Unfortunately, the cost of making a hiring mistake is high.
Statistics indicate that the cost of making a bad hire is between three and five times that individual’s annual compensation. That means if the base salary for a new sales rep is $36,000 per year and the company is superior at cutting ineffective salespeople free quickly (say, after three months) then the cost of one bad hire is $27,000 at a minimum. That is a very conservative estimate.
If they were making $75,000 per year and kept them for six months before parting ways, then it might be more like $75,000 divided by two for half the year = $37,500 x 3 (the low end of average) = $112,500. If we multiply by 5 (which is on the high side of average), the number jumps to $187,500.
I suspect the true cost in many industries is significantly higher even than that. Particularly with a product that is purchased infrequently, such as on a multi-year contract, you really cannot afford to have an inferior salesperson losing out on those fleeting opportunities repeatedly.
Why do many companies suffer from bad hires?
Common reasons are:
1. Most companies don’t have ongoing, steady recruiting efforts 365 days a year. Managers only recruit when they need to fill a position. Thus, they panic when they need to fill a spot, and frequently choose expediency over excellence.
Solution: Managers should always be recruiting—so the effort to build a strong bench becomes a constant. And rather than pushing exclusively to HR, managers should have some ownership of this function.
2. Most hiring managers rely too heavily on their gut instincts to make hiring decisions. Unfortunately, studies show that our gut instinct is only right about 14% of the time. Yikes!
Solution: Solve this challenge by using an objective process first before engaging in a subjective analysis. I suggest using the Objective Management Group battery of sales specific assessments to objectively evaluate candidates first, before anyone falls in love with them.
3. Companies lack appropriate onboarding programs. Many companies have new sales hires spend an inordinate amount of time in the monitoring center or with techs. Yes, I know that to adequately sell it helps to understand the service, but traipsing salespeople through the various departments of your company won’t cut it. Additionally, if you hire salespeople and they aren’t chomping at the bit to get out and sell, then you may have made a mistake.
Solution: Improve your onboarding program by clearly defining the expected outcomes for each phase of onboarding, whether it is reviewing the website or for making phone calls to set appointments. When the expected outcome is achieved — let the salesperson move on to something else.
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