What Does a Bad Sales Hire Really Cost Your Startup?
It’s a dilemma for any company: your growing startup begins to face increasingly aggressive quarterly goals and the pressure is on to scale your sales team to meet the growing needs. Why is growth a challenge? It increases your chances of making the wrong hire.
According to Mindflash, 38 percent of all bad hires come from companies looking to fill a position quickly. Another 21 percent blamed an inability to test or research the employee’s skills well enough while another 11 percent pinned the bad hire on the company’s failure to check out references. Each scenario screams out a company pulling the trigger too quickly to fill a spot. This can be an especially deadly concern when it comes to your sales team.
There’s no doubting that filling sales positions is hard. When surveying companies from 2006 to 2012 on the hardest jobs to fill, the ManpowerGroup consistently named sales as the annual winner for the toughest department.
For every company, it’s a large opportunity cost to miss out on the next great closer and land a dud instead. But for a cash-conscious growing business, a bad sales hire can be especially devastating. Many businesses have considered the costs of a bad hire to equal the amount it takes to recruit, onboard and train a salesperson. But a bad sales hire isn’t simply limited to the hiring costs. Your business will incur more than a fixed set of initial costs.
Chris Young believes you can expect to calculate the total costs by adding up these two categories:
- The cost to recruit, onboard, and train a salesperson.
- The average sales of your Top 20%, Average, and Bottom 20% salespeople.
You can expect a bad sales hire to cost your business well into a six-figure sum. A 2012 report by the DePaul University Centre for Sales Leadership estimated an $114,957 price tag on the cost to hire, train, and replace a salesperson alone. The same report claimed a 28 percent turnover rate for salespeople.
Then there’s the toll it takes on your team. The amount of administration and management time that will be sucked from your staff when you make the wrong hire can be staggering. Bad sales hires require special attention and additional training when employed. Studies have shown that an average sales manager wastes 13 percent of their time focused on poor performers. Then, when the inevitable need to terminate arrives, administrators will need to spend valuable time following the proper protocols to justify and oversee the employee’s dismissal. Finally, your HR department will spend additional time with exit interviews and you might be on the hook for severance costs.
In their 2006 book Never Hire A Bad Salesperson Again, Dr. Christopher Croner and Richard Abraham also argued a business will face soft costs with any sales hire like losing value from the customers your rep is handling through neglect or poor behavior. Croner and Abraham estimated the cost at 10 percent of a rep’s quota.
Despite whatever short-term needs your business may face, it’s essential to the long-term health of your organization to avoid bad hires at all costs. If that means slowing down headcount and even missing a quarterly goal as a result, it’s likely worth it. Make sure to communicate with your investors when you are facing a lack of qualified candidates. Lean on their expertise and network to better your chances at making good hires if you’re truly in need. Talk honestly about your hesitation to hire if you show up at monthly or quarterly meetings having failed to scale headcount according to plan. Keep your position consistent: you’d rather lose little now than pay a lot more later for a bad sales rep.