reference checking

What Is Your Sales Turnover Costing Your Business?

Photo by Matthew Kane

Photo by Matthew Kane

A study titled Hiring Top Sales Management, conducted by the Sales Management Association in late 2015, found that a mere 33 percent of the 152 firms involved in the study conducted a well-defined hiring process when hunting for new sales talent. If you extrapolate from these study results, it means that two-thirds of sales organizations hire one of the most important roles in the company using an informal process (in other words: they hire without putting a lot of thought into the key ingredients of a successful hire for their organization). Obviously, there is a lot of room for improvement and ways to save companies from lost opportunity by making the wrong call.

What gets measured, gets done, and stats can really help in determining where problems lie. Ideally, you want to know the turnover statistics of your sales force separate from the rest of the company. Also, statistics should be broken down by wanted and unwanted, or voluntary versus involuntary. This is HR language for when someone exits the organization on their own (voluntary or unwanted) or whether they were asked to leave (wanted or involuntary).

A voluntary exit and an involuntary exit are two different challenges and need to be dealt with in different ways. Exit interviews should be conducted for all voluntary exits in order to fix problems that might otherwise continue to arise or to spot underlying trends that you may need to pay attention to.

Let’s look at some numbers to illustrate what I mean. Let’s say you have a sales staff of 46, and three employees leave on average per month. At first glance, that doesn’t seem like a lot, does it? But it equates to an annual sales employee turnover of 78 percent. Almost 80 percent of your sales resources has turned over in this simple example:

Formula: Divide the number of employees who left over the period by the average number of total employees over the period.

3 exits x 12 months = 36 exits

36 exits over 46 total sales force is 78% per annum

For a monthly turnover rate in this example, you would divide 3 exits by 46 staff, which would be 6.5% per month. Obviously, that’s not a good statistic.

The three exits per month should be broken down by voluntary and involuntary so you can know how many were let go versus those who left on their own. If, on average, two leave per month on their own, that’s a voluntary turnover of 52 percent and an involuntary rate of 26 percent. Both statistics would need improvement, but it is critical to examine the voluntary exits to figure out the root cause of each of the exits. Without knowing the root causes, the company could be spending a lot of money unnecessarily on trying to fix the wrong things.

There are hugely differing views on the cost of replacing sales hires, varying from a low of one-third of the individual’s salary to over 100 percent of the individual’s salary. I’ve seen numbers as high as $600,000 and more. A 2012 article in Selling Power indicates that salesperson mis-hires can cost as much as $616,000. It is difficult to pinpoint an overall number, however, as the circumstances are so totally different from one company to another. Some might use recruiters to find new hires, and doing so can carry a high cost. Some companies use internal recruiters who, in turn, recruit through job boards on the internet and may also use recruiters. Some organizations might, on average, have mostly long-tenured salespeople while other companies may have mostly less-tenured salespeople. Obviously, the cost will be higher in losing long-tenured, good performers. They are tough to replace.

To go back to the example given above, if you use the most conservative mis-hire cost of 100 percent of the salary of any given sales employee, and that salary is $60,000, the cost would be $60,000 per exit. The turnover in the example would be costing the company a conservative $2 million-plus per year. Again, I view this as conservative if you think about recruitment costs, retraining and onboarding the new salespeople and getting them up to the same productivity levels as the employee who left. This could take three months, and in most cases, six to 12 months or even longer. During this time, no or minimal sales will be achieved and the demands of the manager during onboarding will be significant. Potential customer issues could arise, and there’s the risk of prospects being dropped or lost in the cracks between transitions. The list goes on.

A thorough hiring practice review could help prevent a good portion of these costs. I lived this firsthand in one company where I was the sales leader. We had well over a 60-percent turnover rate when I joined the company. By building well thought out hiring practices in partnership with HR, we brought down the turnover to under 30 percent. This was a massive cost savings for the company and resulted in a significant uplift in sales productivity.

It’s worthy to note, that to attract and retain new hires you need to have a pay structure and a compensation plan that is market competitive and a solid sales culture, or you won’t attract the right people and/or keep them. I have heard it said on several occasions that people don’t work for money. I beg to differ when it comes to sales. Sure, there are other factors, but good salespeople—your top talent—want to get paid well. Pretty much in every single interview I have conducted (which would be in the hundreds), rarely was money not an issue at some point in the hiring process.

For every voluntary exit, the organization should always conduct an exit interview, as mentioned earlier, to understand why people are leaving, especially if they are top performers. This can often be a challenge to get to the root cause, as exiting employees are not always candid or forthcoming about the real reason they want to leave the company. But it is worth the effort to come as close as possible to the answers, so that you can make improvements where necessary. You can also spot problem areas when, for example, the turnover is higher on one sales team on average than it is on another sales team. This gives you an opportunity to probe and find out what might be going on within that team to cause the disruptions/turnover.

Of course there are many factors in sales turnover, but fixing or improving hiring practises is a great start to improving turnover rates.

Key Questions to Ask

For the sales leader, here are some points to consider :

Have you investigated and detailed the drivers of performance for the top performers in your company?

Have you created a model of “what good looks like” that helps make clear those drivers and behaviors of top performers?

Have you developed a program to test for those drivers for new recruits?

Have you created detailed and well-thought-out job descriptions or profiles for all your sales roles?

Have you created specific interview questions and assessment competency tests?

Do you have a standard hiring process to ensure consistent results?

Have you established a hiring criteria grid to organize and rank your hiring short list?

Do you manage and track turnover by tenure and experience, so you can manage the sales rep’s lifecycle and raise the performance based on tenure?

Have you developed an effective reference-checking process?

Do you conduct exit interviews with unwanted turnover employees?

Do you have a compelling story to recruit the best salespeople possible?

I would love to hear your viewpoint on this topic, please comment below. Or email me at mark@streetsavvysalesleadership.com

To read about other sales leadership topics or to increase your sales productivity check out my website www.streetsavvysalesleadership.com

Mark Welch

Founder

Street Savvy Sales Leadership

www.streetsavvysalesleadership.com

For individual sales or sales leadership coaching, workshops, contract work, or advising feel free to contact me by email mark@streetsavvysalesleadership.com