Introduction
High
salesperson turnover can cripple sales productivity. Unfortunately, it
sometimes seems that turnover is on the rise.
Turnover results anytime a salesperson
leaves a position, either through termination of employment (both voluntary and
involuntary) or transfer (when the salesperson is promoted or moved to another
position in the same firm).
Some turnover is positive. A healthy
company will promote qualified achievers into higher slots. But most
terminations are due to poor performance. Obviously, sales executives are
struggling to find and keep good salespeople.
What
is Behind High Termination Rates?
A
number of factors appear to influence the termination rate. In general,
Higher
termination rates are found in companies that use a "one size fits all'
method of setting sales targets; lower rates are found in companies that assign
individual sales targets.
Termination
rates are higher when targets are set artificially high to cover more than 100%
of corporate goals. If targets are unattainable, the sales force won't stay
motivated past the initial burst of activity. Salesperson failure becomes more
likely. Production drops and turnover increases as salespeople give up and quit
or are fired. All of this can be avoided when sales
targets more closely match corporate goals.
The
70% Solution
Target levels should be set where
salespeople can hit them. Driving off salespeople by setting too high targets
makes it difficult to consistently hit any numbers—perhaps impossible.
Studies
show that when targets are set so that 70% or more of the sales force can
achieve them, the termination rate is only 18%. But if less than 70% of the
sales force can reach target, one-third of the sales force may be lost through
termination. Not coincidentally, 70% sales force attainment is the number IBM
uses to set its targets. High termination rates can make it even tougher for
firms to hit next year's numbers. When less than 70% of a firm's salespeople
make target, and substantial numbers quit or are terminated, the remaining
sales veterans may feel demoralized. And a greater portion of the sales burden
falls on new, less productive sales people.
The High Cost of Turnover
The
amount of revenues lost when just one established salesperson is lost through
termination or transfer is staggering.
1.
New
sales are lost because the territory is open until a new salesperson can be
hired and trained.
2.
The new salesperson who fills
the territory goes through a ramp-up period (often lasting two years) during
which he or she is less than 100% effective.
3.
For each sale lost while a
territory is open or the replacement salesperson is less than fully productive,
future add-on sales and maintenance revenues are lost.
4.
The cost to hire and train a
replacement is an additional expense—especially for companies selling expensive
products or services. For example, one vendor of high-end industrial products
reports that it loses more than $1 million when an experienced salesperson
leaves!
Calculate the cost of hiring the Wrong Sales Person
Calculate the cost of hiring the Wrong Sales Person
These
lost sales directly affect the bottom line. Yet sales executives often claim
they don't lose sales while a position is open. They argue that sales managers
or other salespeople pick up the responsibility for any active prospects until
the void is filled. Well, if no sales are lost, why bother to fill the
position?
Even if someone covers the
terminated or transferred salesperson's territory, future sales will suffer
because fewer new prospects are developed during that period. In addition, the
people who are "filling in' neglect some of their own duties to cover the
vacant territory. Either way, current and future revenues and profits are lost.
The
typical open territory remains vacant for 60 days. That's two full months of
lost productivity that can never be recovered. Add the cost to hire and train
the replacement salesperson, plus the ramp-up time before the new salesperson
begins to make a substantial contribution, and the "we don't lose sales'
argument begins to look a bit thin. Furthermore, lost sales don't just
disappear—they find their way into the coffers of competitors, strengthening
their market shares and their bottom lines.
How
to Reduce Turnover
Sales executives cannot—and
should not—attempt to prevent all turnover. Companies will always need to
promote some salespeople and dismiss others. But there are three avenues to
pursue in trying to keep your turnover rate down:
1.
Better hiring and training.
Although the average cost to hire and train a new salesperson is high, it is
considerably less than the cost of losing an established salesperson.
Money spent to more
effectively screen and recruit new salespeople can yield higher caliber
employees who more closely fit the company's corporate culture and sales
success profile. Better training is a solid investment in getting new
salespeople up to full productivity sooner, thus reducing turnover.
Of
course, it's a good idea to hire the right person in the first place. Refer
back to Section Two for advice on making sure the person you hire will perform
on the job.
2.
Competitive company
plans. Review
your sales compensation plan. Does it provide earnings that are competitive
with other companies and the industry at
large?
3.
Achievable targets. Sales
targets should be set at attainable levels. Salespeople like to win. When
targets make winning impossible, success-oriented salespeople will go somewhere
else. Sales targets should also be individualized. Firms that take each salesperson's
forecast into account generally have the lowest levels of turnover.
Remember,
unrealistic targets always increase turnover. And higher turnover drives down
productivity.
A
Final Lever
Even
if sales executives do everything right, sooner or later they'll find
themselves across the table from a good producer who is planning to leave. You
might want to use the opportunity to double-check your system. Ask yourself,
- Are
targets reasonable and achievable?
- Is my
company plan motivating?
- Has this
person been given every chance to perform, and been rewarded for
performance?
If
an honest examination reveals that your system isn't to blame, the problem may
lie in the restless nature of the salesperson. Sales attracts "movers and
shakers' who are typically looking for a better way to prospect, a better way
to close, a better company to work for—and bigger earnings. Rearranging the
company to placate one "superstar' is not the answer. It might be helpful
to remind the fidgety salesperson about the ramp-up period that every
salesperson experiences in a new position. Because the commissioned salesperson
loses out on a substantial portion of income during this period, changing jobs
may cost the salesperson a lot of money. Pointing to these start-up statistics
may reveal to the potential defector a drought in what he or she perceived to
be green pastures.
