By Tom Hill and Landon Petersen

Are you ignoring the impact and cost of sales turnover in your organization? It’s no secret that historically highly leveraged sales jobs have significant turnover levels and today’s job market has put an extra premium on sales talent. Historic lows in quota attainment are likely contributing to this turnover as well. In the tech industry, for example, less than 40% of sales reps reach their quota, resulting, of course, in lower incentive payouts—and the lure of departing in pursuit of a 10% boost in fixed pay and guaranteed pay of a ramp up period.

To address these challenges, many organizations are trying to aggressively remedy the impact of sales turnover from both:

  1. the lost opportunity of sales production by not having the territory filled
  2. the replacement cost of turnover, which SHRM estimates between 50-75% of annualized salary*

Here is how one organization tackled it.

 

What We Found

An organization we recently worked with had a surprisingly high 125% turnover rate for its field sales force despite a target total cash opportunity above its peers. This high churn in sales talent was once accepted as a reality of individual under-performance. The organization’s historic approach was to structure sales compensation programs to manage performance and let the lack of take-home earnings force underachievers out. Over time, however, they couldn’t afford the rising costs of continuing to churn under-performing sales reps—they needed to find another way.

 

Understanding the Lost Opportunity of Sales Production

Historic data suggested that the average sales rep grew his or her book each month, though it was often below the company expectation for top-line sales and margin. On the other hand, bringing in a new sales rep to replace the under-performing one meant lower overall sales due to ramp up time. The company determined it was better to give some existing reps more time to be successful and provide some additional coaching and training.

The organization correlated tenure in role to sales performance (Fig. 1). It determined the cost of lost sales for a mid-performer at the start of the 7-month mark versus someone brand new was $35,000 per month per sales rep ($40k vs. $5k). That $35,000 is in addition to the softer costs of recruiting, training, and onboarding. When compared to the compensation of keeping the mid-performer around, with the assumption that they will get to full production levels eventually, the differential is staggering.

Sales production schedule (Fig. 1)

Bridge Incentive Program

Despite upside opportunity with the incentive plan, the organization found that too many newly hired sales reps were often quitting because they were not producing enough in the early months to make enough money on which to live. The lowest performers were probably never going to make it and likely should be replaced. The mid-level performers, however, represented a lost opportunity and a net cost to the business.

In diagnosing the turnover challenges, we found that high performers were successful early on—earning more than the 3-month guarantees the plan provided for.  On the other hand, mid-level performers became successful around the 9-month mark.  While this took longer than the company wished, the actual compensation expense wasn’t as significant as the lost sales. So, the company decided to create a bridge incentive program between the guarantee and the commission plan.

Conclusion

While bridge incentive programs don’t always guarantee further earnings without increasing expectations of production, the key is to provide enough security so sales reps stick around to achieve the sales production targets and associated earnings. If a new sales rep is performing well during the bridge transition, simply move them onto the existing commission program early. Lastly, it is still important to maintain sales production thresholds so those bottom performers can “wash out.”

The turnover of commissioned sales forces should be carefully considered. By ignoring the true impact of turnover within the sales organization, compensation cost of sale can hamper margins and top-line growth can be compromised.

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