The increasingly blurred line between B2B and B2C has inevitably changed the nature of sales, with customers demanding a more personalized selling process. Salesforce’s “State of the Connected Customer” report recently found that 58% of consumers and 77% of B2B buyers believe technology has changed their expectation of how companies should interact with them.
As sales mandates and productivity quotas rapidly change, sales teams often fall short of these rising expectations and are unable to meet their job quotas.1 The easy solution for companies is to replace sales reps. The more effective solution, given the high career turnover rate and cost of hiring a sales employee, is to take measures that increase the productivity of existing sales teams.
Impact of High Turnover Rate On Sales Productivity
The turnover rate for sales representatives has remained much higher than that of other roles.
According to Bridge Group Research, there is a minimum 20% annual turnover for sales talent and an average annual rate of 34.7% per year in the United States; this is almost three times as high as the average turnover rate for all roles, which LinkedIn reports as 13%.2 Further research also suggests that one out of ten B2B companies experience sales turnover rates of above 55%.3
This contrast in turnover between sales and other roles can be attributed to the difference in perspective between the representative and company with job performance, as well as an increasing competitive landscape for talent. SiriusDecisions also lists deficient compensation and lack of connection with leadership as top reasons why high-performing representatives leave their organizations.3
General Costs of Hiring a Sales Representative
This high sales turnover rate means that firms are continuously spending money to hire and replace those representatives who leave. On average, US firms spend around $15 billion a year training salespeople and $800 billion on incentives, only for attrition and other factors to reduce the return on those investments.4
The key to improving employee retention is first understanding the cost of employee turnover.
There are a few general estimations of the upfront costs behind hiring a new sales employee. A report by DePaul University states that it takes an average of $97,690 to replace a salesperson, while SiriusDecisions reports that the average turnover cost of a B2B sales representative can range above $200,000.5, 6
However, the true cost of hiring an employee in 2020 is much more complex with additional hidden costs. Employers must consider the full cost breakdown of recruiting, onboarding, and training employees until they both reach full productivity levels and cover intermediate loss in overall company efficiency.
Hidden Costs in Sales Turnover
Hidden turnover costs come from the time and productivity lost in two places: recruiting, and training and onboarding new representatives.
Businesses are constantly searching the market to fill vacant positions with top sales talent. Recruitment during this period often draws time out from human resources and sales leadership and impacts their respective productivity. After considering commission for external recruitment firms, McKinsey estimates that some organizations spend roughly $15,000 in internal productivity to select a mid-level sales position.7
Companies also suffer costs from supporting a vacant position during recruitment. The average vacancy costs $500 per position per day, meaning that a vacant position itself costs at least $22,000 for the average recruitment period (44 days).7 This number often increases to anywhere between $25,000 to $50,000 when lost productivity and customer dissatisfaction are also considered.8
Training and Onboarding
Once a new salesperson is hired, they often undergo training and onboarding processes to establish expectations and mentorship until they reach full productivity..
CSO Insights research found that 71% of companies take 6 months or longer to onboard new sales reps, while a third of all companies take 9 months or more.2 This indicates that a majority of B2B sales representatives are not operating at full productivity and are unable to sell complex solutions for at least half of their first year on the job.
A majority of B2B sales representatives are not operating at full productivity and are unable to sell complex solutions for at least half of their first year on the job.
companies can spend up to 2.5 times of the average salary just to fill an open sales position
Onboarding also involves time invested by managers, outside trading companies, and co-workers to train new hires. By assuming that the cost of a loss in internal time and productivity is $500 per day, conservatively approximating a salesperson will take 6 months until full productivity, and estimating that an average rep receives $3,400 in training a year, onboarding a new employee alone can cost a business over $93,000.7
Therefore, the total cost of recruiting and onboarding a new sales rep conservatively ranges between $133,000 and $158,000 when considering the upfront and hidden costs. Given that an average annual salary is $60,000 per year for a US sales rep, companies can spend up to 2.5 times of the average salary just to fill an open sales position.
How to Increase Sales Productivity
The data above show that hiring more personnel to increase the productivity of a sales team comes at a significant cost. A more effective solution is investing in efforts to improve the existing sales team’s employee satisfaction and provide better high quality leads (HQLs).
Improve Existing Team’s Employee Satisfaction
Improving the onboarding process and providing digital sales technologies are two ways to improve employee satisfaction and decrease turnover.
According to Forbes, ineffective onboarding is a major reason why companies lose 20% of new hires within the first 45 days and 17% of new hires within the first three months.9 Employees who leave during the onboarding period results in a company suffering training costs at a loss; early employee turnover also contributes to the turnover cycle by increasing the costs of replacing sales talent for a single position.
Instead of stretching the onboarding process to last as long as twelve months, businesses can accelerate their onboarding process by organizing their roadmap into a three month formal timeline. A positive three month training process not only results in 69% of employees being more likely to stay with a company for more than three years, but also leads to reps who drive more sales.10, 11
Providing technology that supports virtual selling can also improve productivity. CSO Insights states that 88% of sales professionals cannot find critical sales material on their smartphones, while 60% of sales organizations experience longer sales cycles from lack of proper tools.1 As a result, one of the top reasons high-performing sales people leave organizations is concerns about ability to meet market needs.
Virtual selling has increased in popularity as technology, transparency, and efficiency play bigger roles in the sales process. Research shows that sales reps build 3.2 times more customer connections in front of screens than meeting with customers in person. Equipping sales people with new software and technology can improve employee satisfaction, reduce costs, and improve long-term sales success.3
Increasing the Number of HQLs
A sales person is only as good as his or her leads. When sales reps receive poor leads, the total time and effort they waste in qualifying, engaging, and selling to low-interest prospects is significantly more expensive than the time and money spent in pursuing better quality leads.
Low-quality leads have many hidden costs: wasted time, resources, and human capital. On average, bad lead prospect data costs sales departments 550 hours and $32,000 per representative.12 Assuming the average cost of $60,000 per year for a sales representative, not including additional payroll-related expenses, this means individuals are spending over 50% of their time and payroll working with low-interest customers—for SMEs, this number can often be higher at 85%.
Companies can focus efforts on increasing lead quality to increase the number of annual closed deals. High-quality leads not only increase conversion rates but shorten the overall sales cycle, leading a representative to increase productivity by closing 10 times more deals in a single year. For more information, read our previous article on “The Cumulative Impact of High and Low Quality Leads.”