Dr. Christopher Croner and Richard Abraham, authors of Never Hire a Bad Salesperson Again, present a cost analysis related to a bad sales hire. According to the authors, the typical cost of a rep missing target is about $120k per year – a fairly big loss for any company.
What costs are involved?
1. Revenue Gap – the difference between what a bad hire will generate in sales vs. the reps at the top of the team. Rule of thumb – the bad rep will generate half of the sales delivered by the top rep’s.
2. “Soft” Costs – such as the value of the customers the bad hire loses through neglect, misbehavior or both. As a rule of thumb, Croner/Abraham figures that cost to be 10 percent of quota.
3. Administration and Management Time – Poor performers require a much larger amount of coaching and oversight. Studies have reported that a typical sales manager spends 13 percent of his/her time managing under-performers.
Finally the authors take the sum of these three costs and multiply this number by the companies gross margin to approximate the annual loss associated for the bad sales hire – for many companies this will be in the 100-150k range. Furthermore the authors contend that most companies will wait 2-3 years before actually dismissing an under-performer, so the annual costs are multiplied.
All of this serves to underscore the importance of a thorough hiring process which properly vets candidates and leads you to choosing the right ones each time. Are you taking the time to define what criteria a quality applicant must meet?
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To your success!
Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.
He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.
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