Sales staff turnover is astoundingly costly for business, not only in terms of revenue. Despite this, wrong hires are more common than you might think. In fact, Chally estimates that only 20% of sales hires in the last two years were successful. On a managerial level, sales organisations hire the wrong managers 82% of the time.
In this article, we will look at the five main cost implications of hiring wrong in sales.
- The Opportunity cost
By far the largest impact on business is the opportunity cost of hiring wrong. While your senior manager is busy hiring a salesperson, sales that he/she would otherwise be making are merely not happening. Further, while your senior resource is not active and visible in the marketplace and busy driving sales, business could be lost to competitors. Let’s do a quick calculation: imagine a vacant sales position with a monthly target of R1,14M per month. It takes at least two months to find a replacement, one month before he or she can start, two months to get them “up to speed” and a further four months at 50% productivity. That’s a total lost production of seven months, which equates to R7.97M inopportunity cost.
- The Economic cost
During the recruitment process, senior managers are busy with CV screening and interviewing and are thus unavailable to perform their regular duties. This means that the economic cost of hiring wrong is massive, as precious time is wasted. To fill just one position, up to 20 hours could be spent. At the hourly rate of a manager, this could cost as much as R220K per manager per replacement.
- Recruitment placement cost
To ease the burden on senior management, many businesses employ recruitment agencies. This too can be costly. A recruiter typically charges a 16-20% placement fee that is simply lost in the case of a wrong hire. For the position above, this could mean a placement fee of R228K. Hiring the wrong person also means sunk advertising costs, admin fees, psychometric test costs for all candidates and the cost of background tests.
- Training cost
There is massive cost associated with training the wrong candidate, in terms of both time and money. New hires are not productive right away, with 71% taking at least six to ten months to become really effective in your business. This means that there is an investment in a new salesperson of six to ten months. Besides that, you also cover the trainer’s time in terms of formal and informal training. For instance, if there are twenty hours of formal product training and twenty hours of informal training/coaching, there are typically two resources required for each of these. At a total of eighty hours, that’s an additional cost of R55K for training alone.
- Impact on sales
Of course, hiring the wrong salesperson will take its toll on your sales, as your business struggles to reach its targets. On average, companies suffer a 30% reduction in profitability when selecting the wrong talent. This could lead to a loss of millions of rands. If you hire someone who is not productive after ten months, you often need to hire someone else, meaning a repeat of the entire recruitment and training process and, therefore, duplicating all of the costs. The average industry cost of one presale process (call to a qualified lead) is R3500. If there are four calls per week for a productive solution salesperson, that means a cost of R560K to your company over ten months.
Hiring wrong can have massive cost implications for your business. Sales staff turnover is a reality that should be avoided. Quite simply, a lost employee is lost money. In the time it takes for a sales employee to become productive, your company could lose up to R8M, all factors considered.
Per Billy Beane, “You can always recover from the player you didn’t sign, but you may never recover from the player that you did sign that you shouldn’t have.”