The True Cost of a Bad Sales Rep
I’ve done a lot of research on this topic, trying to find definitive numbers that help sales leaders measure the cost of a bad sales hire and the cost of retaining a low performer. There is some good data and thinking around this subject, but much less than I had hoped. I am passionate about it. Through talking to so many sales leaders, and personal experience, it’s a huge problem and cost to sales teams. In fact, putting the right sales team on the field is the biggest, most important factor in sales team success. Training, coaching, and sales enablement all pale in comparison to having the best salespeople in the field, or on the phone, selling your stuff.
This is a summary, aggregate report on what I’ve found. Hope it helps.
In this article, I use the term “Bad Rep.” That sounds demeaning—even to me. It’s not meant that way. I’m using the term to describe anyone not suited or capable of selling your stuff, in your industry, in your way—whatever. Not a good fit for your team. It does not mean they are not good people, or not good sales reps in another companies, industries, or situations. Just wanted to make that clear.
The Conservative Approach
I really hate this approach, but I must present it because many people share this view. The conservative approach—as I call it—looks at the cost of replacing a bad rep in purely hard dollars.
How much did it cost to recruit the bad rep? Let’s say $20K.
How much did we pay the bad rep in salary including any commissions? Let’s say $110K.
How much in equipment and onboarding? Let’s say $10K.
How much in benefits? Let’s say $10K.
How much in expenses? Let’s say $20K.
Annualized Cost = $170K
And some of this, like salary and benefits, is dependent on how long we kept the bad rep. And… if you replace the bad rep after the 90-day recruiting agreement, what are the replacement costs including recruitment, onboarding, new equipment, etc.
NOT CHEAP, FOR SURE.
The Loss of Productivity Approach
Okay, let’s add all the conservative approach costs into the equation, but now add the really expensive factor.
What has that bad rep cost us in low sales productivity?
Bad reps take up a seat on the bus that could have been filled by a higher performer. What’s the cost here? Well, there’s a simple cost equation. What we expected versus what we got.
What We Got = Quota Attained – Quota Expected.
This is our cost. Unfortunately, quota expected is usually the bigger number and brings us short.
FOR EXAMPLE: we expected $1M from the bad rep, and got $250K, our loss of productivity is $750K. Now, let’s add this cost to the conservative pure-dollar costs. Or in other words…
Annualized Conservative Costs + Loss of Productivity = True Cost of Bad Reps
$170K + $750 = $920K
So, for a rep with a quota of $1M that only sells $250K, the cost to the team is $920K. And that’s not even including the replacement cost. A number that will surely put you over $1M for the year.
Now, the Hidden Intangible Factors
It’s hard to assign a hard value to intangible factors, but there’s no question they are costing us. Intangible costs are insidious because they hide from sight and eat away at our production in hard–to–detect ways. Here are some examples.
Good leads handed to bad reps
Marketing can only produce so many good leads. And it’s likely that some of those are going to bad reps. So, what happens when this happens? Usually nothing. We just wasted a good lead. If our normal deal size is $50K, add that to the $1M annual cost above every time we give a bad rep a good lead.
The negative effect on team members
Low performers, lower morale. A-players generally have low tolerance for bad reps and will sometimes leave the company if they see good leads handed to low performers. Especially if they must sit back and watch them squander good opportunities. Likewise, for sales engineers and business development reps. These super-important players often rely on reps to win deals in order to boost their compensation. When that doesn’t happen, they may start looking. What’s the cost of losing an A-rep, or a great sales engineer?
Toxic attitudes kill sales teams
Sales is hard enough without negative people around dragging the team down. Low performers often become toxic because of frustration, pressure, or perceived disrespect. It’s horrible when this happens, and we’ve got to move quickly to remove the cancer when it does happen.
Bad reps cost sales teams a ton. Hard-dollar replacement costs, lost productivity costs, and intangible costs add up quickly. For one bad rep that hits only 25 percent of a $1M quota the cost is over a million dollars a year. Multiply that times the number of reps in the bottom 20 percent of a 100–person sales team and we’re talking $20M in lost revenue. That’s crazy I know. Yet somehow, many leaders have accepted the problem as “just the way it is.” But it doesn’t have to be.
Hope you have your best year ever.
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