The True Cost of Sales Turnover
Have you ever tried to figure out the true cost of turnover in your sales team?
If you have, I am sure you considered all of the explicit costs. These are the termination costs plus the costs to recruit, onboard, and train a new salesperson. There is no doubt that you can measure each of these, but what about the hidden costs? If you are a sales leader, I suspect this issue is on your mind.
Most sales organizations can expect at least a 10% turnover per year.
Here are three hidden costs you should consider:
- Checked Out Salesperson
- Ramp Rates for New Salesperson
- Opportunity Cost of Vacant Territory
Checked Out Salesperson
A salesperson does not decide to leave your company overnight. It is something that takes time. They either get recruited away, or they slowly realize they are having trouble selling your product. Either way, the process usually happens over the course of a few months.
During this time you will incur a hidden cost due to the decrease in their performance. This will manifest itself in several ways. First, they will start to neglect their data in your Customer Relationship Management (CRM) platform. Their activity level will drop and they will disengage from the sales process. Second, they will come up short on their monthly goals. Finally, the overall value of their sales funnel will begin to erode.
Tip: Make sure your sales analytics platform gives you insight into these three things. Then you can identify these salespeople early and get them back on board, or accelerate their departure.
Ramp Rates for New Salesperson
In technology companies, or in industries with complex sales, the typical ramp time for an enterprise sales rep is between 12 and 18 months. When an experienced salesperson leaves and is replaced by a new salesperson, you should expect a decline in orders. In fact, if an experienced salesperson leaves on January 1st, you would need to replace them immediately with two new hires just to break even on their annual order number. This means you have to double your investment in that position for the same returns.
Tip: You can accelerate ramp rates through better recruitment, a more effective onboarding program, or by improving the quality of sales leads.
Opportunity Cost of Vacant Territory
When a salesperson leaves and you do not have anyone to immediately fill their territory what do you do? Either the territory sits vacant, or you split the accounts among the remaining members of your team. Both of these options carry opportunity costs.
Every day a territory sits vacant those accounts are not being worked and you are losing the potential to make a sale. This may seem obvious, but most people do not think about it because it is hard to quantify. When you split up the accounts there is also an opportunity cost to consider. As your team is working to keep those accounts warm, they are doing it at the expense of their existing account base.
Tip: Plan for your turnover. Build an optimal hiring strategy over at least two years to avoid vacancies. You may have to hire a new person today to fill a departure tomorrow.
Don’t Forget Hidden Costs of Sales Turnover
Next time you consider the cost of sales team turnover, do not forget to add in the hidden costs. When you add together the explicit and hidden costs of losing a good salesperson it could be up to 3x that person’s annual salary.
If you have any questions or would like to know how we can help you better understand turnover costs, please let us know at info@orm-tech.com.