constantly changing topic. Sales people are exquisitely tuned to the structure of sales incentives and are very quick to adapt to the way any incentive program is structured to maximize their personal reward. Thus, the construction of sales incentive plans must anticipate the ways that the plan will cause sales people to react in terms of what, how, when, and to whom they make sales.
Here are a few common approaches:
● Amount of Sales revenue, based on signed contracts ($)
● Revenue growth ($ and/or %)
e.g., change in actual revenue booked from customers in the Sales person’s portfolio
● Closed deals
● Implemented deals
● Retention rates (# of customers; $ of revenue)
● New customers/relationships
● Lost business
● Penetration
e.g., the degree to which a customer’s known business needs are being met by your company’s products and services
For example, a bank may be a counterparty with a corporation’s foreign exchange (FX) trading activity. Penetration is increased if the bank becomes the settlement bank for that corporation’s FX transactions.
● Share of wallet
e.g., the amount of a customer’s known spend-for-products/services is being met by your company’s sales to them
For example, a corporation might buy all of a particular raw material from one supplier; or a bank might handle all letters of credit for a corporation
Finally, and of critical interest to the Sales people, there is the data that feeds directly into formal Sales Incentive programs to calculate performance according to the predetermined structure of the plan, and the calculation of the reward amount.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 80
Telephone: 925-202-6244
Copyright © 2010 Integrated Profitability TM
Numbers People in Action: Planning Process
August 24th, 2009
Copyright © 2009 Integrated Profitability TM
Another continuation of the suggestion that came in to
“…include a simple but meaningful scenario which you’d have the three Numbers People work through to posting, reporting and interpretation and planning…”
The first article set up the simple scenario, the second dealt with Accountants & Bookkeepers. And then Finance: basic, financial analysis and financial planning. This article covers a process to do that planning.
The Planning Process
Most “Plans” start with the financial numbers that have been created for and used by the regular (monthly) reporting. Of particular importance is the most current trend within those numbers (e.g., what’s going up? what’s going down?), as well as a good understanding of the underlying business drivers of those trends. Using the trends and the drivers, Finance can model what most likely will happen, assuming those trends continue. This initial set of future numbers then needs to be adjusted based on input from other stakeholders. Each of the main financial sections (e.g., revenues, expenses, assets, liabilities) may be adjusted up or down based on the other stakeholders’ views of the future from their particular areas of expertise:
● Economists: provide information about the high-level business and seasonal cycles (e.g., is the business in the up or down part of a cycle?) and various rates (e.g., interest and foreign exchange rates)
● Marketing: provides input similar to that from the economists, but more detailed in terms of targeted regions, industries, customer segments and product performance metrics (e.g., are different industries or customer segments moving in different directions? Are there any shifts in products being purchased in the market?)
● Sales: provides even more detailed insight, with the focus on what the company’s customers (both current and prospective) might do with the company’s products and services, including what future transactional volumes and realized prices might be (e.g., what is in the sales pipeline? Is the company losing customers or gaining new ones? What kind of pricing will be needed to retain current business; to close new sales?)
● Operations: working with vendor prices (the company’s cost), transactional volume forecasts from the sales function and their own operational productivity goals, the operational function (e.g., factories, processing centers) provides detailed forecasts on total expected operational expenses (e.g., are postage rates increasing? Is minimum wage going up? Based on the sales transaction volume forecasts, are any step functions going to be invoked, either in terms of personnel, equipment or IT capacity?)
Finance takes the initial set of numbers created from the historical financial books and works with (negotiates with?) other stakeholders to fine-tune the company’s future financial plan to make it as realistic as possible. The company’s financial plan is truly a joint effort.
Again, notice how “The Numbers” become so dependent upon non-financial information? And how the menagerie of Numbers People has increased?
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 41
Copyright © 2009 Integrated Profitability TM
Cash Flow: Revenue (Actual)
July 6th, 2009
Copyright © 2009 Integrated Profitability TM
This is the third in the “Cash Flow: Revenue” string of articles and the focus is on ideas to increase Cash Flow on a permanent basis. The first two articles covered temporary, timing ways to increase Cash Flow (“Cash Flow: Revenue (Timing)”) and the grey area between timing and actual improvements (“Cash Flow: Revenue (Grey Area)”).
As mentioned in “Cash Flow (Intro),” the only way to permanently improve Cash Flow over the long-haul is to widen the spread between Revenue and Expense (where both are on an “All-In,” net basis). As long as net-revenues (converted to cash) are increasing faster than net-expenses (paid in cash), the company’s cash flow is improving.
(Note: there are specific relative trends that can cause cash flow to behave counter-intuitively, but we’re going to ignore those for now and perhaps pick them up at a later time.)
How to increase revenue is an age-old question facing businesses, and the full topic is far beyond the scope of this article. While the thoughts below are limited specifically to the revenue side of the Cash Flow equation, the steps are very similar to those taken to increase sales and revenue overall. Here’s the first one:
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