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A Frightening Look At The “Cost Of A Sales Person”

by David Brock on November 24th, 2014

I worry, sometimes, that we take the process of hiring, onboarding, coaching, developing and managing the performance of sales people too casually.  Too often, managers tend to treat sales people as commodities.

There’s an attitude of quickly hiring the best that’s available, if that person doesn’t work out, we can fire them and hire someone new.  Likewise, as business goes through it’s natural ups and downs, sales organizations are expanded and contracted to fit our budgets.

It’s not just a sales management issue, too many sales people move from job to job, never staying in a job long enough to be long enough to produce results.

Recently, I heard a great speaker at CEB’s conference.  He outlined some frightening statistics, here are some that scared me to death:

  • The average tenure of a sales person from the time they start a job to the time they leave is less than 2 years (Sales Readiness Group).
  • The average tenure of a sales manager is 19 months.
  • 47% of companies say it takes 10 or more months for new sales people to become fully productive (67% are 7 or more months)(CSO Insights).
  • 58% of reps make quota (CSO Insights).

Taken together they present a frightening view of selling and the cost of sales.  Basically, we have to make our money from a sales person in a little more than a year.  That is, to get a return on our investment in hiring and onboarding someone-who takes 7-10 months to be full productive, but who will probably leave within the next 14 months; we have them produce at least 2 years worth of business in those 14 months!

But it gets even worse.  That sales person is probably on their second manager, who takes some time to ramp and become effective as a manager.

But think further.  Many people selling complex B2B solutions have sales cycles longer than 18 months.  So coming into a job, they may “inherit” great deals started by the previous sales person–but we’re new so our likelihood of winning is low.  The deals that we qualify early on in our tenure on a job is probably very low–because we are new and don’t know the right deals to qualify.  As we get to the 10 plus month mark, we start recognizing what a quality opportunity is, the quality of the deals we chase go up, then 14 months later……..

It’s no wonder overall quota performance is so bad.  It’s no wonder we constantly struggle with the cost of selling and getting a return from our investments in selling.

And then there are the customers.  We talk about the importance of relationships, of establishing the trust and confidence.  Yet, it can look like a constantly revolving door to our customers.  For a buying cycle that may be longer than 12 months, a “trusted” sales person is seldom involved for more than one buying cycle.  Customers have to constantly invest in “training,” and developing relationships with new sales people and sales managers.

It’s no wonder, customers search for ways to minimize sales involvement in their buying process.  If they are constantly “training,” new sales people, if the sales person isn’t as knowledgeable as she should be, if there is no relationship, the sales person can be a disruption and slow the customer down.

So at a high level, the economics behind a sales person and organization are challenging, when we look at the data on time to productivity, average time spent in a job, churn at a sales and managerial level, and declining performance results.

There is always a danger in dealing with high level data and averages across large numbers of people.  But I the data should cause us to rethink the people side of our profession.  We can’t be casual about this, it’s simply costing us to much in money and opportunity.

We have to be purposeful about recruiting, the costs of a bad hire can be millions.  We have to be purposeful about onboarding, we need to get people to full productivity as quickly as we can.  We have to be purposeful about performance management, coaching and development.  We have to look to retaining sales people–providing great work environments, meaningful career development.  Churning people as business goes through ups and downs, or as we look at different strategies du jour is expensive and wrong for both the business and people.  It’s a demonstration of bad leadership/management.

This isn’t just a management issue, sales people own a large part of this.  Jumping from job to job may seem the thing to do, but you are cheating yourselves and your companies.  If you want to be a high performing business professional, you need to hang around long enough to learn and to prove that you can accomplish something.  I’m amazed when I see resumes of people with 10 jobs in as many years.  It causes me to question their real capabilities and experience, particularly, since it’s unlikely whatever success they attained was primarily due to their efforts.  While you wonder about “loyalty,” the real concern is can they produce?  Have they hung around long enough to fairly claim the results of their work, not someone who preceded them?  People may be able to fool hiring managers for a few jobs, but ultimately, hopping jobs will catch up with everyone.

