Should CFOs Advise Sales?
Yes, we did say it: most companies should have the CFO – if they are experienced and strategically-capable — advise the Head of Sales. Here are four reasons why:
1. Margins: It’s not what the dollars you get, it’s the dollars you hold – most salespeople (TechCXO Sales Executives excluded) aren’t keeping their eye on margins. They are doing what they are supposed to do – convert leads, sell, hit goals. Often that will include loose contracts that include deep discounts, even if their hot-selling product has little competition. A CFO may forbid discounts for products with little or no competition. Conversely, since cash is important too, a CFO may deeply discount inventory for clearance, promotions, or incentives. When the focus is on margins and profitability, logic – and profitability — reigns.
2. Pricing: Pricing and profitability go hand-in-hand. In a previous article, we noted that a 1% improvement (increase) in your price will generally create an 11% increase in operating profit. If a profit goal requires an overall 2.5 percent price increase, for example, CFOs can create systems that optimize individual product prices based on multiple dimensions (including geography, distribution channel and brand) rather than raise every price on the list by 2.5 percent. A CFO can also quantify power and risk, in that the company can increase price most where there is the highest power and lowest risk, and be most cautious where power is low and risk is high.
3. Customers: Companies consistently coddle its larger, better-known customers for prestige, perceived branding advantages and other reasons, even if it is actually small and midsize customers that are the most profitable. For example, some of your customers may be taking too many deliveries or requiring too much service; or order sizes may be too small to justify delivery costs. Perhaps the mix of products is wrong to keep the deliveries cost-efficient. A CFO who understands customers at the item level can overcome flat or down revenue with vastly improved profit margins via the right mix of customers.
4. Business Discipline: Sales are exciting. So exciting, in fact, that the CEO and Head of Sales can get caught up in some strange behavior such as a string of non-standard quotes. Enough “custom selling” will start to compromise the strategic plan, operating plan and actual decision making. After the third non-standard quote, the whole market may be wondering if the company is setting a new street price. CFOs need to forecast, refine and simplify to attempt to build predictability into the business. With ad hoc processes, controls are lost along with the ability to ask: Is this trend showing us something about the business? Is our message right or wrong ? What is the market telling me? Do I have the right sales team? Forecast-Refine-Simplify-Repeat offers an organization institutional discipline.