MONETARY CROSSROADS: HOW A PEO FINANCE DEPARTMENT FITS IN THE PEO SALES CYCLE

In the intricate dance of organizational dynamics, the relationship between sales teams and finance teams emerges as a pivotal partnership. Nowhere is this synergy more pronounced than within a Professional Employer Organization (PEO). When finance plays an active role in the sales process—from budget development to annual client statistical reporting—success reverberates throughout the entire company. While a sales team’s exact responsibilities may vary across PEOs, the unwavering role of the finance department remains constant: to provide invaluable financial insights, mitigate risk, and maximize overall profits. Let’s explore ways in which finance bolsters sales efforts.

CLIENT UNDERWRITING AND PRICING

While the sales department bears ultimate responsibility for generating revenue, finance can play a critical role in acquiring new business at maximum profit, maintaining clients recurring revenue and determining appropriate fees. Financial underwriting is tricky and despite best efforts, PEOs can be exposed to financial risk. Specifically, finance can help manage collection options to help minimize this type of exposure. In addition, they can work with prospects to help them understand processes surrounding billing and invoice collections.

A PEO’s finance team could help in several ways. Here are a few:

• Collaborating with sales teams to determine optimal pricing strategies for services to maximize profits or compete with other bidders.
• Review client profitability- many PEOs establish a minimum total gross margin per worksite employee (WSE) per year (also referred to as PEPY) metric for all new business. Further, if your PEO is focused on minimum fees by revenue type without considering overall gross profit per WSE, you may lose a competitive advantage in bid comparison. Finance can provide data to help support the allocation of price variances between revenue streams thus maximizing overall gross margin.
• Identifying valuable opportunities beyond traditional and standard services offered by PEOs.
• Performing financial evaluation of customer creditworthiness by reviewing:
  • Prospects banking history
  • Prospects business and or personal financial statements
  • Third party financial review facilities
  • Calculate and communicate security deposit requirements to high-risk prospective clients
• Risk management credit control including underwriting of:
  • State unemployment (SUTA or SUI)
  • Benefits pricing
  • Worker compensation claims and pricing
  • Employment risk and pricing

Finance can provide analysis, review and recommendations on these items to identify potential concerns as part of helping maintain the overall integrity of the pool for each discipline.

SALES FORECASTING AND BUDGETING

Finance professionals work closely with sales leaders to create realistic budgets by helping to develop:

• Reliable sales targets relying on pipelines, historical close rates and other data
• Resource allocation including performing needs analysis for staffing levels
• Commission structures for both internal professionals as well as PEO or benefit brokers and other strategic partners
• Benchmarking to help forecast future sales

Once the budget is approved and set, finance can assist sales in monitoring performance against financial goals throughout the budgetary period. Often, certain factors require reforecasting of expected sales including downturns, poor market conditions, staff turnover, unforeseen competition, and pricing adjustments due to annual renewals of benefits, workers’ compensation, state unemployment rates, and employment practices liability insurance.

SALES ANALYTICS AND REPORTING

Data plays a crucial role in creating, tracking, and measuring key performance indicators (KPIs), assessing risk and increasing client retention. Increased data transparency and exchange between finance and sales can help increase value creation for the company. Consistent reporting helps sales leaders make informed decisions and adjust strategies as needed. Finance teams may lend expertise by:

• Creating dashboards or other data repositories to support data driven insights on items such as revenues expenses and gross margin overall and by client
• Evaluating sales performance through KPIs
• Analyzing key sales metrics including acquisition costs, gross margin analysis, risk, etc.
• Tracking performance. Provides data on revenue, expenses, profit margins, and return on investment (ROI).

CLIENT RETENTION
Satisfied customers are less likely to leave and more likely to become a vital referral source, contributing to long-term revenue growth. Finance can support client retention by guaranteeing timely and proper banking, performing payroll tax administration to include timely and accurate payroll tax filings and help with ERTC and other federal program filings. The finance team can also ensure financial commitments made in the client service agreement (CSA), housed in Exhibit or Schedule A as well as throughout the CSA document, are met. Providing clients with required or requested detailed documentation like backup details for invoices, general ledger reports or data exports for clients accounting systems, information for client’s external accountant and tax advisors, and other special data or reports requested are also helpful.

Lastly, performing client profitability review by creating client metrics dashboards utilizing industry benchmarks and statistical data, and offering feedback on client profitability data aid in client retention efforts.

SALES COMPENSATION AND INCENTIVES

The finance team collaborates with sales managers to design effective compensation structures for their teams. The finance team could provide assistance by calculating commissions, bonuses, and other incentives to motivate the sales team. Presenting and analyzing sales metrics and incentives and help sales teams cut through the noise to determine which metrics are indicative of performance to act accordingly are also beneficial. Lastly, providing timely and accurate reimbursements to sales members for expenses incurred will help keep sales teams engaged and motivated.

SALES-CENTRIC VENDOR RELATIONS

Utilizing the best resources and tools to support the sales role is key to effectiveness and efficiency. Finance can:

• Evaluate potential investments in sales tools, technology, and training
• Assist in analyzing investment decisions for marketing such as:
  • Webinars
  • Local chambers
• Support in contract negotiations including Request for Proposal (RFP) process for
  • CRM systems
  • Underwriters
  • Broker contracts
• Ensuring timely payment processing to vendors helping to foster all partnerships

In summary, the symbiotic relationship between sales and finance is the backbone of organizational success. Alignment between sales and finance is crucial to any organization but as outlined above, is heightened in the PEO environment. Because sales teams drive revenue while finance teams focus on cost and efficiency, their individual goals may sometimes be at odds. The members should work in tandem with clear lines of communication. By collaborating strategically and effectively, both departments contribute to the PEOs growth while mitigating risk and maximizing profits.