A lot more than you think. With so many reps currently below target, we thought we would show a quick and dirty calculation on what a bad sales hire costs. Let us assume we are speaking of an intermediate to senior position (depending on the company) with a base salary of $100,000 and a quota of $1,000,000. Assume that they achieved only 50% of their target (generous based on a typical “bad hire” these days).
- Hiring – in-house or third party recruiting costs, background checks, (more if the position is more senior or travel involved) – $25,000
- Base Compensation – year one $100,000
- Commissions (assume none paid since targets were not met) – $0
- Benefits – $12,000
- Travel and Expenses – $20,000
- Training – $10,000
- Overhead – desk, supplies, infrastructure, admin, etc. – $20,000
- Severance – assume 4 weeks + legal/HR costs – $10,000
- Wasted leads and/or lost customers– rep might have received leads and existing business in their territory that would reasonably have represented more than a third of their target – assume two lost customers and, or deals representing $150k to the company
- Lost margins – the rep failed to hit their target, falling $500,000 short – depending on company business model this could represent hundreds of thousands of dollars of lost gross profit which will have to funded from another source – if 75% of revenue is gross profit, then this represents $350,000
Wait, there are typically other costs that are harder to associate with a dollar value, but equally or more severe:
- Additional management time associated with guidance and performance correction
- Loss of goodwill and damage to reputation in the market
- Loss of morale from peers who are frustrated that poor performance is tolerated
Your math might be different, but your categories will be the same and the point is, the cost is a lot higher than most people think.
A world-class hiring process prevents these mistakes and a well managed on-boarding process spots problems before they cost you hundreds of thousands of dollars.