No one in your company needs common sense financial training more than your sales manager.
The sales manager is the rainmaker of the organization. Without them, sales would shrink and the bank account would run dry. The sales manager holds a critical role and impacts far more than just the sales line on the income statement.
To begin, we’ll cover the basic steps to teach finance to your non-financial sales manager so that you can increase profits along with increasing top line sales.
Along the way, your sales manager will be shocked to learn that there are more line items on the income statement besides sales.
Operational Finance for Sales Managers
I like to poke fun at sales managers because they are an easy target. In my experience working with dozens of sales managers over the years I’ve seen only one or two who understood anything beyond the sales line.
Many sales managers think that sales and net income are the same thing. “We’ve got $20 million in sales, so we should have about $20 million in profit.” The cost of goods sold and operating expenses of the company are ignored.
Despite the jokes, the sales manager holds a vital role for the beer distributor. They have a tremendous amount of responsibility and the decisions they make impact all aspects of the business.
The first step to teach finance to non-financial sales managers is to present them with common sense numbers. Numbers that are meaningful and relate to the work they do every day. These are the Critical Numbers for sales managers.
Critical Numbers for Sales Managers
The sales manager has no shortage of numbers to track. Anheuser Busch and other big breweries are famous for burying the sales manager in Key Performance Indicators and metrics of all kinds. The problem is these metrics cover only the sales line on the income statement.
Two critical numbers to introduce to your sales manager are Gross Profit and the Cost to Deliver.
Gross profit is the amount earned on each sale. Not just the sales dollar, but the cost of the product sold. Many sales managers just don’t know, or haven’t been taught this.
Sales – Cost of Goods = Gross Profit
Further, the Gross Profit percentage on sale is an easy way to show sales managers what percentage of the sale is gross profit. Hint: it’s not 100%.
Gross Profit divided by Sales = Gross Profit percentage (GP %)
In a typical distributor, the GP % will be around 25%. Every sales manager I’ve worked with in the past has been blown away by this number.
“You’re telling me we only keep 25 cents on every sales dollar?”
They can’t believe it. And they are shocked even more when we talk about the operating expenses that are required to support the sale. That leads us to the cost to deliver.
Cost to Deliver
Gross profit shows the sales manager what we make on each sale: the sale price to retailer minus the cost of the product paid to the supplier. The cost to deliver shows all the other expenses required to get the product on the shelf.
The cost to deliver is an average of all the operating costs of the distributor: admin, warehouse, delivery, merchandising, etc. The number can be presented as a percentage of the sale price or as a set amount per case.
The cost to deliver can then be used by the sales manager as a basis for making decisions that affect profitability.
For example, the sales manager may be responsible for deciding whether to make special deliveries or send out a hot shot. They may be involved in price reductions or deciding when to fire sale of products. Understanding the cost to deliver provides sales managers with a basis for knowing whether the decision they make will be profitable for the company.
The sales manager makes decisions every day that affect profitability. They just don’t know it. Teach them to make better decisions using operational finance.
Wrap Up + Action Items
No one in your organization needs financial training more than your sales manager. You know this in your heart to be true.
Sit down and review the concept of operational finance. Review the Critical Numbers for sales managers: Gross Profit, GP% and average Cost to Deliver.
Show your sales manager how to calculate these numbers and setup simple reports so they can track this information. With this knowledge they are in position to help improve not only the sales line on the income statement, but gross profit and the bottom line as well.
The results may be shocking.
Yours in Finance for non-financial sales managers,