Chief of Staff | Baker Communications, Inc.
Would it surprise you to learn that the average turnover rate for salespeople is 34% and that nearly two-thirds of that churn is a result of “involuntary turnover”? Those are the findings of a 2015 Bridge Group study covered by David Skok. That same research suggests that one in 10 companies has sales turnover rates above 55%. If you compare those turnover rates with CompForce’s estimate that the average turnover rate was 17.8% for all industries in 2016, you can begin to see the problem.
What’s The Cost?
A 2015-2016 study from a professor at DePaul University found that the average cost to replace a salesperson is $97,690. The study evaluated a mix of inside and field salespeople. An older report from DePaul (via LinkedIn) stated that acquisition costs usually account for around $29,000 of that amount. The average training cost is typically around $36,000. So that’s a total of $65,000 of the $97,690. What makes up the rest?
I believe the difference between those two numbers is due to “lost opportunity” in a territory. It happens while you’re busy filling the vacant slot. For inside sales, the study found that positions typically remain vacant for a little under four months. For field sales positions, the average is 5.42 months. With even higher-quota positions, it can average 6.2 months.
So, what’s the cost of replacing a $1,000,000 field salesperson? If you’re experiencing the high side of the replacement time — 6.2 months — then the lost opportunity in their sales territory is just a little over 6 months of that million-dollar seller’s quota, or about $516,700. If you assume the recruiting and training costs didn’t change, then the total cost of replacing a salesperson in a million-dollar territory is about $581,700.
MORE FOR YOU
If you’re a 100-person team faced with a 34.7% turnover rate and your salespeople all carry a quota of $1 million, then you’re looking at an annual cost of replacing those sellers of just under $20.2 million.
Why Hiring May Be The Problem
Traditionally, high sales turnover has been blamed on deficient seller compensation, bad leadership issues and the ineffectiveness of a company’s products and services. But these may be symptoms, not causes. I think we’re simply doing a bad job of hiring the right candidates.
The odds of picking a winner for a particular job role and industry could be extremely low if you don’t know a lot more about the candidate’s sales competencies and what makes them tick. After all, most sellers are trained to respond to questions well. They know sales lingo and can often say all the right things during an interview. But I believe a turnover rate is the true bellwether of a company’s ability to identify and hire the right individuals for the job.
Enter Data Science
Many have discussed the decreasing tenure of sales VPs over the last decade. Couple that trend with the fact that, according to Salesforce data reported by Shep Hyken, 57% of sales reps missed their quotas in 2017, and you can start to see the picture. These are all signs to me that we are simply not hiring the right people.
Today, we have sales assessments that can help us find the right people. (Full disclosure: My company offers sales assessments.) Five years ago, most of us wouldn’t have trusted them. But today, some companies advertise predictive validity rates of 90% or higher.
To those of us who have had to deal with this kind of turnover, this kind of predictability is irresistible. Data science can help you drive your hiring, onboarding, training and coaching decisions.
If you’ve never used data to help make these decisions, look for assessment reports that are simple and straightforward. They should show you a seller’s strengths and weaknesses and be equally effective for entry-level positions and experienced selling roles. Most vendors already have skill gaps mapped to training and coaching solutions if you don’t have your own.
How Do I Choose?
There are many assessments available to help you evaluate your sales team. Some are simply personality or cultural fit assessments, which can help you create the right atmosphere but may not be as predictive of a seller’s performance on the job. Those may not be as useful for addressing this turnover problem.
My best advice is to pick an assessment that is specific to the sales function and that has been validated by an independent agency. You should also make sure that it can be calibrated to the sales roles that you’re trying to fill or replace, as well as to your specific industry.
In my experience, the best way to prove the validity of any sales assessment is to ask the vendor to administer the assessment to a handful of your top and bottom performers to see whether the data would have predicted their performance. If the assessments produced a “recommended for hire” for your top performers and a “not recommended” for your bottom performers, you’ve just validated the tool’s usefulness for your company.
With today’s technology and data analysis, statistically sound assessment tools can help you do a better job of hiring. In fact, once you have a detailed profile of a seller’s “strengths and weaknesses,” you’ve gained one other advantage: You can now equip your sales managers with a playbook that helps them create individualized training and coaching for each of their sellers.
If you’re still not convinced, ask yourself whether you would like to be treated by a doctor who doesn’t believe in using lab work, MRIs, X-rays and other tools to diagnose your medical problem. In today’s technology-rich environments, scientific data can help sales executives in the same way that lab work, MRIs and X-rays help physicians. Every other approach is guesswork.