Rightsizing your sales force

With a difficult year almost over, and another one on the horizon, now may be a good time to assess the size of your sales force. Maybe the economic changes triggered by the COVID-19 pandemic led you to downsize earlier in the year. Or perhaps you’ve added to your sales team to seize opportunities. In either case, every business owner should know whether his or her sales team is the right size.

Various KPIs

To determine your optimal sales staffing level, there are several steps you can take. A good place to start is with various key performance indicators (KPIs) that enable you to quantify performance in dollars and cents.

The KPIs you choose to calculate and evaluate need to be specific to your industry and appropriate to the size of your company and the state of the market in which you operate. If you’re comparing your sales numbers to those of other businesses, make sure it’s an apples-to-apples comparison.

In addition, you’ll need to pick KPIs that are appropriate to whether you’re assessing the performance of a sales manager or that of a sales representative. For a sales manager, you could look at average annual sales volume to determine whether his or her team is contributing adequately to your target revenue goals. Ideal KPIs for sales reps are generally more granular; examples include sales by rep and lead-to-sale percentage.

More than math

Rightsizing your sales staff, however, isn’t only a mathematical equation. To customize your approach, think about the specific needs of your company.

Consider, for example, how you handle staffing when sales employees take vacations or call in sick. If you frequently find yourself coming up short on revenue projections because of a lack of boots on the ground, you may want to expand your sales staff to cover territories and serve customers more consistently.

Then again, financial problems that arise from carrying too many sales employees can creep up on you. Be careful not to hire at a rate faster than your sales and gross profits are increasing. If you’re looking to make aggressive moves in your market, be sure you’ve done the due diligence to ensure that the hiring and training costs will likely pay off.

Last, but not least, think about your customers. Are they largely satisfied? If so, the size of your sales force might be just fine. However, salespeople saying that they’re overworked or customers complaining about a lack of responsiveness could mean your staff is too small. Conversely, if you have market segments that just aren’t yielding revenue or salespeople who are continually underperforming, it might be time to downsize.

Reasonable objectives

By regularly monitoring the headcount of your sales staff with an eye on fulfilling reasonable revenue goals, you’ll stand a better chance of maximizing profitability during good times and maintaining it during more challenging periods. Contact us for help choosing the right KPIs and cost-effectively managing your business.

© 2020 Covenant CPA

If you invest in mutual funds, be aware of some potential pitfalls involved in buying and selling shares.

Surprise sales 

You may already have made taxable “sales” of part of your mutual fund investment without knowing it.

One way this can happen is if your mutual fund allows you to write checks against your fund investment. Every time you write a check against your mutual fund account, you’ve made a partial sale of your interest in the fund. Thus, except for funds such as money market funds, for which share value remains constant, you may have taxable gain (or a deductible loss) when you write a check. And each such sale is a separate transaction that must be reported on your tax return.

Here’s another way you may unexpectedly make a taxable sale. If your mutual fund sponsor allows you to make changes in the way your money is invested — for instance, lets you switch from one fund to another fund — making that switch is treated as a taxable sale of your shares in the first fund.

Recordkeeping 

Carefully save all the statements that the fund sends you — not only official tax statements, such as Forms 1099-DIV, but the confirmations the fund sends you when you buy or sell shares or when dividends are reinvested in new shares. Unless you keep these records, it may be difficult to prove how much you paid for the shares, and thus, you won’t be able to establish the amount of gain that’s subject to tax (or the amount of loss you can deduct) when you sell.

You also need to keep these records to prove how long you’ve held your shares if you want to take advantage of favorable long-term capital gain tax rates. (If you get a year-end statement that lists all your transactions for the year, you can just keep that and discard quarterly or other interim statements. But save anything that specifically says it contains tax information.)

Recordkeeping is simplified by rules that require funds to report the customer’s basis in shares sold and whether any gain or loss is short-term or long-term. This is mandatory for mutual fund shares acquired after 2011, and some funds will provide this to shareholders for shares they acquired earlier, if the fund has the information.

