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.
- New sales are lost because the territory is open until a new salesperson can be hired and trained.
- 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.
- 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.
- 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!
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:
- 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 comp plans. Review your sales compensation plan. Does it provide earnings that are competitive with other companies and the industry at large?
- 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.