CEOs: Why are you ignoring the cost of failing new sales hires?

Everybody in sales leadership knows that a bad hiring decision, or failed on-boarding, is a costly mistake. So why is turnover still so high in the sales industry? Maybe leaders feel like they can’t fix it, so why bother trying. Or they feel like they have more pressing concerns.

Both of those assumptions are wrong. While some turnover is natural and healthy, you don’t have to settle for excessive turnover. And you can’t afford to. In fact, your turnover rate may be one of the key constraints holding you back from achieving higher sales effectiveness.

The common approach that I see used by so many companies is to search for “sales superstars” with the assumption that they will simply hit the ground running and sell sell sell. This is a costly approach indeed, when it fails to support the salespeople who could be successful with the right training, tools and coaching.

How much your failing employees really cost

According to CSO Insights, the higher sales force turnover rates are, the weaker sales performance is. For instance, the seemingly small difference between a 14% turnover rate and an 18% turnover rate correlates to a difference between 50% quota attainment and 63% quota attainment and 80% revenue attainment and 88% revenue attainment, respectively.

According to the book Topgrading, by Brad Smart, the average cost of a failed sales hire can be six times base salary and 15 times base salary for a manager. This accounts for lost salary, plus the cost of recruiting, paperwork, training, and management. It does not account for lost revenue and other “soft” costs of a failed hire such as team morale and company reputation. For sales teams, these “soft” costs can be substantial and include loss of rapport with prospects and clients and loss of revenue from dropped deals. In fact, even an eventually successful employee can cost the company more than they should, if ramp-up takes too long. We recently discussed some common mistakes when getting salespeople to productivity with Christopher Patton at Lionboard in this article: Are those new hires you just fired actually revenue gold, which is relevant to this topic.

The problem: $46 millions

Let’s play with some numbers and calculate the potential cost of turnover with an average new hire failure rate of 23%. That means that for every 100 hires, 23 of them will quit or be fired in less than a year. I will be making some assumptions and realize that these KPIs will vary substantially across industries and company sizes. Anyway, here’s the potential cost for hiring salespeople that don't reach productivity, if we calculate an average turnover of six months:

• $36,000 for six months of salary ($6k base)
• $18,000 for taxes, benefits and other overhead costs
• $10,000 in recruitment costs
• $250,000 in lost revenue (sales fall through cracks, pipeline does not convert)
• $10,000 of sales manager’s time
• $80,000 in team morale and productivity

Total for one failed hire: $404,000. Multiply by 23 for a company that hires 100 new salespeople in a year, and you have a $46 million problem over 5 years.

If your company has a global sales team with divisions around the world failing employees at the same rate, the problem becomes astronomical.

Address this problem, and your sales team will be freed to achieve new heights of effectiveness.

How can technology & coaching help?

You may think the answer is doing a better job of hiring and improving your sales training. And that certainly will help. But it’s not enough, especially not in a more complex sales environment, where how you sell is becoming your last differentiator.

Assume for a moment that you have actually done a very good job of hiring good people for the sales role, but that you fail to provide them with an informative and actionable sales process, best practices, enablement tools and coaching to excel at their job. Some of your hires will thrive despite the gap in support. Some of your hires might have quit anyway, looking for greener passages. But it’s safe to assume that at least some of those who would have stayed, will either get fired for underperformance or will leave out of frustration.

What is needed, then, is not just a good hiring practice, and on-boarding program, but an informative and actionable sales process that guides new and existing salespeople through best practices and toward achieving their sales goals in accordance with company expectations. The process and methodology must be trained, and then that training must be reinforced consistently throughout the sales process, using the right technology, and supported by quality coaching from frontline sales managers.

Such a reinforced sales process can “save” sales hires that previously were more or less left to sink or swim and make them productive members of your team. It will have the additional benefit of shortening your overall ramp-up times by helping all new hires reach productivity faster and reducing the over-reliance of finding “natural-born superstars”.

Old-shool CRMs are not the answer

You know that technology alone is not the only answer, but some technologies are better than others at supporting an informative and actionable sales process, reinforcing training and enabling coaching.

A pilot does not use the flight recorder for navigational guidance, yet salespeople are asked to use CRM systems, designed a decade ago, to "log what they've done". You are expecting them to win Formula 1 races using bicycles... This simply is not enough, which is why we are currently seeing the rise of new sales technologies. Sales enablement and sales effectiveness solutions that actually provide guidance and can serve as vehicles for introducing new skills and behaviors and be platforms for effective sales coaching.  

We have designed Membrain specifically to make it easy to build, understand and execute sales processes and methodologies. Within Membrain, you can embed sales training, enablement content and best practices into the system that salespeople us on a daily basis. Coaches and managers can quickly see where new sales hires (and seniors) need support and coaching, and help them get the support they need to be effective. Membrain could be the tool that helps you remove your largest constraint to growth and save millions in failed hires and on-boardings.

Reach out to learn more about how.