In B2B tech companies, your sales team represents the company’s future revenue growth.  It can also be one of the most significant sources of operating expenses, anywhere between 15% and 70% of your total.  But quite often, especially in this new era, the sales and marketing teams are struggling to perform. This article will explore the many ways the finance team can help the sales and marketing team. 

Sales bookings are a company’s future revenues

Bookings represent a total deal value that could be comprised of software, hardware, managed services, one-time services.  This revenue can be collected as cash upfront but almost always needs to be recognized over the length of the contract term, or as work is performed. 

Predicting the flow of cash and recognized revenue is important for cash management, and for timing investments or hires. There are two problems most CFOs immediately recognize:

  • First, predictability of sales bookings.  Sales forecasting has a 100% likeliness of being inaccurate.  Mostly because the data is subject to few but large transactions.  Missing a deal could have a big swing on the forecast. 
  • Second, when a “$1 million deal” closes, what does that really mean?  Is it $1M in annual software?  Or is it $100K over 5 years with a $500K services component?  This has a big impact on revenue recognition, gross margin, and valuation contributors.

CFOs need to ask better questions of their selling counterparts to understand deal composition and forecast in order to better determine the impact on cash flow and timing of investments.

Sales & Marketing is a significant source of Operating Expenses

For growing companies, sales & marketing will add up to anywhere between 15% and 70% of a company’s operating expenses.  CFOs have a responsibility to ask the question, “Are we getting the right payback on that marketing investment?” or, “Is now the time to hire that new rep?”

The answer isn’t always clear because I’ts nearly impossible to attribute one event to a deal, or paid ads to a deal.  With elongated buying cycles, buyers are usually touched by multiple sources and have middle points of attribution. 

Timing of new hiring investments should be backed by data as well.  Is the company generating enough pipeline to carry a new rep?  Do we really expect a new rep to generate their own pipeline in their first year?

How can CFOs help?

We all love sellers, but the best sellers are the best sellers because they are naturally non-compliant – willing to break rules to get the outcome – and they have a low level of patience.  Compliance and patience, by contrast, are two traits that make up the best CFOs, allowing them to dig deep into data.

The best thing a CFO can do is partner with a VP Sales to help out with the analytical part of the VP Sales job. After all, executive leaders are all on the same team.  They want the same thing: a better result for the company.  There is no threat, just a better application of skills.  Here is how the CFO can help organizations improve sales performance:

1. Gain a better understanding of unit economics

Unit Economics is better understanding how many dollars in new revenue does one dollar of sales and marketing get you.  The best performing companies can generate more than $1 in New ARR for $1 in sales and marketing spend.  Seems like a low bar, right?  But if you can achieve this, you’ll be able to grow profitably. 

The key to improving sales efficiency is understanding:

  • Where contribution is coming from,
  • Where the bottlenecks are in customer acquisition, and
  • What the costs are for each channel or source of lead. 

You’ll want to get to a place where you can answer questions like, “Should we spend $50K on this event?” “What will we get out of it?”  “Should we increase our paid ad spend?”  “Should we hire another BDR?” “Should we target this industry or geography?”  Usually, those decisions are made instinctually and are not data driven.

2. Sales Forecasting

Sales forecasting is broken.  There is a 100% probability that your sales forecast is inaccurate.  The reason is that these deals are big and lumpy.  Pushing one deal will have a big impact on your results.  CFOs should take over the sales forecasting function and apply a qualitative approach over a quantitative probability approach.  Forecasting requires good rigor with data management in your CRM to provide any level of accuracy. 

3. Manage the Deal Desk

Let sellers close-won the opportunity, but the finance team should manage the deal desk process.  This includes turning opportunities into orders, subscriptions, and invoices.  It means making sure renewals are being worked in advance of the renewal date.  Opportunities should be using a price list with agreed products, not new dreamed up SKUs from the sales team.  This level of maturity is really important for predicting future revenue and tracking key metrics like NRR/GRR/ARR.

4. Setup Products & Price Lists

Establishing real products with set prices and agreed subscription terms will make it easier to invoice, upsell, and renew contracts.  Seems like a simple thing but as you grow, things get a little crazy.  Establishing a product and price list will make it easier to scale the business.  If the product team or sales team isn’t setting up products with agreed prices and terms, then the finance team should take it over because in the end, it’s the finance team that needs to figure it all out.

What are the sales & marketing metrics a CFO should care about?

These are the metrics CFOs should become fluent in:

Sales Bookings.  This is the dollar amount of sales that is booked.  Booked sales is future revenue, rarely – unless it’s hardware – can it be recorded right away.  Booked sales may also have deferred cash collection.  It’s important to split booked sales out by revenue type.  Some examples are recurring software value vs services, or tracking multiple years of booked sales versus one year, etc.

Opportunity Creation.  The number of opportunities created in a period of time (eg. Monthly, Quarterly, Annually).  Track opportunity types between New Customer, Existing Customer, and Renewal Opportunities.

Win rate.  Number of Opportunities Won over Opportunities Won and Lost in the same period.  Ideally track across New vs Existing, by industry, rep, region, product family, and opportunity source.

Average Contract Value.  The average size of a new contract (bookings).  Focus on new customer opportunities.

Sales Cycle Length.  How many days does it take to close an opportunity from start to finish.  Track New Customer from Existing Customer deals as they will be different.

Sales Velocity.  A number which will tell you instantly if you have enough momentum to hit your number.  It’s the product of Number of Opportunities in Current Funnel x Average Contract Value x Win rate over Sales Cycle Length.  The product will be the number of dollars you are closing each day.  So if your target is $1M new bookings for the year, your sales velocity should be $2,700.  Our handy calculator can give you a sense of how you are doing.

Funnel Attrition.  This is the number of meetings it takes to get an opportunity. 

Conclusion

Selling B2B Technology is difficult and an expensive endeavor.  The sales teams need help to drive efficiency.  The CFO and finance department are in a good position to provide this needed support.  After all, there is a massive opportunity cost to sales and marketing, in addition to the actual operating costs of those investments.

If you think your company can benefit from improved revenue operations functions and access to better data, let’s set up a meeting. We work with technology companies to improve performance across the span of the customer lifecycle from marketing, through sales, and customer success. Let’s Grow!