Startup CXO. Matt Blumberg
Чтение книги онлайн.
Читать онлайн книгу Startup CXO - Matt Blumberg страница 29
![Startup CXO - Matt Blumberg Startup CXO - Matt Blumberg](/cover_pre962674.jpg)
Early on, working with the Head of Sales (and sometimes the Head of People) on commission plan design is a way for the CFO to be a huge value‐add partner. Although there are a lot of approaches to designing commission plans, effective ones, at least for software, share a few key things.
First, there has to be alignment between the CFO and Head of Sales because you want their perspective and buy‐in on the dynamics of the commission plan. The commission plan is at its heart a tool to motivate and focus the sales team, so you need to be aligned with your Head of Sales. As CFO, you wouldn't dictate outbound strategy, so don't try to dictate compensation strategy. Your role as the CFO is to know if the company can afford it, to provide metrics if it is working, ensure it is reasonable to administer and fair to all parties and generally competitive in the market. There are a handful of pieces of the plan that will crop up year after year, like commission rates at different tiers, implications of beating targets, channel conflict, and you'll need an ally dealing with the many commission one‐offs that arise. You don't want to put yourself into a situation where you have to make every commission ruling and you won't have to if you're aligned with the Head of Sales. They'll be able to filter and solve the ones that are obvious and consult with you on the ones that are more challenging.
Second, there needs to be fairness between the company and the sales reps which is generally not a problem in normal times, but under extreme ups and downs, it will be challenging. Commission plans that are not stress‐tested run the risk of having situations that are not fair to the employee or the company. Many plans that do not consider extreme (or even somewhat not normal) outcomes can break down and quickly not be fair. A useful technique is to use Monte Carlo analysis to analyze thousands of possible scenarios under different assumptions for each salesperson's possible range or outcomes. You'll want to avoid commission structures that have too much, or not enough, possible variability. If you have super high variability, it will be unfair to one party, either the salesperson or the company; if the variability is too low, you've basically created a structure of deferred compensation, which is not motivational at all for a salesperson.
Another area of fairness to watch out for, and this is where a good partnership with your Head of Sales comes in, is to avoid double commissioning sales reps. Although it may make sense to double compensate internal and external representatives in order to eliminate channel conflict, you want to avoid plans that have full commission paid to two internal representatives.
Third, I'd create a structure with payment at dollar one and no commission caps. In general, plans that don't have caps and some payment on the first dollar of sales, have less gaming and manipulation from sales reps. Rely on your Monte Carlo analysis to ensure fairness with the lack of a commission cap. This advice sounds obvious but, believe me, there will be times in the life of your startup when even a dollar matters, so you have to create your commission plan and stick with it.
Fourth, a commission plan has to be easy to understand and calculate by the sales reps. Ideally, the sales reps will know while they are trying to close a sale how much they will make from that sale. At times, this goal may be at odds with the fairness goal, since sometimes to ensure fairness you'll want to introduce complexity, but commission calculation should not be a black box. It should not be onerous for the sales rep and it ought to fit into the “sales math” that your Head of Sales has developed. Typically, if you have a commission calculator available for each sales rep, they will make use of it nearly every day and as they gain experience, they'll be more savvy about where they are in the sales process and what commission they'll get.
Fifth, be thoughtful and clear about sales targets and tiers. Sales reps need clarity on what their different targets and sales tiers are and how they were calculated. It's important to make sure: (1) you are aligned with the Head of Sales, and (2) you take an opportunity to present targets and tiers to the sales team with Q&A. This will go a long way to reducing friction later as you scale.
Sixth, make sure you have effective communication, timely payments, exception management, and complete documentation of your sales commission plan. Effective sales plans need great back office operations that can keep up with sales, otherwise you'll be a blocker. A key area is to make sure that you provide timely communication to the sales team. You want to avoid the all‐too‐common situation of providing sales reps with their targets AFTER the period has already started. Timely calculation and especially payments are another critical area to ensure that you are actually receiving the benefit of a sales plan. Sales teams can quickly become discouraged with a company that pays them late. Exception management and a dispute resolution process are something many startups do casually for much too long and clarity and transparency of these decisions are also important to keep the sales team motivated. And it is critical that the company has the sales reps sign annual sales plans that document all the important pieces of the plan. This is not only a best practice for an organization but also required for compliance in some regions.
Early on you can generally pay commissions when the company receives payment. At some point when you scale up, you will likely want to move that toward payments on bookings. But you only want to do that once you have a clear understanding of refunds, bad debt, and payment terms, and of course, that you can manage the cash flow implications.
The overall best way to add value to sales can be as a partner to creating and managing the sales commission plan. Commissions are a motivating factor for sales reps and if you can create elements of the plan that are fair, can work in good and bad economies, and that can scale with you, you'll go a long way to helping to smooth the path for growth in your company.
Interest to Order: Order to Cash
I've mentioned interest to order several times and this is definitely a high‐impact area that early‐stage startups need to figure out as quickly as possible. It's critical for your company to understand the workflow that includes the entire process from a lead all the way to collecting the invoice. This workflow will involve a number of different systems, which include the email automation, website landing pages, your CRM, and your financial systems. Essentially anything that touches information from a lead (“interest) to collections (“cash”) needs to be understood and managed by the finance team.
A helpful exercise to get started is to flowchart out the process. Include anything that involves a decision, every bit of information entry/transformation, and manual processes that finance or other teams undertake. This will help you determine: (1) which areas will have a problem scaling, and (2) where your critical sources of truth are for your corporate information. Early on, if you understand where your data sources of truth have to be and you put controls and automations in to ensure they remain accurate, it will enable corporate reporting to be accurate and scalable. Often in early stages of startups, much of this process just appears organically and there are multiple versions of the same data, such as client name, sales rep, and product. This is suboptimal and leads to a reporting process that requires an (often highly paid) person whose sole job is to manipulate the data to make up for the lack of a single source of truth. If you can flowchart everything and create processes and checkpoints around key tasks, you can totally eliminate this.
The flowchart should show the following elements:
Reporting and Analysis
Pipeline Management and Reporting
Forecasting
Training
Ad‐hoc
International
Sales Enablement
Other