Sales or Account Executive Hiring Mistakes Can be More Costly than We Realize

Hiring Mistakes Can be More Costly than We Realize

Every company needs to hire at some point. The addition of new talent to your company is probably the most important investment that you will ever make, yet one of the decisions that many companies don’t completely understand.  The employees that you hire have an impact that far outreaches the cost of their salary and benefits.   Each and every employee has the potential to affect your corporate culture, customer relationships, sales volume, job satisfaction of fellow employees, and more. 

Damage done by a single employee can significantly outpace the cost of the employee’s salaryand cost of replacing them; this is why it is important to make sure that you are always hiring the best possible people for every position in your company.

 

Various positions have their own impacts on your company:

• Sales / Sales Management– Your company’s sales department is one of the most obvious places to reinforce in order to develop new business for your company.  However prior to hiring a new account executive you must understand the cost of making a bad decision here.  Finding a bad fit here can be disastrous to your company in more ways than one.  An underperforming account executive can be difficult to spot.
• Scenario A:  Your company decides to hire a new salesman this year, and in order to keep costs down conducts all hiring in house.  The HR department places ads in the paper and on the internet, and interviews several candidates before hiring “Joe”.  Total direct hiring cost of less than $5K.  Joe is with your company for 5 years, hits 75% of his $1 Million quota his first year and averages105% every year after.  At a 10% net profit margin Joe has produced $75K in profit in year 1 and $105K in years 2-5 for a total of $495K in profit over 5 years.  Most companies will look at this average performance as sufficient and proof they made the right hire while actually they cost themselves millions of dollars in sales.
   
• Scenario B:  Your company hires “Bill” through an outside recruiter with total direct hiring costs of $50K including recruiting fees,  and candidate interviewing expenses.  Bill is also with your company for 5 years, and because he was the top performing salesperson from a quality company, has deep sales knowledge, quality contacts, an aggressive “hunter” personality and above average closing ratio he hits 150% of his $1 Million quota the first year and increases his sales by 20% every year after that.  At the same 10% profit margin Bill produced $150K in his first year and a total of over $1 Million in net profit by the end of 5 years, or over $621K additional profit over Joe. 
   
• While this is a rather simplistic example, it does illustrate something valuable.  Sales positions are one of the few where you can directly infer the total cost of an underperforming employee.  Additionally, the underperformance compounds over time.  The fact is that most salespeople will struggle to meet their quota’s every year, while the top sales talent will tend to grow sales every year.  Over a ten year period the DIFFERENCE between Joe and Bill is over $28Million in gross sales, which translates to over $2.8Million in net profit due to not hiring the best salesperson possible at the time.   The impact on your business will be different because of the types of products and services you offer, your capacity to fulfill sales made, profit margins, etc… but it will always be true that better sales people will bring in more sales than average or underperforming sales people. 

What are the immediate cost of a bad hire? ADP has provided a tool that they call a “Bad Hire Calculator” on their website:  http://www.adpselect-info.com/badHireCalculator.html  the calculator ONLY considers the costs DIRECTLY related to hiring a new employee like advertising, HR staff, interviewing costs, and initial on boarding / training.  The cost of hiring a $100K employee for an average sized company with an HR staff interviewing 10 candidates sourced from an ad costing only $550 can exceed $110K with no relocation cost and only 1 month training.   This is important to understand because if you need to replace an employee you will have to plan for these costs.

 

How can you reduce the risk of a bad hire?  The absolute best thing you can doto reduce the risk of a bad hire is to make sure that you are identifying, interviewing, and performing due diligence on not only every actively available candidate (candidates that are actively searching the job market) but also those candidates that are “passive” (currently employed, performing well, and not looking for new employment). 

• Reaching the entire talent pool is important because the costs to your company for not doing this can be devastating on any key position.  It’s also important to understand that the candidates that respond to your advertisement, or have posted resume’s online are a small fraction of the total talent pool that your company could be utilizing. 

Summary:  When hiring a new employee in any position it is important to factor all of the costs related to that employee, not only the cost of salary and benefits, but also recruiting costs, onboarding, the cost of underperformance, falloff, and replacement. 

 

 

Nexmation specializes in Staffing, Contingency and Retained search services in IT, IT Sales / Sales Management, and Engineering positions nationwide.