Jim Sherriff (pictured) is the CEO of Tech Qualled, based in Fort Worth, Texas, an organization committed to vetting and training military veterans for careers in sales. He previously served in sales roles for Cisco, including senior vice president for its partner organization in the Americas. He also served as global vice president of Hewlett-Packard Consulting.
I have had the pleasure of hiring more than 500 salespeople during my career. Unfortunately, I have also had the agony of dealing with more than 100 hiring mistakes. I have worked for Fortune 25 companies and for a 700-person systems integrator, and in all environments, the pain and cost of dismissing a salesperson was very high.
When I ask sales leaders about the cost of a bad hire, I normally get responses ranging from $25,000 to $50,000. In reality, the cost for most companies in the technology industry tops $500,000, dwarfing the cost of bad hires in other front-line positions.
The primary costs of this mistake fall into three buckets. The first - and biggest - is the opportunity cost associated with the delay in bringing someone on board to cover a sales territory. The second is the lost investment in the dismissed sales rep. The third category is the cost of finding and onboarding a replacement.
How does this impact a company? I'll detail an example here. To calculate the opportunity cost, we need to determine two numbers: The first is the peak annual productivity contribution you would expect from a good or great hire. All our clients expect that contribution to be well over $500,000 in gross profit; most expect the number to top $1 million. For my example, I'll use $500,000.
Then, we need to estimate the length of time in which the territory will be inadequately covered. Most companies need four to eight months before they can tell if they made a hiring mistake. Then, once they sense one, companies typically take two to three months to move the sales rep through a performance improvement process. After that, the search for a replacement and the onboarding tack on another two to three months. Altogether, you're looking at eight to 14 months. For this example, let’s use 10 months.
Those 10 months amount to about 83 percent of the year in which the territory was not adequately covered, multiplied by the annual expected contribution: $500,000. That comes out to around $416,000.
Next, you need to estimate your total investment in the departing sales rep, including salary, expenses, benefits, equipment and training. This number will vary, but for more than 90 percent of technology companies, that cost range is $50,000 to $100,000. Let’s pick $75,000 for our example.
Lastly, how much will you spend on recruiting and onboarding to replace the departing rep? Our estimate here will be $10,000.
All of that adds up to $501,000.
That's the "hard" cost. But what's the cost of the reputational damage associated with making a change in that position? What's the cost associated with the management attention that's required to coach, dismiss and replace the sales rep? These numbers are harder to quantify, but they're significant.
The two primary reasons a sales hire is deemed to have been a mistake are skills mismatches and character deficiencies. With skills mismatches, we know that most people are not well suited for the sales profession. Our clients tell us that the two skills most often missing are prospecting capabilities and closing expertise. With character deficiencies, managers want sales reps who possess such attributes as integrity, perseverance, resiliency, adaptability and drive.
What's the remedy? There are four critical steps to improving your hiring success rate.