What is the Most Important Sales Metric for the CFO?

When asking leaders of an organization what the most important sales metric is, you’re bound to receive a mix of answers.  But, more often that not, the most popular answer inevitably will be total sales volume.  Sounds reasonable, right?  I suppose that depends on which of the following 3 people you’re asking.

(1) Head of Sales

The head of sales is likely to measure the success of the business by the total sales volume.  Sure, he or she will tune into the total count of units sold as well as the average deal size, product mix, regional performance, etc..  But what matters most to this leader is the total sales number.  Was it higher than the previous month?  Was it higher than quota or budget?  And was it high enough to warrant maximum commissions dollars?  These are the important questions that a sales leader considers when evaluating sales performance.

An increasing trend is over time is the ultimate goal, as the head of sales wants to show the executive team that he or she is not only achieving expectations but exceeding them.  Sure, some external factors (e.g., market conditions, government regulation, industry consolidation, etc.) can play a role an organization’s sales performance.  But, at the end of the day, the head of sales is responsible for increasing sales consistently.

(2) Chief Financial Officer

The Chief Financial Officer loves seeing an organization’s sales number increase.  But he or she also loves seeing the profitability measures increase even more.  And these profitability measures are driven on the top line by revenue growth.  Given that some sales figures won’t see their revenue recognized for a period of days, weeks, or months, a CFO is happiest when revenue will be recognized as quickly as possible.  If a solution must be built for a customer and won’t be delivered for 6 months, then the company very well might not see the revenue dollars flow through the income statement until 6 months after the sale.  But if the company sells a service or product that will be delivered and executed immediately, then the revenue is likely to be realized right away.

In addition to the revenue consideration described above, the CFO is also tuned into the product mix that is sold.  If a technology company is primarily selling software products, the CFO is usually as happy as can be since software products are typically very profitable.  But if a month’s sales are dominated by hardware and/or outsourcing, the CFO might not be as thrilled as the head of sales since hardware and outsourcing have significantly lower profit margins typically than software.

(3) Chief Operations Officer

Sure, the Chief Operations Officer loves when the sales car is driving very fast and attaining speeds previously considered unattainable.  But the COO is going to pay incredibly close attention to whether the car is firing on all cylinders and whether any bottlenecks might be rearing their ugly heads.  From his or her perspective, the sales number is the outcome of the process.  When measuring the cycle time of a widget, the COO is concerned about how long the execution is between the time the consumer places the order and receives the product.  If the industry average is 14 days, and Company ABC is averaging 20 days, you better believe Company ABC’s COO is going to be beating down the door of the production and delivery teams to learn what can be done to reduce the cycle time.

The COO frequently sees the sales number as an output of the process.  Is the company’s capacity outweighing demand or vice versa?  If demand is exceeding capacity, the COO needs to find a solution immediately to increase the organization’s capacity.  And if the cycle time is faster than the industry average and if the organization employs a lean and mean production process, then the COO is going to hope, and expect, that sales will exceed expectations.  In this case, the head of sales will be responsible if monthly sales fall short of the goal since the COO has set up the sales team to succeed.  

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Scott Miller

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