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Know the Single Biggest Money Drain in Your Organization?

3 Mar, 2011 By: Jane Lemmon, Human Capital Sales Search imageSource

Know the Single Biggest Money Drain in Your Organization?

It’s not a new concept that talent management  is not only one of the most
critical aspects of managing a business, but it is also one of the most
difficult challenges facing any organization.  The Managed Print Services
Industry is certainly no different.  In fact, it may be even more critical &
challenging than for other industries. Look at what the industry is facing…we
are dealing with a sea of changes in business processes while still re-balancing
our business mix from a box focus to a true services focus.  This in turn
creates further issues to address; more specifically, attracting, developing, &
retaining top performers. When any of these factors break down, the result is
costly, unwanted and results in an astronomically expensive sales force

Before you can fix a problem you have to identify the problem. Is sales
turnover a concern in your organization? If so, how do you measure it and how do
you reduce it?  Let me give you some tips for both identifying what your sales
turnover is and practical advice for reducing this problem, in turn saving you a

Tip #1: Sales turnover needs to be calculated on an annual versus
monthly basis

Let’s start with ensuring that you understand what your sales turnover really
is. Believe it or not, many organizations do not calculate turnover correctly,
because they calculate turnover in any given month.  Doing this will provide
dangerously misleading data.  For example, five separations in a month divided
by an average sales headcount of 50, would give you 10% sales turnover.  Not so
bad you might think.  Let’s take that calculation and look at it over a 12-month
period, which is the correct way to calculate turnover.  If you lose 5 reps per
month (5 X 12 mos. = 60 separations) and divide that number by an average
monthly headcount of 50, the turnover rate is actually 120%.  Staggering!  So
begin by doing your calculations correctly to identify the extent of the

Tip #2: Accurately determine the costs of your sales turnover

Cost of Recruiting

A turnover rate of over 40% should be of serious concern to any sales
organization.  Let’s face it, most independent dealers have sales turnover in
excess of 40% and the costs are astronomical.  Let’s quickly examine the cost of
turnover.  First, you have recruiting costs.  Whether you pay a fee to a
recruiting firm or use internal resources to source candidates, there is a
measurable cost associated with finding high caliber candidates.  There are also
indirect recruiting costs when you calculate the time sales management will
spend reviewing resumes, preparing for and conducting the interviews. 

Cost of Training

In addition to salary, commission, taxes & benefits, you have the cost of
training a new rep.  You need to include both the direct cost of formal training
as well as the indirect costs of a sales manager and other peers providing
on-the-job training.  Think about the revenue and growth-generating activities
that the sales manager could be doing if they were not constantly re-staffing
their teams! 

Opportunity Costs

Third, you’ve opportunity costs associated with loss of revenue in open
territories, loss of continuity with developing business, and customers tiring
of seeing a different rep with every visit.  Finally, when a rep leaves, out the
door goes all of the knowledge that particular rep has developed with their
customers.  At the end of the day, a conservative cost for a sales rep leaving
your organization within the first nine months of employment exceeds $50,000,
according to Strategy Development. Now do the math!  Your first response will
most likely be, “No way! This can’t be true!” However, reality is that whatever
formula you choose to use you are spending hundreds of thousands of dollars on
sales force turnover!  Period.

Tip #3: Directly compare candidate acquisition methods to tenure and

Once you move through the denial stage there are some simple tools that you
can use to start to further understand the problem. First, look at your sourcing
methods. Again, take an analytical approach.  Look at each termination in the
past 12 months and identify the method in which they were hired, e.g., HR Rep,
Sales Manager, Employee Referral, outside recruiting firms, etc.  Then compare
the sourcing method with each separated reps’ tenure, as well as their quota
achievement/ revenue dollars generated.  This should enable you to analyze which
sourcing methods are netting the best results.

While analyzing sourcing methods is simply a good business metric to track,
it is rarely the only cause for high turnover. Other common contributors to high
turnover, which create even greater challenges, are sales rep onboarding, sales
manager effectiveness, training, compensation, territory management, and the
list goes on.  The point here is to take the time to understand what is causing
your turnover and then act upon it. Look at the real picture versus the ideal.

Tip #4: Conduct exit interviews & implement changes

Implementing a rigorous exit interview process, one that allows exiting reps
a format to honestly provide the company with information on why they are
leaving can be very useful and is highly recommended.  Once you sort the
“whiney” from the “real” this data can be invaluable in assisting the
organization with implementing changes to prevent future unwanted turnover.  The
only problem with relying solely on exit interview data is that the rep is
gone...and so is your investment!

Tip #5: Conduct performance appraisals at 30, 60 and 90 days

Knowing the downside of the exit interview, there are other proactive ways
that organizations can understand unwanted turnover.  If it’s true that the exit
interview provides quality data, but too late, then what about trying to get at
the same issues at the beginning of the sales reps tenure?  This can be done by
setting up a process that checks in on the rep in their first 30, 60 and 90 days
of service and allows them to provide feedback on how they are assimilating into
the company.  This would be done by an objective party, not their direct
manager. Consider an HR person or use an outside contract person. 

Tip #6: Implement periodic employee surveys

Another option is to conduct simple, periodic employee engagement surveys. An
important note here is that how the data is gathered and how the data is acted
upon are critical.  The data needs to be collected in a safe, confidential
manner so that you will get honest input from you employees.  While no company
will be able to solve all of the problems that employees face, implementing even
small, but noticeable changes goes miles in developing trust and good will with
your organization. Communicate to the employees what the surveys revealed & what
you intend to change.

The flip side is also true. Asking an employee for feedback and doing nothing
with the information is the kiss of death.  Make them feel like an integral part
in shaping the corporate culture. Warning: if you have no intention of listening
and taking some kind of action, you are better off not asking!

Although some sales turnover is beneficial (the loss of low performing sales
people), the costs associated with sales turnover is sizable if you add up
recruiting, training and opportunity costs. Know this. It can take 3 – 6 months
to recruit a new sales rep, 6 months to train them and an additional six months
to develop them into high caliber reps. This is a large investment – take our
advice on protecting your most valuable asset.  Understand it and deal with it!

Jane Lemmon is the Managing Principal of Human Capital Sales Search, a
niche recruiting firm dedicated to the MPS & Copier Sales Management industries
and a sister company of Strategy Development.  Previously, Jane spent over 23
year with IKON Office Solutions as VP of HR Operations. At 610.889.1084.

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