Timing purchases and sales

If you’re planning to invest in a mutual fund, there are some important tax consequences to take into account in timing the investment. For instance, an investment shortly before payment of a dividend is something you should generally try to avoid. Your receipt of the dividend (even if reinvested in additional shares) will be treated as income and increase your tax liability. If you’re planning a sale of any of your mutual fund shares near year-end, you should weigh the tax and the non-tax consequences in the current year versus a sale in the next year.

Identify shares you sell 

If you sell fewer than all of the shares that you hold in the same mutual fund, there are complicated rules for identifying which shares you’ve sold. The proper application of these rules can reduce the amount of your taxable gain or qualify the gain for favorable long-term capital gain treatment.

Contact us if you’d like to find out more about tax planning for buying and selling mutual fund shares.

© 2020 Covenant CPA

Economists will look back on 2020 as a year with a distinct before and after. In early March, most companies’ sales projections looked a certain way. Just a few weeks later, those projections had changed significantly — and not for the better.

Because of the novel coronavirus (COVID-19) pandemic, businesses across a variety of industries are revising their sales compensation models. Nonprofit workforce researchers WorldatWork released a report in late April indicating that 36% of organizations had begun addressing sales compensation in light of the crisis, and another 49% were developing plans to do so.

If your company is considering changes to how it compensates sales staff in a drastically changed economy, here are three of the most common actions being implemented according to the survey:

1. Adjusting sales quotas. Of the organizations surveyed, 46% were adjusting their quotas to account for the pandemic’s impact. For many businesses, this means providing “quota relief” to salespeople who find themselves in a reluctant buying environment. Of course, any adjustment should be based on a realistic and detailed forecast of what your sales will likely look like for the current period and upcoming ones.

2. Modifying performance measures. The report indicates that 44% of organizations will modify how they measure the performance of their sales staffs. Whereas a sales quota is a time-bound target assigned to an individual, performance measures encompass much wider metrics.

For example, you might want to amend your average deal size to account for more conservative buying during the pandemic. This metric is typically calculated by dividing your total number of deals by the total dollar amount of those deals. Also look at conversion rate (or win rate), which measures what percentage of leads ultimately become customers. Scarcer leads will likely lead to a lower rate.

3. Lowering plan thresholds. Survey results showed 36% of organizations intend to lower the plan thresholds for their sales teams. From a compensation plan perspective, a threshold describes what performance level qualifies the employee for a specified payout. This includes a max threshold to identify outstanding sales performances during a given period.

The pandemic-triggered economic downturn serves as a prime, even extreme, example of the kinds of external, macroeconomic factors that can alter the effectiveness of a plan threshold. When looking into corrective action, it’s critical to go beyond the usual adjustments and conduct analyses specific to your company’s size, market and industry outlook.

Setting sales compensation has never been a particularly straightforward endeavor. Businesses often tweak their approaches over time or even implement completely new ways when competitively necessary — and this is during normal times. Our firm can help you assess your sales figures since the pandemic hit, forecast upcoming ones and design a compensation model that’s right for you.

© 2020 Covenant CPA

“Love and marriage,” goes the old song: “…You can’t have one without the other.” This also holds true for sales and marketing. Even the best of sales staffs will struggle if not supported by a well-researched and carefully executed marketing plan. Here are six ways to ensure your marketing plan is likely to drive strong sales:

1. Keep customers aware of all your products and services. Among the fundamental objectives of any marketing plan is to familiarize those who buy from you with everything you’re offering. But what often happens is that customers get overly focused on just a few products or services, which in turn limits sales. Make sure your marketing plan maintains the visibility of your total product or service line.

2. Distinguish your products and services from those of competitors. Your salespeople will stand a much greater chance of success if your customers believe you’re the only place to get precisely what they’re looking for. Your marketing plan should emphasize the distinctive value offered by your products or services and how they differ from those of competitors. A key part of this effort involves monitoring the competition’s marketing activities and responding in kind.