Both managers and sales people seem to have a very short-term attitude to longevity and experience in a role.  It’s a costly practice, both from an organizational and individual point of view.  The impact to organizations is $millions.  The impact to individuals can amount to $100’s of thousands to millions because they haven’t developed the deep experience they need from staying in a role long enough.

It’s time to understand the true business and personal costs to the short-term perspectives we take.

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24 Comments
  1. What is the baseline?

    We don’t know what to make of these numbers until we know the comparables for other positions.

    Are these similar for marketing positions, for example?

    • Hi Michael,
      I believe comparing ‘Sales’ to other roles is not as helpful as it would appear. I have done a lot of work on sales activities to non-sales activities. Both for Sales and non-Salespeople.

      If we instead compare Salespeople to other ‘Managed’ Resources, then run Payback scenarios a short term Sales Contract and Sales churn have comparable poor ROI.

      Dave, makes a clear point, that mismanaging Sales, as a resource, is poor business. It’s an expensive investment, and can give a high return. But, if the return is from 1 salesperson in 8 then you are more of a Gambler, than a Manager.

      In my Blog:
      http://brianmaciver.blogspot.com.es/2013/03/do-you-think-challenger-sale.html

      I share my findings from mainly IT and Telco, using Activity Based Costing that 25% of Salespeople produce 90% of Profits. What other resource would be allowed to perform, and be managed , so badly?

      • Mike and Brian: Great discussion. Mike, I tend to agree with Brian, that the comparison of one function to another, at least in the sense that I was writing about, is not very meaningful. I was really focused on the sales function itself, and the need to manage it in a way to maximize performance. Clearly, there are some cross functional comparisons that are meaningful, but I was more focused on the sales function itself.

  2. I remain stunned on this topic. We don’t live in Medieval times anymore (although we can visit for a show and dinner). How is it that as a profession, so many in Sales still can’t get hiring, onboarding, development, and performance management right?

    On the number of years at one company, Dave, we’ll probably agree to disagree on this, but I think we’re going to need to let go of the past and our Boomer generation’s perceptions. Yes, 10 companies in 10 years, seems extreme even to me, and *could* indicate an issue with the individual, but it depends. Were they rising through the ranks or accelerating earnings faster by jumping than they could have internally at one company, or just moving laterally from sales role to sale role?

    Also, as someone who has been downsized 3 times in 7 years and only purposefully chose to leave one employer in the last 10, I think the “story” is more important than the seemingly-evident stats. We’re also seeing very different loyalty trends from Gen Y and Millennials, and my guess is that we’re see even less from Digital Natives. If companies want to change this, it will take a real shift in culture and the way most companies operate, and I’m not sure I see that coming anytime soon. But, one can hope, especially near Thanksgiving. (Hope yours is happy!)

    • Thanks for the comment Mike, we may agree to disagree, but I don’t think we are very far apart.

      Clearly, the business world that my father grew up in (employment for life) is long past–and I’m not sure it was a good practice when it was in place. I’m clearly not advocating a return to that.

      However, we seem to have cultures of “disposable” employees and “what’s in it for me, only” thinking of employees. I think what we attribute to Gen Y and Millennials is more a deep cultural issue that crosses all generations and has little to do with Digital Natives.

      Lay-offs, most importantly continued layoff, year after year is an indicator of horrible management and leadership. We can’t give lip service to the concept of “employees are our most critical asset,” but then use the lay off as the most convenient form of expense/problem management. It is particularly important in today’s and tomorrow’s business economies, when the true differentiation is going to be driven by the collective corporate “brainpower” and ability to innovate. So employee retention and development is the only viable competitive and growth strategy for the future.

      I think a lot of the attitudes we attribute to Gen Y and Millenials are a reflection of the disposable mentality they see practiced by everyone else. So it’s only sane they look out for themselves and move from opportunity to opportunity. This is not limited to them, but something we see everyone doing.

