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Sales planning and financial aspects

In the alignment and integration of strategy, marketing and sales, managers develop the sales
planning based on financial aspects. This approach is the prescription for an ideal planning process;
however, not always can managers follow the prescription due to the limitations of time and

Consequently, it might be possible that the sales plan doesn't have all financial considerations that
managers would like to apply in the process.

Also, watching Leia and Logan talking about the financial aspects, one can capture the idea that in
many cases, salespeople just focus on selling. And the overall financials of the selling process are
assumed as already addressed.

Would it be correct?

Sales and finance functions

Typically, it's not rare to have salespeople too focused on numbers. And by numbers, it should be
understood the ones such as volumes, units sold or contracts closed.

Leia and Logan's conversation was about the financial aspects of sales. Although a salesperson
core job is selling the products and services; from an integrated perspective of strategy, marketing,
and sales, the responsibilities are not limited to the boundaries of the sales function, because it
presents strong connections with marketing and the company's strategy.

In other words, salespeople can sell lots of units, high volumes, but what about the profits and losses
(the P&L)? What about the revenues, the costs to serve and the financial results? What about the
company’s return on investments?

This subject is a top issue in business. The typical corporate objectives are related to earnings, cash
flow and other indicators related to value creation. The physical goals, such as volumes, units sold,
market share or contracts may not generate profitability, cash flow or any form of expected value
that corporate managers would have as objectives.

In other words, managers should care about the P&L. Selling function will create the most value as
much as it is aligned and integrated with the strategy of the company.

Of course, if established goals are in volumes or units sold, maybe the revenue drivers and the costs
are already assessed so that the profits and losses are not an issue at all. Anyway, managers
should test if this is the case because, as in Leia and Logan's conversation, it's not rare the situation
in which salespeople don't care about the financials in the hope they've already addressed before.
If it's been addressed before, then the incentive program would align to the P&L analysis, so
salespeople wouldn't have to worry about the results. They would just have to achieve their goals.

However, as straightforward as the situation may look like, there are important aspects that must be

For instance, managers should evaluate how accurately was the analysis regarding the revenues
and the costs to sell or to serve customers. This analysis should be done, at least as a double-check
process because every time selling goals are volumes or units sold, it might be recommended to test
the potential P&L because from the price list to the actual value charge from customers there's the
discount policy.

The level of discount is typically addressed in the marketing and sales budget planning. Sales
planning is always developed during the budgeting process because most of the selling expenses
have to be budgeted. This is an excellent opportunity to check for the P&L of the sales function.

A word on information system

Also, the quality of information available to managers may not be good, which means the basis to
support such analysis may reduce the capacity to do a structured estimation of P&L.

Managers should remember that management information systems are not unfailing instruments. If
garbage goes in, then garbage comes out from the system.

Credit policy

There is also the credit, pricing, and discounts policies that may influence the results. A strict credit
policy will lead to fewer sales, on the other hand, a loose credit policy will increase sales. Discounts,
as mentioned before, can reduce the potential revenues. Therefore, the discussion of credit, pricing,
and discount policy is at the core of the sales planning process.

A selling event doesn't guarantee profits; it doesn't even guarantee revenue. This latter item will only
exist if the customer pays for the transaction. The challenge for sales managers is that salespeople
may consider the collection process as management's problem, not theirs.

As for the credit policy, the selling process is preceded by an analysis of the buyer, regarding three
important aspects, which relates to assessing if:

(1) the buyer can pay for the acquisition

(2) the buyer will pay for it, and

(3) what would be an adequate level of credit to give the buyer

An evaluation of the answers to the questions above will lead managers to the analysis of buyers'
capital, capacity, and character, which are commonly known as the three C's of credit.

The C of capital is related to assets, liabilities and net worth of the buyers. The analyses on these
aspects can support an estimation of the buyer's value generation.

The C of capacity is related to buyers’ income, or how much the buyer can generate in revenues and
convert them at the bottom line regarding net income.

The C of character is related to buyer's willingness to pay. The buyer may have good net worth and
capacity to pay, but these facts don't mean they'll pay.

This whole discussion is about credit and collection. Typically salespeople tend to focus on sales,
which is not wrong at all. If in the sales planning process managers have included guidelines
regarding credit and collection policies, then salespeople can focus only on selling.

In contrast, if this is not the case, then managers should review in depth the credit policy, and also
check the collection policy with the financial team of the company. The usual way of doing this is to
align with the financial area because credit rating and collection cycles are indicators typically
monitored by them.

This integration is crucial for sales managers, a significant part of the conflicts come from the
misalignment between what salespeople understand is the credit policy or the collection policy.

Managing the customers' profitability

The size of the contract doesn't mean the contract is profitable. This belief is a common
misconception found in sales areas of companies because not all large customers are profitable.

An approach to mitigating the consequences of this misalignment is to analyze the costs to serve
customers and compare them to the profitability. In the sense that if they are below a certain level of
this ratio, then the relation between costs to serve versus profitability is unattractive to the company.

Sales managers should not neglect this relation.

Every transaction in which the company gives credit to the customer means that managers are
applying the company's working capital to finance customers.

In other words, the company might even be borrowing money from the bank at a high-interest rate,
to finance its customer. Consequently, the customer doesn't have to borrow money from their bank
to pay for the acquisition. The cost of the customer's working capital could be more or less
expensive than the cost of capital the selling company. In summary, the issue under discussion is
the company's cash management and the negotiation terms with customers.
The accountants' motto and the integrated costs

"Revenue is vanity. Profit is sanity. Cash is the reality!"

This motto emphasizes that the sales function should focus on cash generation, not only in revenues
or profits.

Managers also have to consider another cost item of marketing and sales budget, which is the back-
office activities. And it may represent a significant cost for the company.

Whenever a supposed profitable sale contract is closed, the company's managers have to collect the
money. And this event may or may not happen, depending on the customers' potential to pay.

A final word: If managers can integrate the strategic guidelines for marketing and sales planning, it's
possible that the whole operations of the company will generate profitable sales. And the profits are
the results of satisfying the customers. In this context, analyzing P&L of sales would be facilitated
because the major issues would already be addressed in the sales and the budget planning process.

Anyway, managers should permanently be evaluating the results with regard the results. Otherwise,
the company may lose money.

In this introductory text, some financial aspects that should be analyzed to support sales planning
were discussed.

For more about these topics, see the references.


Shim, Jae K., Sales management: Products and services. Global Professional Publishing, 2012.

Rackham, N. Major account sales strategy. McGraw-Hill, Inc., 1989