🀝Sales vs Finance in a SaaSCoβ€” Friends or Rivals?🀝

In a fast-growing SaaSCo, Sales and Finance don’t get along so well. There are a lot of conflicting priorities and the pace of growth makes alignment even more difficult. Let’s take a look at the goals of each of these teams:

Sales

Sales leaders want to maximize the ARR they close. Period. That can be done mostly with two levers:

  • Increasing the price β€” selling at high ACVs
  • Increasing the amount of customers closed with the same sales reps β€” shortening salescycle

The problem is that usually these two priorities also conflict with each other. The higher the price, the more hurdles the buyer needs to go through to purchase, which means that the salescycle is extended. Therefore, every bit of friction in the salesprocess is a huge pain for the Sales team. And some of that friction is not external. It comes from within. Caused by the Finance team priorities.

Finance

Finance leaders have four priorities:

  • Aligning bookings with cash β€” β€œif a sale is booked today, cash should be coming in today”
  • Cash predictability β€” how much cash exactly is there going to be in a bank at a certain date and how is that impacted by decisions today
  • Cost of capital β€” optimal mix of funding sources
  • Minimizing payback at a customer level β€” months until a customer relationship is cash flow positive

If we take into account customers priorities, then things get a little more complex and there are numerous conflicts. See table below.

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As explained above, sometimes there’s alignment but there are many conflicts:

  • Payment terms β€” Finance wants customers to pay upfront. But if Sales forces that, then this leads to longer salescycles, as it’s harder for customers to commit. That conflicts with Sales and Customer’s low-friction short salescycles
  • Salescycle β€” In order to respect Finance’s upfront payment priority and shorter salescycles, Sales starts to negotiate and get creative to incentivize the customers to pay upfront. All these drawn out sales process means that the same sales people sell to less customers so the CAC increases β€” and Finance gets annoyed.
    Sales then pushes to accelerate salescycles. And they do so giving out discounts
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  • Price β€” ACV β€” Now some customers will accept paying upfront for a discount. But then the ACV gets reduced by 20–30% and that’s bad for Sales and for Finance. And customers will cling to that discount in every single renewal

Now, is there a way in which Sales and the customers would be happy? Every sale is a negotiation. And salespeople usually use 4 levers to close a deal:

  • Product composition β€” impacts ACV but usually extends salescycle. The more seats / products the more hurdles
  • Discounts / Price β€” cut ACV and accelerate salescycle
  • Payment terms β€” reduces salescycle but increases payback
  • Date of signing β€” impacts salescycle

Given that salespeople’s compensation is greatly impacted by variable comp and that is tied to time periods (months / quarters), there tends to be an over focus on discounts as the lever to make sure that deals are closed β€œthis month”. This, as explained before destroys lifetime value. It’s really hard to get customers to pay more in every renewal for the same product.

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What if Sales could use flexible payment terms β€” which has a huge value for the end customer β€” as the main lever to increase urgency in the salescycle and accelerate sales? For example, β€œokay, I checked with the VP of Sales and we can offer you flexible payment terms, but we need to get this signed this week”. This would be great for protecting ACV but it impacts payback and Finance won’t agree.

It seems like a circular problem that can’t get solved.

But it can be solved.

Now, salespeople can use payment terms as the main giveaway to close deals faster. No more discounts, and they protect the ARR.

And the customer is happy and paying monthly.

Then Capchase upfronts the next 12 payments of the customer.

And Finance is happy because the payback took less than a day since closing the customer. Now all the acquisition, implementation and sales commissions are offset by the upfront payment and there is fresh cash to continue investing in more customers.

And there is very little tradeoff. It’s way cheaper than a discount, and most importantly, it doesn’t affect the topline. The topline (ARR) is protected and costs increase a little.

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