If you have worked in a sales organization, you may have observed that there is typically a revolving door of employment with sales staff coming and going. While it can be debatable in each organization as to what is contributing to the level of turnover, what is not debatable is that there is a tremendous amount of cost associated with sales staff turnover.
This article will go through and outline the cost associated with the turnover over of sales staff and use an example to display the impact on the bottom line. For simplicity, we will use a sales person that has fully loaded base earnings of $100,000 with on target earnings of $150,000. When on target, the sales person brings in $1,000,000 per year in revenue for the company.
Cost of Recruiting
When a sales person leaves, the recruiting process begins. On the low side, a recruiter will earn 20% of an applicant’s base salary. In this scenario we will use $15K as the cost of recruiting. But there is also an indirect cost from the time that management has to spending interviewing. If we assume 20 hours spent and use the hourly rate of the position being filled, we get to total recruiting cost of around $16K to add to the cost for sales staff turnover.
Cost of Training
When a sales person leaves and is then replaced, the new resource will need to be trained on the products, sales processes, the company, the competition, etc. On average, a company will typically provide a new sales person with one week of formal training. But even after that training, there will be informal training from peers and managers. If we assume 20 hours of informal training, and we double that because the person providing help is taken away from their job, we get to 80 total hours of total training, which contributes $3,846 to the cost of sales staff turnover.
Truly, the largest impact on the cost for sales staff turnover is in the area of opportunity cost. This is all the business that is lost to the competition while the position is open and then while the replacement is being fully ramped up. If this position brings in $1,000,000 on target per year, then we can assume a rate of $84K per month. And if we assume 2 months to find a replacement, 1 month for them to start, 2 months to get up to speed, and then 4 months at 50%, we get to a total lost production of ~7 months which equals $584K of opportunity cost.
Lastly, let’s take a look at the knowledge that walks out the door when a company experiences sales staff turnover. Not only had that individual already been through formal trainings, but they had a tremendous amount of on-the-job training accruing everyday. You can also add to their product and company knowledge all of the knowledge that they accrued about the prospects and clients that the company does business with. This knowledge is so valuable that it is difficult to quantify. And when it walks out the door, whether the knowledge is later used or not, it will likely end up at another company and that may be a competitor.
That is a quick summary of the cost of sales staff turnover. In this example, the changing of the guard for one sales position cost the company $604K and that does not factor in intellectual capital, nor recurring revenue in future years from lost business linked to the turnover. And the most interesting thing is that the majority of this cost will not show up on any of the company’s financial statements.
|This article was published on Thursday 28 October, 2010.|
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