Insights Into Human Capital: Why Does Hiring A Dud Cause So Much Damage?

Greg Alexander, CEO, Sales Benchmark Index

August 27, 2008

T he largest hidden opportunity in sales today is the untapped potential of A-player sales reps. When accurately computed, this opportunity can easily exceed five times a sales rep's salary.

What does this mean?  The $100,000 new hire you are interviewing is as important to the organization as the $500,000 deal you are working to close.

The question is: which "opportunity" is consuming more of your team's attention?  The answer should be, both.
As a guide to help you understand the opportunity cost of hiring a dud vs. the superstar you need, consider an example where the cost of a bad hire of a sales rep with a base salary of $100,000 and who lasts only one year is calculated to be $563,000. Each cost category is detailed here:

1. Hiring ($23,500).  Assumptions are $15,000 recruiter fee (15 percent of base salary); $100 (background check); $750 (travel); and the rest in wasted time from you, HR, and others.
2. Compensation ($151,000). Assumptions are $100,000 (base salary for one year); $10,000 (signing bonus); $10,000 (stock options); $25,000 (benefits load); $6,000 (auto expense).  No bonus, since targets were not met.
3. Maintenance ($14,000). Assumptions are $12,000 (one trip per month @ $1,000); and $2,000 (annual training allowance).
4. Severance ($25,000). Assumption is three-month severance.
5. Lost opportunity ($250,000). Assumptions are annual revenue quota of $450,000; and the rep achieved $200,000.
6. Disruption ($100,000).  Assumptions are a customer lost by the rep; and the annual revenues from the customer were $100,000.
 
A simple improvement to your hiring practice might be to implement a different telephone screen process; one that elicits crucial information and sorts for A-players quickly. Using the following telephone screen will identify the best candidates, reducing the number of interviews by a factor of four: 

1. Please describe the quota system.  (Is the candidate measured on revenue, gross profit, unit sales, new accounts, etc?  How well does the candidate explain the keys to success?)
2. Please describe your production.  (Nail down performance vs. targets. How engaged is the person?)
3. Please describe your compensation plan.  (Is there understanding of how sales rep success drives company success?  Is the person motivated?)
4. Please describe your company's value proposition.  (This should be an "elevator pitch," 30 seconds.)
5. Please describe your major competitor's value proposition.  (The differences between #4 and #5 should be very clear.)
6. Please explain the top three objections you must overcome to close sales, and how you overcome them. (Does the candidate beat the competition?)
7. Please describe your typical day and week.  (Does the person work hard and work smart, doing administrative work after hours?)
8. What do you like most and least about your job?  (A complainer?)
9. Please describe what you like and dislike about your boss, and give your best guess as to what your boss will tell me (if candid) are your strengths, weaker points, and overall performance.  (Do you fit the profile of what the candidate likes in a boss? Is the person honest, or doing a whitewash?)

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