3. Benchmark your marketing/advertising budgets. Are competitors outspending you? If so, your sales staff is fighting an uphill battle. To find out, use competitive intelligence and publicly available industry data to determine the average marketing and advertising budgets for companies of similar size and specialty in your area.

4. Search for new markets. While your sales staff is out on the front lines, your marketing team needs to be spending time back at the office looking for additional buyers (or types of buyers). Undertake this research carefully and methodically. When you believe you’ve found a new market, adjust your marketing plan as necessary and train salespeople on how to best traverse this unfamiliar terrain.

5. Track new leads generated through marketing. A good marketing plan not only keeps existing customers engaged and informed, but also pulls in new prospects. Do you know how successful your company has been at doing so? Your sales team may be able to generate some leads themselves, but your marketing department must do its fair share. If it’s not, something needs to change.

6. Update your marketing plan regularly. Coming up with a comprehensive, viable marketing plan isn’t easy. Once they’ve got one, many businesses make the mistake of sticking with it too long, leaving their sales departments to struggle in a dynamic, ever-changing marketplace.

Review your marketing plan often, at least quarterly, and adjust it based on both hard numbers (metrics and sales results) and feedback from your sales staff. Our firm can help you identify, track and better understand the analytical data that aligns a good marketing plan with strong sales figures.

© 2019 Covenant CPA

When market competition heats up, you might provide extra incentives for your sales staff to perform. But be careful: Some employees may step over the line — to earn bigger bonuses or out of enthusiasm for the challenge — and use unethical sales tactics. Take steps to ensure your salespeople always operate with integrity.

Make a commitment to honesty

Culture starts at the top. If you clearly demonstrate, through both words and behavior, your commitment to honesty, your sales team will get the message. Your customers will too.

Try to anticipate the challenges your sales force may face as they attempt to meet sales goals. The temptation to sell more than your company can deliver, for example — or to recommend a product they know isn’t the best solution for a customer’s problem — may be strong. Those and similar sales strategies may land the account, but they do nothing to build the trust and credibility your business needs to keep that account over the long haul.

It’s also important that your company and salespeople don’t try to slip through loopholes when a situation requires taking responsibility. For example, some insurance companies that wrote coverage on homes and businesses damaged during Hurricane Katrina, Superstorm Sandy, and Hurricane Harvey lost goodwill by quibbling over what damage was covered. Ensuing legal battles and negative publicity have done nothing to raise consumer confidence in the insurance industry.

Promote lasting relationships

When your salespeople make a sale, require them to be clear about what the sale includes and what it doesn’t. Reiterate that their job isn’t simply to make sales, but to build lasting customer relationships. To do that, they must always keep the customers’ best interests in mind. To make sure the message gets heard, consider tying compensation to customer satisfaction and repeat business, in addition to sales revenue quotas.

That may mean acknowledging, for example, that one of your products won’t do everything the customer needs it to do. If a customer asks about a feature your product doesn’t have, your sales reps shouldn’t imply that it does. Instead, they should work with the customer to determine whether the desired feature is necessary and emphasize your product’s other features and benefits. Ultimately, however, they must be honest about any limitations.

Your sales force doesn’t need to steer customers to competitors, but they shouldn’t disparage the competition, either. And incentivizing customers to load up on unneeded products during promotions may boost the bottom line, but it won’t do much to build trust.

Shift priorities

Too often sales staffs are encouraged to focus on short-term goals, which makes them more likely to do “whatever it takes” to get a sale. It’s up to you and your managers to prioritize the kind of ethical behavior that’s crucial to your company’s long-term success.

© 2019 Covenant CPA

Among the fastest ways for a business to fail is because of mismanagement or malfeasance by ownership. On the other hand, among the slowest ways is an ineffective or dysfunctional sales department.

