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Have You Ever Thought About The
Cost Of Hiring The Wrong Salesperson?
By Barry Shamis
You hire John to sell in your Seattle office. After a month it doesn't look good. After 90 days it is really bad. At six months you give up and let John go.
This all too familiar scenario happens time and time again. Unfortunately, you get lulled into believing that all you lost was six months of salary and benefits. Nothing could be further from the truth. In addition to salary and benefits you lost six full months of sales opportunities, management time, administrative costs and training costs. (See the list below for details)
And these are just the obvious costs. Some of the hidden costs you may not have considered are vacancy costs, replacement costs, customer costs and employee morale costs. The final cost is loss of competitive edge. (Think of all the deals you got outsold in!)
For years I have listened to sales managers talk about hiring five and keeping one good person. This is a terrifically costly way to do business. Let's translate some of the costs mentioned above to see just how much this flawed strategy is costing you.
Let's look at a salesperson with a $40,000 base salary and an annual quota of $500,000. Salary and benefits for six months cost $27,000. It cost you $5,000 to recruit the person. You spent $3000 on training classes and materials. And those are just the hard dollar costs.
Your soft costs begin with lost opportunity. If John had been successful, how much revenue would he have generated? You have to add 50% of your annual quota to the total for lost opportunity. (Cost $250,000)
How about your time? Would you have been more productive using your time working with someone who was generating revenue? (Cost 15% of your annual compensation ($17,000)
And the two real intangibles in this equation are employee morale and customer cost. Your good employees resent having a non-performer on the staff. It makes them look bad and they have to work harder as a result. And, there is cost with your customers as well. They have to deal with a sub-par person, which can sour the relationship. (Cost: What is the cost of one lost customer?)
Your cost of one hiring mistake is roughly $302,000 without counting the cost of low employee morale or lost customers. And here is the really sad part, if you do make this hiring mistake, you have to do it all over again doubling all the numbers! How does $604,000 for each hiring mistake sound? Click here to use the Real Cost Calculator of Hiring Mistakes to determine your actual exposure.
Now you can see why the "hire a bunch and keep a few" staffing strategy is a mistake. The good news is you are on your way to fixing the situation as we speak. The first step in putting a great hiring process in place is to understand that you need one. Once you realize the economic impact on your business, you're ready to take the steps necessary to get on track.
Your best next step is to invest in your education. The more you know about recruiting and hiring good sales people, the better chance you have of building a winning sales team. Reading books and attending workshops will help you expand your knowledge base. If you are not expanding your knowledge base, when you compete against someone who is, the outcome is fairly certain.
"A top quartile performing salesperson is 14 times more productive than an average performer."
McKinsey Quarterly
Costs of a Bad Sales Hire
| Lost Opportunity |
Management Time |
Administrative Costs |
| Missed deals |
High maintenance |
Separation processing |
| Lost deals |
Less time for top performers |
Discipline & termination |
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| Vacancy Costs |
Training Costs |
Customer Costs |
| Missed opportunities |
Require more training |
Customer complaints |
| Inadequate coverage |
Slower time to productivity |
Satisfaction erosion |
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| Replacement Costs |
Employee Morale |
Competitive Advantage |
| Recruiting |
Lower team achievement |
Lower ROI on employee |
| Management time |
Resented by top performers |
Lose opportunity for star |
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