How to Use Sales Performance Management to Protect Your Business
In today’s ‘viability’-focused business environment, a profitable sale is an organization’s greatest asset. Sales Performance Management (SPM) processes are key to determining, managing, analyzing, and most importantly – protecting – this valuable asset.
Every organization should ask itself is “Are my sales generating a positive bottom line, and are my compensation plans generating revenue or affecting the company viability?”
This is not an easy question to answer. An organization must protect its bottom line and its viability while fairly compensating its sales force. It’s delicate. At times this can seem like balancing on a razors edge.
Developing Better Metrics through Sales Performance Management (SPM)
Unfortunately, many companies are still basing growth and revenue predictions on guesses rather than trending metrics. SPM solutions can remedy this situation. SPM solutions allow companies to track sales and compensation, develop the metrics that show trending, and make educated predictions rather than “guesstimates.”
Using SPM, companies can also take control of the data that sets unrealistic expectations and negatively affects their businesses. For example, the system can help identify those outlying sales transactions – the one-time occurrences – that skew the company’s expectations. If these unrealistic expectations stay unchecked, firms could hire people then later be forced to lay them off when the firm realizes it cannot afford them.
Getting a Better View of the Market
A Sales Performance Management system enables companies to set metrics that pinpoint how the market is reacting to a particular sales strategy. For any organization, this is a tremendous increase in flexibility and visibility that allows it to rapidly adjust its strategy. For instance, when managers see identifiable trends in their sales, they can adjust targets and expectations towards the products or services that are selling. Similarly, organizations can react to market changes by reviewing its mix of products and services or diversifying its offerings.
Understanding the Cost of Revenue
To stay viable, organizations must also understand the cost of a sale, both at the line-item level and the organizational level. Being able to identify those factors that affect the sale and how they affect the profitability of the sales for the business is key to determining if the organization will be profitable. Sales compensation is just one of the factors that affect the cost of the sale. Other common factors include the sale price, tax, freight, margin adjustments, credits, discounts, warranties, and retainers, among others.
Companies also face circumstances where the product has a large dollar value, the payments are spread of over a period of time, and there is a possibility of non-collection of payment due to purchaser viability. An SPM system allows a company to bring this information together in one place and analyze the profitability of the sale. Ultimately, it creates a metric reporting if there is need to adjust the sales strategy.
Companies can then roll this analysis up a hierarchical structure and predict profitability by division, region, and corporate levels. Managers can also determine where they should focus their attention by asking profitability-boosting questions such as:
- “Is the discount that we are about to offer realistic and will it still allow us to be profitable?” or
- “Why are there so many Margin adjustments for this division?
These types of questions and others will drive the sales strategy. Most importantly, they will reshape the organization’s thought process – shifting the focus to true profitability rather than just making the sale.
Creating a Single View
One of the most positive aspects of the Sales Performance Management system is the ability to create a ‘single version’ view of the sales and compensation processes. Analyzing the profitability of the sale and how it affects the viability of the company drives an organization’s ability to determine its future.
Sales Performance Management Drives Trend Analysis, not Guessing
Moving data from the SPM system into a Business Performance or Financial Performance Management system enables a company’s finance department to analyze the data from an overall perspective and determine what may be degrading the sales profitability. This allows for predictive trending and analysis based on actual data and not just a ‘forecast’ based on best guess.
Defining and redefining the Sales process and structure to adjust to the market, to the organization viability, and the future becomes a ‘fact’ based decision, and an SPM system allows a more fluid approach to growth and strategy.
To learn more how SPM can advance your company’s goals, contact Intangent today.