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Better Together: Sales and Finance in SaaS Comp Plan Season 2024

Ishangi Agrawal
Content Specialist
Published On:
January 1, 2024
April 3, 2024

Before the advent of SaaS, the roles of sales and finance were distinct from one another. While the finance department was concerned with maximizing margins often with a cost-saving mindset, the sales department was laser-focused on generating top-line growth. It seemed like there were two competing goals, which made for some interesting (or not so interesting) friction.

Finance and Sales misalignment  for comp planning

sales and finance misalignment in sales compensation

In SaaS, the role of sales is to acquire, retain, and grow relationships with customers, while the role of finance is to monitor and manage the trade-off between growth and gross profit. Both, Finance and Sales, must pay attention to growing their sales efficiently and use data to make informed choices.

While the finance department is typical of rule-followers and rule-makers, Sales representatives are rewarded for results rather than processes.

Finance aims to be a reliable business partner to sales by helping to maintain efficient revenue growth through the application of data discipline. With automation, Chief Financial Officers (CFOs) and their teams can take on a more strategic role, educating executives across the company on contributing to the company's overall success.

🔔 Must Read: 5 Reasons Why CFOs should care more about Sales Compensation

Sales teams should understand the financial implications of their deals, and finance teams should understand the revenue potential of new products and services. The study says subscription-based pricing models require close collaboration between Sales and Finance to optimize pricing and packaging strategies that maximize customer value and profitability.

The Role of Finance in Sales Compensation

The finance department has considerable input into sales commission structures:

  1. Incentive structure: When it comes to designing an incentive structure, the finance department can collaborate with the sales management team to ensure that the plan is in line with the company's financial objectives. For instance, they can advise on how much of a focus on the most profitable products or services should be rewarded by base pay, commissions, spiffs, and bonuses, and how much should be allocated to other incentives.
  2. Metrics and targets: Sales KPIs and targets that are both realistic and in line with the company's financial objectives can be established with the aid of the finance department. They can also make sure that the KPIs and goals are set up in a way that compels the sales force to prioritize the promotion of the items with the greatest potential for financial gain.
  3. Cost control: The finance department helps ensure whether the current sales compensation plan designed is viable or not. If the sales team's pay plan is not sustainable or isn't generating the promised return on investment, they can engage with finance to make adjustments.
  4. Compliance: Legal and regulatory obligations, such as tax and labor regulations and accounting standards such as ASC 606, can be met by the finance department's careful review of the sales compensation plan.

The Power of Synergy: When Finance & Sales teams take on Sales Compensation together

Both the Finance and Sales Teams care about sales compensation for different reasons.

Why finance cares about sales compensation

Why sales cares about sales comp planning

The company stands to benefit in several ways if the finance and sales departments work together to create and implement a sales compensation plan. This is how a company benefits from aligned Finance and Sales teams:

  1. Aligned financial goals: If Sales and Finance collaboration takes place, they can ensure that the sales compensation plan is aligned with the company's long-term financial objectives. It can direct the sales force toward the items with the greatest profit potential, boosting the company's bottom line.
  2. Improved performance metrics: Better performance measures can be found by working together to create a sales compensation plan. For the company's advantage, this can assist in incentivizing the sales team to focus on the highest priority objectives.
    Also, It has been observed that with better data, identification of top performers becomes easier and when those appraisal cycles come, the company can ensure that their top performers are compensated fairly, in terms of recognition and monetary earnings or both.
  1. Increased financial sustainability: The Financial team may help in making sure the sales incentive plan is viable by keeping an eye on the costs associated with it and offering input to the sales team. This can improve the likelihood that the sales compensation plan will produce the intended outcomes and a return on investment.
  2. Improved communication and collaboration: There will be benefits for the organization as a whole if the finance and sales departments can work together on the sales compensation plan. For instance, this can aid in making sure that the finance and sales departments are on the same page when it comes to the sales strategy's potential impact on the company's bottom line.

🔔 Interesting Read: How Sales & Finance should work together toward a healthier company (beyond sales comp planning)

A recent survey conducted by XYZ Research found that companies with highly aligned finance and sales teams experience a 36% higher customer retention rate, a 31% increase in cross-selling, and a 28% increase in revenue growth compared to companies with low alignment. The survey also revealed that communication, transparency, and goal-setting were the key factors for successful collaboration between these teams.

Therefore, companies must prioritize the alignment of finance and sales teams in their comp plan season strategy. By fostering a collaborative culture, setting shared goals, and maintaining open communication channels, companies can unlock the full potential of their finance and sales teams and drive long-term growth.

FAQs

How does finance and sales work together on sales compensation?

Finance and sales collaborate on sales compensation by aligning financial goals with incentive structures. Finance provides data for performance metrics and ensures affordability, while sales contributes insights on effective motivators. This partnership ensures a balanced compensation plan that drives revenue and financial success.

What is the role of finance in sales compensation?

Finance plays a crucial role in sales compensation by providing data for performance metrics, ensuring affordability and alignment with budgetary constraints, and contributing financial insights to design a compensation plan that motivates sales while maintaining financial sustainability.

How can finance support a sales team for sales compensation planning?

Finance supports a sales team by providing data-driven insights for setting realistic and motivating sales targets, ensuring financial feasibility, and collaborating on the design of fair and effective compensation plans that align with the company's overall financial goals.

How can finance improve sales by supporting sales compensation?

Finance can improve sales by collaborating on strategic sales compensation plans. By aligning incentives with company goals, providing data-driven insights, and ensuring financial feasibility, finance supports a motivated sales team, driving performance and contributing to overall business success.

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