You hire John to sell in your Shanghai office.  After a month it doesn't look good.  After 90 days it is really bad.  At six months you give up and let John go.

This all too familiar scenario happens time and time again.  Unfortunately, you get lulled into believing that all you lost was six months of salary and benefits.  Nothing could be further from the truth. In addition to salary and benefits you lost six full months of sales opportunities, management time, administrative costs and training costs. (See the list below for details)

And these are just the obvious costs.  When accounting for the costs (both real costs, such as time taken to select and recruit a replacement, and also opportunity costs, such as lost productivity), the cost of employee turnover to for-profit organizations has been estimated to as high as 150% of the employees' remuneration package, or more.

There are both direct and indirect costs.  Direct costs relate to the leaving costs, replacement costs and transitions costs, and indirect costs relate to the loss of production, reduced performance levels, unnecessary overtime and low morale.

For years I have listened to sales managers talk about hiring five and keeping one good person.  This is a terrifically costly way to do business.  Let's translate some of the costs mentioned above to see just how much this flawed strategy is costing you.

Let's look at a salesperson with a $40,000 base salary and an annual quota of $500,000.  Salary and benefits for six months cost $27,000.  It costs you $5,000 to recruit the person.  You spent $3000 on training classes and materials.  And those are just the hard dollar costs.

Your soft costs begin with lost opportunity.  If John had been successful, how much revenue would he have generated?  You have to add 50% of your annual quota to the total for lost opportunity.  (Cost $250,000)

How about your time?  Would you have been more productive using your time working with someone who was generating revenue?  (Cost 15% of your annual compensation ($17,000))

And the two real intangibles in this equation are employee morale and customer cost.  Your good employees resent having a non-performer on the staff.  It makes them look bad and they have to work harder as a result. And, there is cost with your customers as well.  They have to deal with a sub-par person, which can sour the relationship.  (Cost: What is the cost of one lost customer?)

Your cost of one hiring mistake is roughly $302,000 without counting the cost of low employee morale or lost customers.  And here is the really sad part, if you do make this hiring mistake, you have to do it all over again doubling all the numbers!  How does $604,000 for each hiring mistake sound?  Click here to use the Real Cost Calculator of Hiring Mistakes to determine your actual exposure.
 

Now you can see why the "hire a bunch and keep a few" staffing strategy is a mistake.  The good news is you are on your way to fixing the situation as we speak.  The first step in putting a great hiring process in place is to understand that you need one.  Once you realize the economic impact on your business, you're ready to take the steps necessary to get on track.
 

Your best next step is to invest in your education.  The more you know about recruiting and hiring good sales people, the better chance you have of building a winning sales team.  If you are not expanding your knowledge base, and when you compete against someone who is, then the outcome is fairly certain.

"A top quartile performing salesperson is 14 times more productive than an average performer."
McKinsey Quarterly
 

If you would like to find out how you can hire the right sales person for your team, you can e-mail info@directions-consulting.com or call +86-136 7190 2505 or Skype: cydj001