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?
Check out our eBook on how to find top performing sales people.
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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