The Million-Dollar Mistake: A Bad Sales Hire
In less than two years, it won’t matter.
Because your “bad hire” will quit or get fired anyway.
Or will it?
Now consider that 47 percent of companies claim new salespeople take ten months or more to become fully productive1, and barely half of those ever make quota2, and you can see why the cost of a bad sales hire is financially disastrous for a company.
In fact, “the cost of a bad hire is approximately 1.2 to 1.6 times annual quota. Therefore, if quota is $750K, then the cost of a bad hire is between $900K and $1.2MM,” calculates Stephen Foley in his 2014 book, Complex Sales Playbook.
A million-dollar mistake.
Who can afford this? And how many times before it puts you out of business?
As you know, I’ve managed several successful companies over my career─ each in high-growth start-up mode. I had to grow revenues fast. The sales were complex, dealt with multiple decision makers over lengthy sales cycles.
Everything hinged on hiring the right sales reps.
And I made mistakes. At first, I decided to hire people from my competition. They know our product and industry already, and could hit the streets running, calling on some of the same prospects. My strategy was a complete failure.
I had to overcome a nasty reality: The average annual turnover in sales was 25 to 30 percent. For my size company, I would have to hire and train an entire new sales force every four years.
We could not afford to become full-time recruiters and sales trainers.
We had clients to serve, a business to run.
Consider these statistics from a Harvard Business Review article, The Best Ways to Hire Salespeople:
“Direct replacement costs for a telesales employee can range from $75,000 to $90,000, while other sales positions can cost a company as much as $300,000. Moreover, these figures don’t reflect the lost sales while a replacement is found and trained. In sectors like medical devices, big capital equipment, and many professional services, including these opportunity costs can push turnover cost to $1 million or more per event.”
Here’s the kicker. For most business sectors, a readily available supply of competent salespeople for hire doesn’t exist.
According to Howard Stevens, CEO and Chairman of the HR Chally Group, in his book Achieve Sales Excellence:
“More than 50% of U.S. college graduates, regardless of their majors, are likely to work in sales. But of the over 4,000 colleges in this country, less than 100 have sales programs or even sales courses. And, even if companies are lucky enough to find qualified grads, the increased data and analytical tasks facing many sales forces mean that productivity ramp-up times have increased. Each hire is now a bigger sunk cost for a longer time.”
In my business, I needed people with legal, accounting and actuarial backgrounds, good technical knowledge. I also needed them to know how to sell using effective communication skills. Yes, it was asking for a lot. However, clients wanted a knowledgeable person who would help solve their issues.
As I started my journey I remembered the old joke, “An actuary is someone who wanted to be an accountant, but didn’t have the personality for it.”
No one ever asked me to send my best salesperson.
I’d like to believe my improved hiring strategy took root well before companies began to understand the need to align their sales process with how prospects prefer to buy. Prospects wanted perspective, not a sales pitch.
My goal was to get the best people on the bus to call on the right prospects in the right way.
Most of our salespeople were “farmers.” They followed the sales process and brought value to our clients. We supported them with solid marketing to open new opportunities under favorable conditions. In the process, I developed a few “hunters” to do the harvesting.
Our process worked for us, not against us, as is the case in many companies.
Historically, salespeople had to develop their own sales leads. See the chart below. Today, less than eight percent do, compared to 30 percent before 2000.
In their best-selling book, Predictable Revenue, Aaron Ross & Marylou Tyler say that a “fatal mistake” of sales VPs is the assumption that salespeople will bring in new business. It ends up getting them fired.
Their false assumption leads them to believe salespeople will find new business on their own from past contact lists or relentless cold calls, and with a minimum of help or investment from the company. The authors contend the salespeople won’t generate enough leads on their own to satisfy the company, let alone feed themselves. In my experience, few hunters were also good farmers.
It’s a rare combination of talent.
Here’s why they fail:
- Experienced salespeople are terrible at prospecting.
- Experienced salespeople hate to prospect.
- Even if a salesperson prospects well, the moment they generate a batch of leads, they become too busy to follow up with prospects.
This approach is not sustainable.
Old School Selling Does Not Work Anymore
The cold fact: It takes a different breed of salesperson to succeed today than in the past.
Your imperative─hire the right people. With no margin for error.
Unfortunately, many companies continue to sell and train their people the old fashion way. Learn to prospect, pitch your solution, overcome objections, and always be closing.
This overhang from the Willy Loman days simply doesn’t work anymore. We called them the “show up and throw up product dumps” which today’s buyers regard as wholly offensive.
Also, many salespeople have the wrong DNA for today’s buyers. They’re too product focused and sell too fast.
Ever-Essential Sales Process
You can increase sales by as much as 15 percent simply by introducing a formal, structured, customized sales process that is embraced, followed and properly executed.
What I’ve discovered at most companies I call on; the sales process is informal, loosely understood, and not followed by all the sales reps. It’s painful to watch.
Imagine your favorite football team with eleven men on the field and only half follow the coach’s designated play. You must install a dynamic, formal sales process that embeds itself into the company culture.
Supportive Development Factors
To ensure I did that for my own companies, I used research from the Objective Management Group (OMG) to do an extensive evaluation of our people, strategy, and process. The evaluation shows the likelihood of a salesperson achieving his or her full potential; it measures the current will to sell, acceptance of coaching, Sales DNA, selling abilities, and capacity to quickly internalize sales training and coaching.
We use these factors to weight the individual’s “Opportunity” percentage when calculating the net potential increase in revenue.
This evaluation netted major savings. Why invest in training salespeople on a process if they do not possess sales DNA?
Over forty years of using DNA evaluations, I made three hiring exceptions that went against evaluation results. All three people failed. However, I failed, too. I spend thousands of dollars and untold time trying to prove myself right and the results wrong.
In most of my evaluations, Sales Quotient was the single best measure of a salesperson’s capabilities, as well as the largest factor in determining a timeframe for Opportunity. A lower Sales Quotient means more skills and strengths must be improved, which results in a longer timeframe. However, if DNA is present, it is worth spending the time and money to develop these skills and strengths.
Figure it Out Factor™ (FIOF)
This OMG measurement tracks how quickly a salesperson internalizes and applies the sales training and coaching required. We adjust our Opportunity time frame to account for the average FIOF score of the salespeople.
Sales Management Capabilities
A key component to sales growth rests with the capabilities of sales management to coach salespeople and hold them accountable. While this effort doesn’t impact the estimated increase in sales, it does impact the timeframe.
What many companies do not realize that investing in sales managers is one of the single best training investments an organization can make in a down economy. Better managers produce better sales results since a great manager can unlock the sales team’s potential.
Sales coaching empowers sales reps to improve selling skills and close more business. Industry research backs up this conclusion. CSO Insights demonstrates a relationship between companies with coaching programs exceeding expectations and the percentage of sales reps achieving quota.
Despite this compelling research, most managers spend the bulk of their time on other activities like direct selling, preparing forecasts, attending meetings; they neglect the importance of developing the one skill that can have the biggest impact on sales. Coaching.
In the words of OMG:
Evaluating your sales force (your people, in the context of your sales systems, processes, and strategies) is the most powerful and cost-effective thing you can do.
You can expect their analysis to help you answer four critical questions:
- Why aren’t we more effective?
- How much more effective can we be?
- What will it take to accomplish that?
- How long will it take to accomplish that?
Better yet, your OMG sales evaluation empowers you to drill down much deeper to answer these questions:
- How does sales leadership impact our sales force?
- What are our current sales capabilities?
- How motivated are our salespeople and how are they motivated?
- Why aren’t we generating more new business?
- Are we reaching the actual decision makers?
- Why isn’t our sales cycle shorter?
- Are we selling consultatively?
- Are we selling on price and who can become a value seller?
- Is our value proposition consistent?
- Can we close more sales?
- Do our systems and processes support a high-performance sales organization?
- Are we consistent with our sales process?
- How well are our sales leadership strategies aligned?
- Do we need to change our selection criteria?
- Is our ramp-up of new salespeople fast enough?
- Can we improve our pipeline and forecasting accuracy?
- Can we improve our sales culture?
- Who can become more effective in their roles?
- What are the short-term priorities for accelerated growth?
I know, this all seems like a K2 mountain of work.
But imagine what you can accomplish armed with a DNA-powered sales team and the answers to these questions?
No more pain over bad hires. No million-dollar mistakes.
Fewer missed sales opportunities or failed quotas.
Less stress in front of your CEO. Or for the CEO in front of the Board.
It’s a beautiful thing.
See you on the upside,Bill
For more information, go to www.pleinairestrategies.com
Or call William L. MacDonald in San Diego at PleinAire Strategies LLC at 760.340.4277 or 213.598.4700
- Sales Readiness Group
- CSO Insights