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

The numberof salespeople

hired in the last12-months?

The numberof salespeople

hired in the last12-months?

The number of salespeople fired

or who quit in the last 12-months?

The number of salespeople fired

or who quit in the last 12-months?

The numberof candidates

interviewed for each position?

The numberof candidates

interviewed for each position?

Approximate number of hours

interviewing each candidate?

Approximate number of hours

interviewing each candidate?

The numberof times each

candidate was interviewed?

The numberof times each

candidate was interviewed?

How many hours invested coaching

each person?

How many hours invested coaching

each person?

Any fee paid for each position?

$12,500.00

Any fee paid for each position?

Cost of advertisingeach position?

The value of an hour of your time?

$85.00

The value of an hour of your time?

Fees paid for training each salesperson?

$2,700.00

Fees paid for training each salesperson?

Average yearly base salary paid to each salesperson?

$85,700.00

Average yearly base salary paid to each salesperson?

Average number of months worked before being fired

or quit?

Average number of months worked before being fired

or quit?

PERFORMANCEof KEEPERS

Average annual revenue per sale or customer?

$26,700.00

Number of sales or customers per month?

What is the gross margin on sales?

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?

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

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.

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

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

5: Separating the hereticsfrom the faithful

ARE YOU ATALENT-CENTRIC ORGANIZATION?

What is “talent?”

Look at the recruiting process:

What works?

What doesn’t work?

What works?

What doesn’t work?

Developing a working model and systematic

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

The Unfaithful

WALKING THE WALK

The Unfaithful

Heretics

WALKING THE WALK

The Unfaithful

Heretics

Good Soldiers

WALKING THE WALK

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?

1. A systematic,integrated androutine approach?

2. Growing the salesteam, raisingthe bar?

3. Part of the talentmanagementcontinuum?

Standard deviations…

…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

Competencies

Investigate

Competencies

Measurable, observable

Investigate

Competencies

Measurable, observable

Relate to job performance

Measuring applicants

Tests and simulations

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

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

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

5: Repeat

http://amgadvisors.net/events

(561) 283-4744 | info@amgadvisors.net

Thank you!

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