Most sales organizations struggle to find, train, and keep good salespeople. Many companies end up in a constant cycle of recruiting new sales representatives, not because their business is growing but because they are losing people as fast as they bring them on board – usually within the first year and always after investing significant time and resources in hiring and training. Typically, the loss of a salesperson costs the company twice that person’s annual salary. This money is irretrievable. Here is a quick guide to calculating the cost of hiring the wrong salesperson.
Managers and human resource recruiters spend many hours trying to replace someone who has left. The person responsible for recruiting sales candidates will typically commit 40-100 hours of their time towards the search for a new salesperson. An interviewer that makes $100,000 a year earns $52 an hour. Therefore, if we assume that it takes a recruiter an average of 70 hours to fill a sales position, we are talking about $52 x 75 hours = $3,900 of the recruiters time to replace one person who leaves.
Next, add in everything managers and recruiters do to attract new salespeople including the costs of advertising, networking and promotional items. The least expensive job board is going to cost you at least $175 per week to post an advertisement. If you are using a headhunter or an executive recruiting firm, the fee will range from 15 to 25 percent of a new hires first year salary. This could cost you upwards of $25,000.
These costs are just to find a salesperson. Now let’s add in the cost of training your new hire. Even with a relatively low base salary of $40,000 – $50,000 per year, it is going to cost you at least $25,000 in base salary before that new salesperson begins to earn their keep. In addition, you need to add in the trainer or manager’s time spent on training the new hire. What is their time worth?
Add to all this, the opportunity cost of not having an effective salesperson working the territory for the period of time it takes to get a new hire up to speed. Plus, salespeople who resign often take their clients with them. This means that in addition to lost sales you may have to replace the business that salesperson takes with them.
In addition, there are some soft costs that need to be considered. When employees leave and collect unemployment, your unemployment insurance premiums rise. In addition, studies show that employees who do not have another job when they leave experience more medical problems brought on my stress. That’s a direct hit to your health insurance premiums if they are using their COBRA benefits.
And let’s not forget a surefire but little known axiom of organizational behavior: Once a person resigns or is terminated, two of the four people closest to him will likely resign within the next year. If those people are fellow salespeople, your costs are compounded.
Needless to say, the cost of hiring the wrong salesperson is an expensive proposition. The answer to this dilemma is to implement a more effective recruiting process like our STAR program using a sales-specific pre-employment assessment.