The True Cost of Hiring the Wrong Salespeople...

Isn’t it funny that the number of business owners and hiring managers who complain about their salespeople is usually the fools who hired them in the first place?

Bad salespeople are a symptom of management problems; bad management is a major cause, but it all stems from bad recruitment.

Bad recruitment is incredibly expensive. These bad sales hires can cost you as much as 30 to 125 times the basic salary that you’re paying the salesperson who doesn’t work out in your role. And let’s not even get started on what a bad sales management hire can cost you.

So next time you think recruitment is a “chore” that interrupts your day-to-day tasks or next time you go for a cheap provider and get them to work on contingency where they have no loyalty and will sell their best candidates to the highest bidder, think about it for a moment, and consider paying one recruiter on an exclusive, retained basis to make sure you have their full attention and who may just do you an excellent job.

Think about this, if you had hired a strong salesperson instead of settling for the one you did hire and who is ‘causing’ all these problems, how likely is it that you’d be facing all these problems today? 

So, what did your recruitment process look like? Did you just dig up an old job description? Or did you really take the time to design your ideal candidate for this specific role? Did you outline beforehand what the predictors of success look like for this role? Were you clear about the ‘must-haves’?

What are the predictors of success in a sales role?

•      Ambition and drive

•      Accepts personal responsibility

•      Sales prospecting

•      Takes action

•      Control and close

•      Coachability

•      Work ethic

•      Repeated, consistent prior success

•      Curiosity

•      Intelligence

It’s vital to design the ideal candidate so that when you see them, you recognise them.

Build a hiring template, interview questions that ensure you’re selecting only candidates who meet your high standards of habituated behavior, beliefs and attitudes, and the cognitive abilities that show they can adapt to changing market conditions and be resilient to the obstacles they will face.

Develop a hiring scorecard so that you’re able to compare characteristics and keep your personal feelings in check, stopping you from hiring someone that you may like but they can’t do the job! Let’s be honest, the one thing salespeople are brilliant at selling is themselves at an interview. This does not mean they’ll succeed in the role for which you’re hiring.

Hiring nobody is better than hiring the wrong salesperson. Wrong sales hires are the single highest hidden cost in any business.

Set clear expectations about what is going to happen from the outset and keep that clarity throughout the entire interview process, the offer and notice period, the onboarding process, and throughout their tenure in the business. Ambiguity is the mother of all mismatched expectations.

Make sure to develop a clear onboarding process consisting of 120 days from the beginning of the hire to the end of the probation period. Fail to do this and you run the risk of even the top A-players failing.

Be absolutely sure of the 30-day red flags that would result in early termination of your new hire, so that, if did make a mistake you can rectify the error quickly. Remember, better no breath than bad breath on a sales territory.

Are you spending enough time helping your salespeople be the best at their job by training, coaching, and mentoring them? This is your job, after all. Your role is to clear the path in order for them to do their best work every day. You want to get the best out of them. Are you observing them in action? Are you helping them develop pre-call plans and running call de-briefs to learn from every experience?

Or are you just ‘managing’ from an ivory tower?

So, What is The True Cost of a Wrong Sales Hire?

Use your own numbers for this:

How much did you pay them? (basic salary, commissions, pension, health and life insurance) What does that cost you?

How much does it cost you to run 1 salesperson? (expenses, training, phone, car, travel, subsistence, provisioning them with equipment, business cards, computer) – typically 3x salary is a rule of thumb. What does that cost you? 

When you’ve hired the wrong salesperson, what does it cost you for them to burn through viable leads?

How much line management time is spent on briefing recruiters, advertising, sifting through CV’s, telephone interviews, preparing for face-to-face interviews, arranging interviews, following up, writing to successful candidates, callbacks, reporting back to their senior management multiplied by their hourly rate? (10-30 hours is not unusual – what’s the opportunity cost of that time?) What does that cost you?

How many interviews do you usually go through?

How much additional management time is tied up (HR, senior management, second interviews, etc.) with internal discussions on each position x hourly rate? (for senior positions this can be as high as 8-24 hours) What is the opportunity cost in your business for that time?

Do you use external recruiters?

How much do you spend on fees? 20%, 25%, 30% more of the basic salary? Or do they charge you on a total package? What does that cost you?

What does your interview to hire ratio look like? Do you typically have to interview 3, 5, 10, or more candidates before you find the one that you want to hire? How many interviews does that then entail? What does that cost you?

Once you’ve hired your new salesperson, what’s the average target for a new hire? £250k, £500k, £1mil, £3mil or more?

What’s the ramp-up time? 1 month, 3 months, 6 months, a year, or longer? During their ramp-up period, what percentage of their pro-rated first-year annual target will they fall short? 20%, 40%? How much does that cost in cash terms? Is it profit or revenue? What does that cost you?

If you look at your average salesperson, what percentage of the target are they actually bringing home? 60%, 70%, 80%, 90%, 100% or more? If they are below 100%, on average what does that cost you per salesperson?

How long do you typically hang on to an underperforming salesperson once you realise that they aren’t performing to target? What does that cost you per salesperson before you fire them and seek a replacement?

When you’ve hired the wrong salesperson in the past, what’s the cost of leads and marketing that they’ve burned through without bringing in new business? How much does that cost you?

When you’ve previously hired the wrong salesperson, have they lost you any customers? Did a competitor pick up that account and how many years were you locked out for? Multiply the annual income by the number of years they got you locked out of that account to come up with the cash value of losses. What does that cost you?

How many accounts did they actually lose you? Add up all the revenues they lost you over their time on your payroll. How much did that cost you?

How many of your existing accounts that the bad salesperson was responsible for have potential for growth? Did they have the same growth potential when your bad salesperson was responsible for growing them? How much money did they leave on the table? Did they create opportunities for your competition along and put your account at risk? What potential losses are you facing today even though you’ve fired them? 

What does that equate to in annual renewals, maintenance, cross-sells, upsells, and referrals if you deduct the money that they’ve left on the table over the customer lifetime? What is the cash value?

What is the average lifetime customer value of a new client? If you take the number of new accounts the bad salesperson actually bought in and compare this against the number of accounts they should have bought in, and you multiply that number against the average lifetime customer value of a new customer, does that number make you wince?

LCV = AOV x AOF x CL + R

LCV = Lifetime Customer Value

AOV = Average Order Value

AOF = Average Order Frequency

R = Annual Referrals’ Value

Hypothetically, if your AOV is £5k and their AOF if 4 times per year, they stay a client for 4 years and you bring you 0 referrals, if they have lost you (12 clients over 2 years) with an average lifetime customer value (LCV) of (£80k) would it be fair to say they have so far cost. You (12 x £80k = £960k)? Is that correct?

How does that make you feel?

Understand this depressing fact. Their salary and running costs, the recruitment fees, training costs, and expenses become insignificant when you compare the hidden costs of a bad hire!

But it gets worse…

What percentage of your sales team is currently hitting target?

How long have you allowed underperformance in your sales team before making the decision to get rid of them and replace them?

How many hires have you got wrong in the last 2 or 3 years?

What is the growth potential your current salespeople are leaving on the table for you annually?

The list could go on and on, but having read this, take a minute to truly comprehend the cost of a wrong sales hire.