      But they short change themselves and their long term development. If they aren’t hanging around long enough to see the outcomes of their own performance and to be accountable for that, they never learn. After a few years and a few jobs, it catches up to them. I don’t know how many people I see who have been in multiple jobs, had escalated their earnings to a very high level, but who were completely unprepared for and uncompetitive for the “next job.” I’ve seen many people have to reset their expectations, going back and catching up on lost experience.

      There is no magic to Gladwell’s “10,000 hours” concept. To learn and develop, to grow as people and professionals we need to practice in a disciplined way, in ways that we see things through to completion, where we are accountable for results and know that we can produce results.

      Everything else is just fashionable handwaving and ultimately, bullshit.

      The problems we are seeing are 2 sides of the same coin. Poor management who don’t really try to understand performance and drive performance and business improvement, instead treating people as disposable commodities are bad managers. Employees, who jump from job to job are shortchanging themselves and their companies. At least from a WIIFM point of view, if not for loyalty, they should be smart enough to hang around and not be seduced by short term rewards.

      • You’re right, we’re not that far off. One of my problems with the short-term developmental assignment practice is that leaders don’t stay in a role long enough to feel the ramifications of their decisions, some of which is cleaned up by the next guy or gal in the seat, minus the learning experience for the one who left. I do get that. It’s also the difference between having 5 years of experience and one year of experience, 5 times.

        At the same time, as an employee, I can certainly say that most of my biggest leaps in salary and responsibility, came from jumping ship, mostly because the vertical growth simply wasn’t available in my current company, even though I was ready. With thinner and flatter organizations becoming more prevalent, I don’t see this changing soon either.

        Also agree about the disposable mindset. I don’t like it; I don’t agree with it; but it is a reality. We made that bed, and now we get to sleep in it. And with isolated exceptions, I don’t see this changing anytime soon. Do you?

        So, as usual, it seems, there is “the right thing to do” vs. “the way we generally do things,” with all the ramifications created by the gap. Not sure what to do about that some days, other than soldier on and lobby for logic, but some days, it feels a little like tilting at windmills.

        • Mike, clearly when there are no growth opportunities in your current company, moving to another makes sense–as long as you are ready for it. So if one has been in a role for some time, has mastered it and should move into a new role to contribute further but can’t, they should move on. Great managers and great leaders create those opportunities–and frankly any vibrant growing, high performing company always has those opportunities.

          The disposable mind set is a mind set that exists with bad managers and mediocre companies. Examine consistently high performing companies and they have a completely different mindset. So it is not a reality in high performing companies or companies that are truly committed to improving. So I don’t believe it is a reality and I don’t believe anyone truly committed to performance improvement should accept it.

          As responsible thought leaders, we should constantly call it out and fight to change it. It is changeable, and we have seen many start, in small ways, to change.

          When we think of it as tilting at windmills, we have truly lost.

          • The outside press once hears about companies is often very different than what one experiences on the inside. Over a 30 year career, I’ve worked for a handful of Fortune 100 corporations, many of which were “high-performing companies” based on their results at the time (which is always attributable to a large variety of factors and not always how they handle these issues we;re discussing).

            There are some that handled these things very well, as you suggest, and some where “employees are our greatest asset” was just another sentence (despite what PR and magazine articles said to the contrary).

            I haven’t walked away from the fight yet. I also don’t think I or anyone has “truly lost” because we admit that some days it feels like windmill-tilting. I’m not embarrassed by that authentic comment, nor will I allow myself to be shamed for it. It doesn’t foretell quitting, defeat, or anything of the sort. In fact, for an idealist, sometimes, it just provides fuel. But it also helps a realist determine where it makes sense to apply their effort. Accept the things you cannot change; change the things you can; be wise enough to know the difference.

  3. Gil Pagan permalink

    David, great post and discussion, We always tell clients who will listen that the churn and burn sales recruitment model does not work and cost so much more than they realize. When we hire staff we do look for a progression in their sales career if they have jumped around alot, Agreeing with Mike. But I do, generally, agree with your assessments.

