andy is the CEO of Lucidity, a consulting/coaching practice focused on enterprise finance tasks such as incentive compensation plans, reporting packages, and business models. He is passionate about the importance of presenting financials and other quantitative information in a cogent and effective way. He believes strongly that doing this well is a communication skill, and not a black art practiced by the 'numbers guys."

One of any sales forecasting systems critical tasks is estimating just how much business the sales organization will actually close. That is, you're trying to boil that (hopefully) giant pile of suspects and prospects down to a single, critical number. By far the most widely-used method for doing this is to assign a close probability to each deal, and the total forecast is then the sum of each deals size, times its close probability. But how should you assign a probability to each deal? You have two basic choices:

For companies with December 31 fiscal (and comp plan) years, its time to start thinking about next years incentive compensation plans. For September 30 companies that haven’t gotten to that task yet, its really time to get started!

We all understand how critical your finance team can be in helping you negotiate and close your deals, but they can often be a huge help even earlier in the sales process itself, by helping you make the best possible presentation of your products value proposition.

It takes new sales reps one to four quarters before they start to perform at full speed. Thats especially true in businesses that depend on elephant hunting, where the bulk of the company’s revenues come from a relatively small number of big deals. Those big deals take a long time to close, and depend on trusted relationship that take months or even years to build. Understanding this dynamic in a practical and realistic way can save sales executives and their companies from embarrassment and planning fiascos that are virtually impossible to recover from.

In our last post, we introduced the idea of a value calculator as a powerful sales tool.To refresh your memory: The XYZ Software Company sells an add-in solution for an enterprises ERP system, to address situations when a single order has to be fulfilled in multiple shipments. When that happens, the enterprises own end customers question the invoice, causing the enterprise to have to devote man-hours to documenting and supporting a perfectly valid receivable, and delaying collections. XYZs ERP add-in can help solve this problem. To help prospects understand the XYZ Software value proposition, XYZ developed a Value Calculator, and the one they’ve prepared for the Levi Lauren Outerware Corporation (LLOC) is shown below:

In most cases, I am against binary incentive compensation schemes. By this I mean any plan where achieving a single, specific milestone has a large cash payment tied to it. I call these schemes Captain Ahab bonuses, in memory of the gold doubloon the Moby Dick character nailed to the mast, to be given to the first sailor to spot the great white whale. The commonest example of these schemes is a cash bonus paid when the sales rep reaches exactly 100% of quota.

In my last post, I listed two critical tasks for delivering an effective sales compensation plan. The first of these is easy-to-understand, meaningful spreadsheets and other documentation. In this post well discuss the central document of any plan the spreadsheet. Heres an example spreadsheet; the important elements are circled in red and identified by number, with discussion of each major area following: