Hiring Salespeople and the Economics of Failure

Hiring Salespeople and the Economics of Failure

An AMG Executive Briefing

The Economicsof Failure

Sizing up the overall problem



Identifying existing and potential problems




Reversing bad hiring processes and implementing good ones


One-to-many: A “purposeful primer”



Many-to-many: Stay posted online, join in the conversation



Many-to-many: Stay posted online

One-to-one: Follow-up, follow-through and making sense of it all…

Many-to-many: Stay posted online, join in the conversation

Bad Recruiting Practices: Sizing up the problem

Systematically winging it


Failing to benchmark


Not hiring to profile


Wrong time, wrong place


Recruiting bad apples


Getting to grips with costs


The cost of acquisition


The cost of turnover


Cost of mediocre performance


Hidden costs


What’s acceptable to you?


Method one:Number crunching


Method two: Utility analysis


METHOD ONE: Number Crunching

Did you find and download the spreadsheet:

Calculating The Cost of Bad Hires?

RECRUITMENT and DEVELOPMENT

COSTS

The numberof salespeople

hired in the last12-months?


COSTS

The numberof salespeople

hired in the last12-months?

18


COSTS

The number of salespeople fired

or who quit in the last 12-months?


COSTS

The number of salespeople fired

or who quit in the last 12-months?

06


COSTS

The numberof candidates

interviewed for each position?


COSTS

The numberof candidates

interviewed for each position?

03


COSTS

Approximate number of hours

interviewing each candidate?


COSTS

02

Approximate number of hours

interviewing each candidate?


COSTS

The numberof times each

candidate was interviewed?


COSTS

03

The numberof times each

candidate was interviewed?


COSTS

How many hours invested coaching

each person?


COSTS

40

How many hours invested coaching

each person?


COSTS

Any fee paid for each position?


COSTS

$12,500.00

Any fee paid for each position?


COSTS

Cost of advertisingeach position?


COSTS

$0.00

Cost of advertisingeach position?


COSTS

The value of an hour of your time?


COSTS

$85.00

The value of an hour of your time?


COSTS

Fees paid for training each salesperson?


COSTS

$2,700.00

Fees paid for training each salesperson?


COSTS

Average yearly base salary paid to each salesperson?


COSTS

$85,700.00

Average yearly base salary paid to each salesperson?


COSTS

Average number of months worked before being fired

or quit?


COSTS

09

Average number of months worked before being fired

or quit?

PERFORMANCEof KEEPERS

Average annual revenue per sale or customer?


Average annual revenue per sale or customer?

$26,700.00


Number of sales or customers per month?


Number of sales or customers per month?

04


What is the gross margin on sales?



30%

PERFORMANCEof LOSERS

Average annual revenue per sale

or customer?


Average annual revenue per sale

or customer?

$26,700.00


Number of sales or customers per

month?


Number of sales or customers per

month?

01





21%

What if you decreased your sales staff turnover by 30%?

$385,452

Decreased costs…

Flipside…

…Upside

Before After

Turnover % 33% 23%

Flipside…

…Upside

Before After

Turnover % 33% 23%

Cost of recruiting $1,175,040 $822,528

Flipside…

…Upside

Before After

Turnover % 33% 23%


Development costs $109,800 $76,860

Flipside…

…Upside

Before After

Turnover % 33% 23%


Development costs $109,800 $76,860

The cost of bad hires $1,284,840 $899,388

#DIV/0!

What’s your number?

NO CRYSTAL BALLS

Without accurate data your analysis will produce fuzzy

readings at best.

Where are you getting your

data from?

Can you trust it?

METHOD TWO: Utility Analysis

Using statistics to calculate standard

deviations of performance

A Step-by-Step Approach

1: Rank order, from top tobottom


2: Tier production levels



3: Assign salespeople totheir appropriate level




4: Establish averages foreach production level




4: Establish averages foreach production level

5: Analyze and work thenumbers

Rank from top to bottom

Mary $1,000,000

Matt $900,000

Mark $800,000

Luke $700,000

John $600,000

Sarah $500,000

Ester $400,000

David $300,000

Sam $200,000

Martha $100,000

A typical sales team?

Tier production levels

Add production from allsalespeople and divide by three.

This yields three break-points thatallow us to divide our salespeople

into meaningful productionlevels, or “tiers.”

Total sales $5,500,000

Mary $1,000,000

Matt $900,000

Mark $800,000

Luke $700,000

John $600,000

Sarah $500,000

Ester $400,000

David $300,000

Sam $200,000

Martha $100,000

Add production from allsalespeople and divide by three.

This yields three break-points thatallow us to divide our salespeople

into meaningful productionlevels, or “tiers.”

Total sales of $5,500,000 dividedby 3 equals approximately

$1,800,000 per sales tier.

Assign salespeople to their appropriate level

Mary $1,000,000

Matt $900,000

Top-tier $1,900,000

Mary $1,000,000

Matt $900,000

Top-tier $1,900,00

Mark $800,000

Luke $700,000

John $600,000

Mid-tier $2,100,000

Mary $1,000,000

Matt $900,000

Top-tier $1,900,000

Mark $800,000

Luke $700,000

John $600,000

Mid-tier $2,100,000

Sarah $500,000

Ester $400,000

David $300,000

Sam $200,000

Martha $100,000

Bottom-tier $1,500,000

Establish averages for each production level

Divide production [within each tier] by the number of people in that level.

This yields the average production per salesperson by tier.



Mary + Matt = $1,900,000 / 2= $950,000 averagetop-tier production



Mark + Luke + John = $2,100,000 / 3= $700,000 averagemid-tier production



Sarah + Ester + David + Sam + Martha = $1,500,000 / 5 =

$300,000 averagebottom-tier production

Analyze and workthe numbers

Calculate the average production difference between a mid-tier salesperson and a bottom-tier

salesperson.


salesperson.

Using a mid-tier sales “target” provides a conservative estimate of lost

production.


salesperson.

Using a mid-tier sales “target” provides a conservative estimate of lost

production.

$700,000 average mid-tier –$300,000 average bottom-tier

= $400,000 average production lost per bottom-tier salesperson.

Multiply this figure by the number of salespeople in the bottom tier.

This represents the total sales lost each year by the bottom-tier salespeople.

Multiply this figure by the number of salespeople in the bottom tier.

This represents the total sales lost each year by the bottom-tier salespeople.

$400,000 x 5 =

$2,000,000/year

Most people don’t realize recruiting costs

are more than thecost of acquisition or

cost of turnover; they are also deeply hidden in the cost of variable

productivity.

From the largest organization to the

smallest, bad hiring practices tend to

secretly cripple organizations.

Most people don’t realize recruiting costs

are more than thecost of acquisition or

cost of turnover; they are also deeply hidden in the cost of variable

productivity.

From the largest organization to the

smallest, bad hiring practices tend to

secretly cripple organizations.

More Number Crunching

Does anyone know what the

actual cost of making a bad hire

really is, huh?

Who is measuring what, exactly?

More Number Crunching

Does anyone know what the

actual cost of making a bad hire

really is, huh?

Who is measuring what, exactly?

Calculating hidden costs

Administrative costs:Discipline and termination

Separation processing

Vacancy costs:Open territories

Unsold inventory




Unsold inventory



Replacement costs:Recruiting and related

Management time


Unsold inventory



Management time:Hand-holdingLess time for

sales management


Management time


Unsold inventory




sales management

Team Morale:Lower achievements

ResentmentAnxiety


Management time


Unsold inventory



Training costs:Onboarding

Time to ramp-up


sales management


ResentmentAnxiety


Management time

Lost opportunity:Missed dealsLost business Vacancy costs:

Open territoriesUnsold inventory




sales management


Time to ramp-up


ResentmentAnxiety


Management time






Time to ramp-up

Customer costs:Complaints and poor service

Lost referral businessBrand erosion


sales management


ResentmentAnxiety


Management time






Time to ramp-up

Competitive advantage:Lower ROI per salesperson

Lower margin on salesProprietary stuff


sales management


ResentmentAnxiety

Customer costs:Complaints and poor service

Lost referral businessBrand erosion


Management time


Top-down and bottom-up


Questions of perspective


Organizational dynamics


Managing crunches, crisesand complexities


Talent management


Process improvement


Benchmarking, audits and assessments


Sizing up the organization

1: Understanding thedynamics of change


2: Flat world attitudes



3: Establishing a newmodel




4: Aligning the salesorganization with goals




4: Aligning the salesorganization with goals

5: Separating the hereticsfrom the faithful

ARE YOU ATALENT-CENTRIC ORGANIZATION?

What is “talent?”


Look at the recruiting process:


What works?



What works?

What doesn’t work?



What works?

What doesn’t work?


Developing a working model and systematic

approach…



approach…

Workforce planning



approach…

Profiling



approach…

Employment branding



approach…

Sourcing strategies



approach…

Screening and assessment



approach…

Selection



approach…

Onboarding



approach…

Engagement



approach…

Performance management



approach…

Training and development



approach…

Retention



approach…

Succession planning


Assessing who’s who and who’s up for change

WALKING THE WALK

TALK

ING

TH

E TA

LK

WALKING THE WALK

TALK

ING

TH

E TA

LK

The Unfaithful

WALKING THE WALK

TALK

ING

TH

E TA

LK

The Unfaithful

Heretics

WALKING THE WALK

TALK

ING

TH

E TA

LK

The Unfaithful

Heretics

Good Soldiers

WALKING THE WALK

TALK

ING

TH

E TA

LK

The Unfaithful

Heretics

Good Soldiers

Champions

WHO ISYOUR BEST

RECRUITER?

Fill in the blank…

WHO ISYOUR BEST

RECRUITER?


Unfaithful?

WHO ISYOUR BEST

RECRUITER?


A heretic?

WHO ISYOUR BEST

RECRUITER?


Good soldier?

WHO ISYOUR BEST

RECRUITER?


A champion?

A sales manager’s role

[Why recruiting is a stretch]

Grunt work

Bad economics

Core competencies

Unbundle it

Strategic versus tactical

Are your sales managersup to the job?

1. A systematic,integrated androutine approach?


2. Growing the salesteam, raisingthe bar?


2. Growing the salesteam, raisingthe bar?

3. Part of the talentmanagementcontinuum?

Standard deviations…

…digging deeper

…digging deeper

Uncovering underlying problems…

…digging deeper


Why do underperformers underperform?

…digging deeper



Is it a motivation problem?

…digging deeper




Are core behaviors, attitudes and techniques out of synch?

…digging deeper




Are core behaviors, attitudes and techniques out of synch?

Are the problems situational?

Rooting out problems

Investigate

Investigate

Competencies

Investigate

Competencies

Measurable, observable

Investigate

Competencies

Measurable, observable

Relate to job performance

Measuring applicants


Tests and simulations



Behavioral interviewing



Behavioral interviewing

Targeted Selection


Chunking the problem


Jumping the tracks


Start with the end in mind


What next?


CALCULATING THE COST OF HIRING MISTAKES

If time is money, the typical interview is a waste of both…



Poor predictor of performance



Who is selling who what?



What gets measured and how?

CALCULATING THE COST OF HIRING

MISTAKES

Using top producers as a model misses

the mark…


MISTAKES


the mark…

Measuring the difference


MISTAKES


the mark…

True or False:All salespeople

have big heads?


Measuring the wrong stuff…



Personality



Aptitude



Experience



Validated skills-based and job related testing


MISTAKES

Getting usedto it…


MISTAKES


Analyzing poor performance


MISTAKES


Retention problems


MISTAKES


Understanding why people leave

Baselines and benchmarks

Profiling

Job profiling

Profiling

Job profiling

Candidate profiling

Profiling

Job profiling

Candidate profiling

Performance profiling

Profiling

Job profiling

Candidate profiling

Performance profiling

Fit

Assessments

Talent management audits

Assessments


Sales management evaluation

Assessments



Statistically validated screening

Assessments



Statistically validated screening

Sales- and job-specific assessments

Performance Management

Accelerate ramp-up


Accelerate ramp-up

Minimize deviations


Accelerate ramp-up

Minimize deviations

Effective management


Accelerate ramp-up

Minimize deviations

Effective management

Growing the organization

What next?

1: Get real about the costsand consequences


2: Step back and evaluateyour options



3: Take a leadership roleand get involved




4: Systematically applybest practices




4: Systematically applybest practices

5: Repeat

http://amgadvisors.net/events

(561) 283-4744 | [email protected]

Thank you!

Business

Hiring Salespeople and the Economics of Failure