Companies suffering from this malady may maintain just enough sales to stay afloat for a while, but eventually they go under because they lose one big customer or a tough new competitor arrives on the scene. To ensure your sales department is contributing to business growth, not just survival, you’ve got to ask some tough questions. Here are four to consider:

1. Does our sales department communicate customers’ needs to the rest of the company? Your sales staff works on the front lines of your industry. They’re typically the first ones to hear of changes in customers’ needs and desires. Make sure your sales people are sharing this information in both meetings and written communications (sales reports, emails and the like).

It’s particularly important for them to share insights with the marketing department. But everyone in your business should be laser-focused on what customers really want.

2. Does the sales department handle customer complaints promptly and satisfactorily? This is related to our first point but critical enough to investigate on its own. Unhappy customers can destroy a business — especially these days, when everyone shares everything on social media.

Your sales staff should have a specific protocol for immediately responding to a customer complaint, gathering as much information as possible and offering a fair resolution. Track complaints carefully and in detail, looking for trends that may indicate deeper problems with your products or services.

3. Do our salespeople create difficulties for employees in other departments? If a sales department is getting the job done, many business owners look the other way when sales staff play by their own rules or don’t treat their co-workers with the utmost professionalism. Confronting a problem like this isn’t easy; you may unearth some tricky issues involving personalities and philosophies.

Nonetheless, your salespeople should interact positively and productively with other departments. For example, do they correctly and timely complete all necessary sales documents? If not, they could be causing major headaches for other departments.

4. Are we taking our sales staff for granted? Salespeople tend to spend much of their time “outside” a company — either literally out on the road making sales calls or on the phone communicating with customers. As such, they may work “out of sight and out of mind.”

Keep a close eye on your sales staff, both so you can congratulate them on jobs well done and fix any problems that may arise. Our firm can help you analyze your sales numbers to help identify ways this department can provide greater value to the company.

© 2019 Covenant CPA

“I could sell water to a whale.”

Indeed, most salespeople possess an abundance of confidence. One could say it’s a prerequisite for the job. Because of their remarkable self-assurance, sales staffers might appear to be largely autonomous. Hand them something to sell, tell them a bit about it and let them do their thing — right?

Not necessarily. The sales department needs support just like any other part of a company. And we’re not just talking about office supplies and working phone lines. Here are five ways that your business can give its sales staff the support they really need:

1. Show them the data. Virtually every aspect of business is driven by analytics these days, but sales has been all about the data for decades. To keep up with the competition, provide your sales team with the most cutting-edge metrics. The right ones vary depending on your industry and customer base, but consider analytics such as lead conversion rate and quote-to-close.

2. Invest in sales training and upskilling. If you don’t train salespeople properly, they’ll face an uphill climb to success and may not stick around to get there with you. (This is often partly why sales staffs tend to have high turnover.) Once a salesperson is trained, offer continuing education — now commonly referred to as “upskilling” — to continue to enhance his or her talents.

3. Effectively evaluate employee performance. For sales staff, annual job reviews can boil down to a numbers game whereby it was either a good year or a bad one. Make sure your performance evaluations for salespeople are as comprehensive and productive as they are for any other type of employee. Sales goals should obviously play a role, but look for other professional development objectives as well.

4. Promote positivity, ethics and high morale. Sales is often a frustrating grind. It’s not uncommon for sales staff members to fall prey to negativity. This can manifest itself in various ways: bad interactions with customers, plummeting morale and, in worst cases, even unethical or fraudulent activities. Urge your supervisors to interact regularly with salespeople to combat pessimism and find ways to keep spirits high.

5. Regularly re-evaluate your compensation model. Finding the right way to compensate sales staff has challenged, if not perplexed, companies for years. Some businesses opt for commission only, others provide a salary plus commission. There are additional options as well, such as profit margin plans that compensate salespeople based on how well the company is doing.

If your compensation model is working well, you may not want to rock the boat. But re-evaluate its efficacy at least annually and don’t hesitate to explore other approaches. Our firm can help you analyze the numbers related to compensation as well as the metrics you’re using to track and assess sales. Call or email us! 205-345-9898 or info@covenantcpa.com.

