I often experience, no matter how officially actually the steering model is, that operationally in sales control is controlled exclusively either via gross profits (CM[1] I) or via returns.
If you ask why gross revenues are so important for controlling, you get answers like: “After all, we pay the salary in euros, not in percent!” That is not entirely wrong, but also not really right. Focusing solely on sales as input means either viewing all costs as fixed costs (and every single buck fills the gap) or claiming that you have no influence whatsoever on the profitability of businesses.
In cases of doubt, focusing solely on return leads to disregarding the healthy middle range. We are looking too much for transactions that have a higher risk and therefore promise disproportionate returns in relation to the capital employed, or we are looking for transactions that require a disproportionately low capital investment for low returns. The reason for this approach is often reflected in statements such as: „Our shareholders expect an attractive return on their capital employed!“
The medium-sized entrepreneur does not (primarily) think in terms of turnover, but in terms of capacity utilization and the order situation. Furthermore, he does not think in terms of returns, but in terms of profit. There is nothing wrong with thinking in the same way when it comes to sales management in banks.
Capacity utilization and the order situation are then logically replaced by sales activities and new business pipeline, and the profit, that is, what „sticks“ on the bottom line, is replaced by a net contribution margin.
By net contribution margins I mean the gross proceeds resulting from a business transaction less the standardized risk costs, i.e. the expected credit default priced in, and the costs that can be directly allocated to this business. Such is often defined a CM III. Depending on the house’s cost situation, a flat-rate overhead can also be deducted as a fixed cost component, as can imputed equity costs if equity is a particular bottleneck factor. The specific, sensible design will differ from house to house and depend on the respective framework conditions there.
By controlling these net contribution margins, I primarily achieve a strengthening of price competence in sales and thus in particular in the lending business. I focus on what actually remains in the wallet of the bank or savings bank.
If these net contribution margins are not only used operationally in sales controlling, but are also reflected on the targets and goals of the RSM, then price competence is also rewarded – and therefore attractive for employees.
Furthermore, I get a better comparability in the attractiveness of credit business to cross-selling; by this approach, a higher level of attention and thus a promotion or rewarding of additional business with customers is achieved.
As a result, I get a clearly entrepreneurial orientation of the RSM, because by taking different costs into account in different products, an incentive is created to concentrate on the prices and the transactions that are actually worthwhile for the company. Even unwanted cross-subsidization, which unfortunately can never be completely avoided, remains better under control than in one of the other two steering methods mentioned above.
In reality, this control method is very likely to be less complex for the consultants. All relevant information and control criteria can be processed either as revenues or as costs and included in this net analysis. When controlling according to gross revenues or returns, additional (soft or hard) constraints will be reflected in the course of time: minimum size, rating limit, maximum terms, follow-up business, etc.
I think that if an employer wants its employees to act entrepreneurially, then you have to steer them that way. And that goes beyond the pure target agreement and the associated variable remuneration, because ultimately it is not just about target dimensions, but also about opportunities to influence and competencies.
[1] CM = Contribution Margin
Vertriebsmanagement 