Today it is really hard to find top sales performers. With the nationwide unemployment rate at 4.3% and my home state of New Hampshire at 2.7% to find qualified employees most employers are enticing the prospective employee away from their current employer.
Retaining your top sales performers is critical to the success of your company. According to SBI an “A” players generate 5x more revenue than “B” players and 10x more than “C” players.
So, what is happening in a company in which the “A” players are leaving but the “B” and “C” players are staying? It’s simple, the companies that can’t hold on to their top performers are losing a lot more revenue than those that can. Now let’s think about this for a moment, your top performer walks out the door today, the lost revenue is significant. Let’s take a look at just how significant it can be.
First there is the revenue lost when the position is open. According to The Center for Sales Leadership at DePaul University, the average time for SMBs to replace a sales rep ranges between 3.7 months to 5.4 months. Assume the sales person carried a $1m quota and as a top performer they were on track to be at 120% annual attainment. 5 months of lost revenue would be $500,000. Let’s assume that their territory was reassigned and half of the deals closed with the temporary rep reassignment. That is still $250,000 in lost revenue!
Next, there is the revenue lost until the new hire is onboard and fully productive. In this example, fully productive is defined as the ability to achieve 100% of the quota. According to Inside Sales it takes 61% of sales reps over 7 months to get ramped up. Some sales reps will ramp up faster. If we assume that it takes a new sales person 6 months to fully ramp up and that in month 1 they achieved 10% of their quota and each month after increased their attainment to quota by 20 points. That’s $308,000 in additional lost revenue compared with what the top performer would achieve during that same period.
Finally, there is the time needed for the new hire to reach excellence. I haven’t been able to locate any studies on how long it takes a new hire to reach excellence, so if you’ve conducted one or seen one, please share! I think it is safe to say that it will take at least a year for a new rep to achieve excellence once they are productive, which translates to an additional $200,000 in lost revenue. That may be low as only 57% of the sales reps achieve quota in any given year. I wonder what the odds are of hiring a top producer as a replacement for a lost top sales rep. Any ideas?
In summary, I’ve estimates $250,000 in lost revenue due to the open position, the recruiting cost is often balanced out by saved salaries, $308,000 in lost revenue during the ramp up time, $200,000 in lost revenue to excellence time. Losing that top performer can easily exceed $750,000! Have I convinced you that losing a top performer is expensive!
There are many aspects of a decision to move from one company to another and one of them is the sales compensation plan. Let’s face it, sales people are coin operated! For the company, the sales compensation plan is a powerful tool for retention.