Why Comparing Sales Bonuses to Procurement Savings is Misleading


Sales v Procurement

The comparison—where a $100K sales win gets a $10K bonus, but saving $100K on a procurement contract gets nothing—might seem like a compelling argument for unfairness at first glance. However, this comparison oversimplifies the complex roles of sales and procurement teams. Let’s unpack this misconception from different angles.

Different Objectives and Impact

While it’s tempting to see a $100K sales win and a $100K procurement savings as equivalent financial achievements, their impact on business objectives diverges. Sales teams are revenue-generating and focus on top-line growth—bringing money into the business. A $100K contract directly boosts revenue, essential for business growth, performance metrics, and investor confidence. This tangible addition to revenue is why sales bonuses are usually tied directly to contract wins.

Procurement’s role, however, centers around savings, cost efficiency, and risk management. A $100K savings may not affect revenue but enhances profitability by improving the bottom line. These savings are critical to reducing operational costs and supporting sustainable growth, yet they’re less visible and sometimes undervalued than revenue growth.

Furthermore, procurement contributes beyond financial savings; it mitigates risk, ensures compliance, maintains vendor relationships, and supports continuity in vital yet challenging to quantify ways. The positive effects of these actions often compound over time, impacting profitability and operational stability.

Given these contributions, the question arises: should procurement savings be rewarded comparably to revenue generation or somewhat differently?

Comparing Apples to Apples: Net Profit Margin as a Bridge

Consider using net profit margin as a conversion metric to make savings more comparable to revenue. For example, in digital industries with a 15-25% profit margin, $1 in cost savings equals $4-7 in revenue. This reframing can reveal how substantial procurement savings are when adjusted for margin.

On the sales side, the value of a new contract often extends beyond its immediate value due to potential future contracts and customer lifetime value (LTV). Plus, a portion of each contract’s value is reinvested in customer acquisition costs (CAC), which could be viewed as an efficiency metric similar to savings in procurement and constitute 20-30% of the LTV. This parallel invites the question: can procurement achieve similar efficiency benchmarks if we view CAC as a saving on the sales side?

No Chicken and Egg Problem: Revenue Per Employee vs. Cost Savings Per Employee

When comparing the productivity of these two functions, revenue per employee is often seen as a benchmark in sales. Still, cost savings per employee are not typically highlighted in the financial reporting. 
While revenue growth can be scaled without immediate costs, cost savings inherently involve managing existing expenses. This asymmetry underlines a fundamental truth: while it’s possible to scale revenue independently, cost savings are tied to the revenue, making it harder to scale in isolation.

The Need for Tailored Incentives

The narrative is biased because it compares two distinct functions with different roles, challenges, and time horizons. While sales are rewarded for quick wins and direct revenue impact, procurement teams are often driven by more complex objectives contributing to long-term success. Both teams are essential for business growth, but their incentive structures should reflect their unique contributions and long-term impact.

Instead of comparing bonuses directly, organizations should consider customized recognition programs that reflect the different types of value each team brings. These might include 
  • procurement recognition programs that acknowledge savings, risk management, and strategic sourcing wins.
  • Team-based incentives reward sales and procurement for collaborative wins that drive profitability.
In short, procurement deserves recognition for its critical role in driving sustainable business success—just not in the same way as sales. While both functions are vital to thriving organizations, their achievements, and incentives should be tailored to reflect their distinct roles and impacts.

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More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s hours spent on research, analysis, and content creation for the most demanding professional readers.





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