    Thanks for sharing your insights.

    Gil
    http://www.LeaseASalesRep.com

  4. Jojo permalink

    I have worked in a wide variety of technology companies over many years with about 15 in direct sales, primarily on the telephone. The figures above sound right but there is a lot of room open to discuss the why’s and wherefore’s.

    Most experienced salespeople don’t go into a company with the idea that they will leave in one or two years. Too often, the salesperson is forced to leave for any variety of reasons including poor management, “oversold” product/company/territory, blatant favorism, no marketing support, lack of development support, company doesn’t effectively support the sales function, changes in product availability occurred, impossible to attain quotas and probably a few more. None of which is typically revealed until you come on board the revolving door company!

    Ever go into a company where you have been promised the sun, moon and stars? You thought you asked all the proper questions during the interview but what was promised turned out to be much less? This seems to be more the rule from my personal perspective.

    And look at most sales ads. What are they looking for? 1-3 years of experience! With 3 years of experience in sales, you are still getting your feet wet.

    But these are the typical salespeople with very limited experience that companies want to put on the front line with their prospects/customers with quotas that can go into the millions of $’s. Seriously?

    And how about those that specify a MAXIMUM number of experience years? Such as typically 5 years. Ageism anyone?

    It is rare to see ads that specify something like 10 or more years of experience.

    When you hire people with limited to no experience, is it any wonder that quota attainment is low and turnover is so high? Yet most companies don’t see what they are doing wrong and continue doing the same thing over and over again expecting different results, thereby qualifying as insane per that Einstein? adage.

    • Thanks JoJo. We don’t spend enough time defining the profile of our “ideal” sales person, consequently, we don’t know what to look for in recruiting a sales person.

  5. Karen Jefferson IEBB CSP CPMR permalink

    There are also a variety of sales organizations. While the tenure of a direct salesperson is indeed brief, the tenure of independent manufacturers representatives is typically measured in decades.

    It makes a big difference when there is autonomy, loyalty and a sense of responsibility in the individual as well as in the company they work for. When a salesperson works for a rep firm, they become part of the family. They have a vested interest in the success of the organization.

    Manufacturers are not always aware of the option to outsource their sales to a multiple line selling organization (Reps). It is a cost-effective way to get their products to market. When reps sell synergistic products, it allows for easier entree to new customers. Reps have long relationships in their territory and with their customers. They sell what they love and what they know. The benefits are myriad and often not well known to those that need them.

    From soup ingredients to nuts and bolts, you will find independent reps selling the same manufacturers, large and small, for decades.

    • Karen: You make some important points. I’ve worked with many rep organizations over the years. They can be a very powerful route to market. Principals need to look at the rep channel as an effective way of expanding their coverage and growing their business.

      Having said that, rep firms are not immune to the issues sales organizations face around bad hiring. The costs of a bad hire in a rep organization are just as high and as important as with any other sales organization. While many rep owners, tend to think of their “out of pocket” expense, which can be minimal is the sales person is on 100% commission, the opportunity costs in lost sales can be millions. Additionally, the rep owners face the dissatisfaction from the principals about the lost opportunity because of a bad hire.

      Just because the rep sales person is “part of the family,” or “has a vested interest,” that doesn’t make them a good performer. I’ve seen too many rep firms become uncompetitive and irrelevant because they are not paying attention to talent.

      Fortunately, many of the Rep Associations, like MANA and ERA are starting to pay attention to the talent issue. It will drive important improvements in the rep channel.

      • Karen Jefferson IEBB CSP CPMR permalink

        True. And the fact that most rep firms do not have an HR department can exacerbate the bad hiring habits. Folks tend to hire people that they think are like themselves…which is not always the best solution.

        I would advocate for folks hiring people that are UNLIKE themselves. When we have a diversity of thought, we will come up with unique solutions (and customers) as well as expanding the customer base because people buy from people they like (and are like them). Don’t just make your slice of the pie bigger…make the whole pie bigger.

        I am a big fan of ERA and MANA!

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