Sales is often known for being a competitive, high-pressure business where “you’re only as good as last quarter’s numbers” and where sales people are constantly expected to deliver ever-improving results. In this kind of mindset, most people might expect that sales teams are constantly churning through new sales reps – as some people thrive and make their quotas and climb the ladder, while other sales reps struggle to make the cut. But is sales turnover truly healthy and necessary? Or is turnover on sales teams part of a hidden cost that needs to be managed differently?
According to a study from the Aberdeen Group, “Sales Performance Management: Getting Everyone on the Same Page,” sales turnover can impose surprisingly big costs on a sales organization – and the best sales organizations aren’t necessarily the ones with the highest or lowest turnover, but the ones who do the best job of managing turnover.
Sales teams have more turnover than they want: Under the leadership of Jack Welch, G.E. became famous for its 20-70-10 human resource management – the top 20% of performers were groomed for management, and the bottom 10% of performers were fired or managed out or reassigned. Asked to identify their “ideal turnover rate,” the participants in the Aberdeen Group survey said (page 21) that their ideal turnover would be approximately 9.5% – which is very close to G.E.’s “bottom 10% turnover ideal. However, the “actual turnover rate” identified in the Aberdeen survey was 20.6% – which means that sales organizations are averaging twice as much turnover as they ideally would prefer to have.
Replacing sales reps is expensive: According to the Aberdeen study, the average cost of replacing a sales rep was $30,420. This cost comes from a variety of causes, as outlined in the following points.
New sales reps are less productive: Only 38% of new sales reps meet their first year quotas, compared with 45% of overall sales reps. Everyone who’s ever gone to work at a new sales job knows that there is a learning curve – it takes awhile to learn your catalog of products or services, learn your accounts, learn the unique methodology and culture of the company you represent, and start to confidently build relationships with prospects. Many organizations use appointment setting to build the pipeline of a new sales rep.
Hiring and training new sales reps takes a long time: Companies surveyed by Aberdeen Group reported an average time to hire of 1.7 months, and an average time-to-productivity of 3.6 months, for each new sales rep. Every time one of your existing people leaves your team, unless they were woefully underperforming, it’s going to take some time and effort to find and train a decent replacement. And all of that time equates to sales that aren’t getting made and opportunities that aren’t getting pursued.
So if sales turnover is so expensive and damaging to an organization, what can be done? Sales turnover is sometimes hard to avoid – good sales people are constantly in demand and can often write their own ticket to have their choice of new job opportunities. Some degree of sales turnover is inevitable. In fact, the best performing sales organizations from the Aberdeen Group survey don’t necessarily have dramatically lower turnover (as noted on page 22 of the study, top performing firms have an average turnover of 19.3% instead of the overall average of 21.5%), but they have better techniques to manage turnover and lower the costs of onboarding new sales reps.
We are in the risk management business for reducing cost of sales turnover due to poor hiring decisions. I was just reading through a magazine that listed the top 500 Largest Sales Forces in North America. The total number of sales people employed in these top 500 firms is a staggering 21,300,000 people.
Read More: Top 500 Firms and the Cost of Sales Turnover