You have to do a detailed analysis of where your base point is financially, what are your current overall expenses and what you need to do to be profitable.
- There have been many times in my career when I wanted to or needed to make a change with the structure of the sales organization I managed. This might have been to add resources, reallocate staff into different channels, or possibly shift budgeted items from one line item to another. As managers, this is an important responsibility that we all have to adjust and refine our structures based on the needs of the marketplace and opportunities or obstacles we're facing. For me, it's a lesson I learned early on about the impact any changes have on financial models.
There's Newton's Law that says that for every action there is an equal and opposite reaction. Well this is also so true for finances, since any movement of expenses, revenue, compensation and staffing can alter an entire departmental P&L. Years ago, I was working with my manager on some changes that I assumed were pretty straight forward. My plan was to shift some staff, move some sales promotional expenses into more travel and entertainment funding, cut some dollars allocated for conference attendance, and proposing to add two more sales people.
My manager liked the idea and then asked if finance was on board with my proposal. My head shifted like a dog whistle had gone off and I looked clueless. Whether your business is a brand new startup with just a small revenue total, or you're a part of a multi-billion dollar organization, the reality in the business world is that the finance department has to know what's going on. Yes, the executive teams drive the direction of your company with their leadership and strategic planning, sales and marketing are the teams that bring in the revenue to drive the growth, however, if the numbers don't work and the profitability isn't where it needs to be, then whatever plans you may be developing aren't sustainable.
As you look to develop a sales chain of plan, get your finance person or team involved with the process right from the very start. I've been fortunate to have worked with some great finance people in the course of my career. When I made them a part of the process, and asked for their feedback, it's created a win-win for everyone. Your first step is to be clear with what your staffing looks like now. This includes all expense items, from compensation, healthcare, and incentives, to T&E, training, and technology costs.
Develop a staff expense to revenue ratio. For example, if the sales department total expense budget is $700,000, and the sales generated from that team are 9,000,000, then the ratio is 7.7% Every company has target numbers, so here's where working with your finance manager is so critical. Then you need to fine-tune those numbers by breaking them down by the sales channels you're currently working with. The ratios are going to be different for each one.
Channels with large revenue accounts may have expense ratios in the low single digits, whereas the ratio could be well over 10% for high-cost channels. There's no right or wrong ratio percentage, as it all depends on the channel. However, what you need to do is be in agreement with your manager and the finance department as to what benchmarks you're targeting by channel, and for the overall sales department. Knowing your cost, revenue, and your staffing expense comes as second nature to most sales managers, but as you look to expand, or look to refine your structure, it can be more of a challenge.
Having your finance manager as a partner in this process can be so beneficial. Being clear with expectations, profitability, sales targets and expense ratios right from the beginning is critically important in sales channel management.
- Surveying the marketplace
- Reviewing channels
- Managing channels and investments
- Developing a go forward plan
- Working with other departments and teams
- Handling channel conflict
- Forecasting sales
- Creating a channel marketing structure