© 2019 CovenantCPA

A business can suffer economic damages arising from a variety of illegal conduct. Common examples include breach of contract, patent infringement and commercial negligence. If your company finds itself headed to court looking to recover lost profits, diminished business value or both, its important to know how the damages might be determined.

What methods are commonly used?

The goal of any economic damages case is to make your company, the plaintiff, “whole” again. In other words, one critical question must be answered: Where would your business be today “but for” the defendants alleged wrongdoing? When financial experts calculate economic damages, they generally rely on the following methods:

Before-and-after. Here, the expert assumes that, if it hadnt been for the breach or other tortious act, the companys operating trends would have continued in pace with past performance. In other words, damages equal the difference between expected and actual performance. A similar approach quantifies damages as the difference between the companys value before and after the alleged “tort” (damaging incident) occurred.

Yardstick. Under this technique, the expert benchmarks a damaged companys performance to external sources, such as publicly traded comparables or industry guidelines. The presumption is that the companys performance would have mimicked that of its competitors if not for the tortious act.

Sales projection. Projections or forecasts of the companys expected cash flow serve as the basis for damages under this method. Damages involving niche players and start-ups often call for the sales projection method, because they have limited operating history and few meaningful comparables.

An expert considers the specific circumstances of the case to determine the appropriate valuation method (or methods) for that situation.

What’s next?

After financial experts have estimated lost profits, they discount their estimates to present value. Some jurisdictions have prescribed discount rates, but, in many instances, experts subjectively determine the discount rate based on their professional opinions about risk. Small differences in the discount rate can generate large differences in final conclusions. As a result, the subjective discount rate is often a contentious issue.

The final step is to address mitigating factors. What could the damaged party have done to minimize its loss? Most jurisdictions hold plaintiffs at least partially responsible for mitigating their own damages. Like discount rates, this subjective adjustment often triggers widely divergent opinions among the parties involved.

Are you prepared?

You probably don’t relish the thought of heading to court to fight for economic damages. But these situations can occur — often quite unexpectedly — and it’s better to be prepared than surprised. Contact us for more information at 205-345-9898.

© 2019 Covenant CPA

Is your sales process getting off-balance? Sometimes it can be hard to tell. Fluctuations in the economy, changes in customer interest and dips in demand may cause slowdowns that are beyond your control. But if the numbers keep dropping and you’re not sure why, you may need to double-check the structural soundness of how you sell your company’s products or services. Here are four pillars of a solid sales process:

1. Synergy with marketing. The sales staff can’t go it alone. Your marketing department has a responsibility to provide some assistance and direction in generating leads. You may have a long-standing profile of the ideal candidates for your products or services, but is it outdated? Could it use some tweaks? Creating a broader universe of customers who are likely to benefit from your offerings will add focus and opportunity to your salespeople’s efforts.

2. Active responsiveness. A sense of urgency is crucial to the sales process. Whether a prospect responded to some form of advertisement or is being targeted for cold calling, making timely and appropriate contact will ease the way for the salesperson to get through to the decision maker. If selling your product or service requires a face-to-face presence, making and keeping of appointments is critical. Gather data on how quickly your salespeople are following up on leads and make improvements as necessary.

3. Clear documentation. There will always be some degree of recordkeeping associated with sales. Your salespeople will interact with many potential customers and must keep track of what was said or promised at each part of the sales cycle. Fortunately, today’s technology (typically in the form of a customer relationship system) can help streamline this activity. Make sure yours is up to date and properly used. Effective performers spend most of their time calling or meeting with customers. They carry out the administrative parts of their jobs either early or late in the day and don’t use paperwork as an excuse to avoid actively selling.

4. Consistency. A process is defined as a series of related steps that lead to a specific end. Lagging sales are often the result of deficiencies in steps of the sales process. If your business is struggling to maintain or increase its numbers, it may be time to audit your sales process to identify irregularities. You might also hold a sales staff retreat to get everyone back on the same page. Contact us at 205-345-9898 to discuss these and other ideas on reinforcing your sales process.

© 2018 Covenant CPA