Slides from an AMG Executive Briefing that examines the impact of a poor sales hiring process

1. Hiring Salespeople and the
Economics of Failure
An AMG Executive Briefing

2. The Economics
of Failure
Sizing up the overall problem

3. The Economics
of Failure
Sizing up the overall problem
Identifying existing and potential
problems

4. The Economics
of Failure
Sizing up the overall problem
Identifying existing and potential
problems
Reversing bad hiring processes and
implementing good ones

5. The Economics
of Failure
One-to-many: A “purposeful primer”

6. The Economics
of Failure
One-to-many: A “purposeful primer”
Many-to-many: Stay posted online, join in
the conversation

7. The Economics
of Failure
One-to-many: A “purposeful primer”
Many-to-many: Stay posted online, join in
online
the conversation
One-to-one: Follow-up, follow-through
and making sense of it all…

8. Bad Recruiting Practices:
Sizing up the problem

9. Systematically winging it
Bad Recruiting Practices:
Sizing up the problem

10. Failing to benchmark
Bad Recruiting Practices:
Sizing up the problem

11. Not hiring to profile
Bad Recruiting Practices:
Sizing up the problem

12. Wrong time, wrong place
Bad Recruiting Practices:
Sizing up the problem

13. Recruiting bad apples
Bad Recruiting Practices:
Sizing up the problem

14. Getting to grips with costs
Bad Recruiting Practices:
Sizing up the problem

15. The cost of acquisition
Bad Recruiting Practices:
Sizing up the problem

16. The cost of turnover
Bad Recruiting Practices:
Sizing up the problem

17. Cost of mediocre performance
Bad Recruiting Practices:
Sizing up the problem

18. Hidden costs
Bad Recruiting Practices:
Sizing up the problem

19. What’s acceptable to you?
Bad Recruiting Practices:
Sizing up the problem

20. Method one:
Number crunching
Bad Recruiting Practices:
Sizing up the problem

21. Method two: Utility analysis
Bad Recruiting Practices:
Sizing up the problem

22. METHOD ONE:
Number Crunching
Did you find and
download the
spreadsheet:
Calculating The
Cost of Bad Hires?

23. RECRUITMENT and
DEVELOPMENT
COSTS
The number
of salespeople
hired in the last
12-months?

24. RECRUITMENT and
DEVELOPMENT
COSTS
The number
of salespeople
hired in the last
12-months?
18

25. RECRUITMENT and
DEVELOPMENT
COSTS
The number of
salespeople fired
or who quit in the
last 12-months?

26. RECRUITMENT and
DEVELOPMENT
COSTS
The number of
salespeople fired
or who quit in the
last 12-months?
06

27. RECRUITMENT and
DEVELOPMENT
COSTS
The number
of candidates
interviewed for
each position?

28. RECRUITMENT and
DEVELOPMENT
COSTS
The number
of candidates
interviewed for
each position?
03

29. RECRUITMENT and
DEVELOPMENT
COSTS
Approximate
number of hours
interviewing each
candidate?

30. RECRUITMENT and
DEVELOPMENT
COSTS
Approximate
number of hours
interviewing each
candidate?
02

31. RECRUITMENT and
DEVELOPMENT
COSTS
The number
of times each
candidate was
interviewed?

32. RECRUITMENT and
DEVELOPMENT
COSTS
The number
of times each
candidate was
interviewed?
03

33. RECRUITMENT and
DEVELOPMENT
COSTS
How many hours
invested coaching
each person?

34. RECRUITMENT and
DEVELOPMENT
COSTS
How many hours
invested coaching
each person?
40

35. RECRUITMENT and
DEVELOPMENT
COSTS
Any fee paid for
each position?

36. RECRUITMENT and
DEVELOPMENT
COSTS
Any fee paid for
each position?
$12,500.00

37. RECRUITMENT and
DEVELOPMENT
COSTS
Cost of advertising
each position?

38. RECRUITMENT and
DEVELOPMENT
COSTS
Cost of advertising
each position?
$0.00

39. RECRUITMENT and
DEVELOPMENT
COSTS
The value of an
hour of your time?

40. RECRUITMENT and
DEVELOPMENT
COSTS
The value of an
hour of your time?
$85.00

41. RECRUITMENT and
DEVELOPMENT
COSTS
Fees paid for
training each
salesperson?

42. RECRUITMENT and
DEVELOPMENT
COSTS
Fees paid for
training each
salesperson?
$2,700.00

43. RECRUITMENT and
DEVELOPMENT
COSTS
Average yearly
base salary paid to
each salesperson?

44. RECRUITMENT and
DEVELOPMENT
COSTS
Average yearly
base salary paid to
each salesperson?
$85,700.00

45. RECRUITMENT and
DEVELOPMENT
COSTS
Average number
of months worked
before being fired
or quit?

46. RECRUITMENT and
DEVELOPMENT
COSTS
Average number
of months worked
before being fired
or quit?
09

47. PERFORMANCE
of KEEPERS
Average annual
revenue per sale
or customer?

48. PERFORMANCE
of KEEPERS
Average annual
revenue per sale
or customer?
$26,700.00

49. PERFORMANCE
of KEEPERS
Number of sales
or customers per
month?

50. PERFORMANCE
of KEEPERS
Number of sales
or customers per
month?
04

51. PERFORMANCE
of KEEPERS
What is the gross
margin on sales?

52. PERFORMANCE
of KEEPERS
What is the gross
margin on sales?
30%

53. PERFORMANCE
of LOSERS
Average annual
revenue per sale
or customer?

54. PERFORMANCE
of LOSERS
Average annual
revenue per sale
or customer?
$26,700.00

55. PERFORMANCE
of LOSERS
Number of sales
or customers per
month?

56. PERFORMANCE
of LOSERS
Number of sales
or customers per
month?
01

57. PERFORMANCE
of LOSERS
What is the gross
margin on sales?

58. PERFORMANCE
of LOSERS
What is the gross
margin on sales?
21%

59. What if you decreased your
sales staff turnover by 30%?

60. Decreased costs…
$385,452

61. Flipside…
Before
Turnover %
After
33%
23%
…Upside

62. Flipside…
Before
Turnover %
Cost of recruiting
After
33%
23%
$1,175,040
$822,528
…Upside

63. Flipside…
Before
Turnover %
Cost of recruiting
Development costs
After
33%
23%
$1,175,040
$822,528
$109,800
$76,860
…Upside

64. Flipside…
Before
Turnover %
Cost of recruiting
Development costs
After
33%
23%
$1,175,040
$822,528
$109,800
$76,860
The cost of bad hires $1,284,840
$899,388
…Upside

65. What’s your number?
#DIV/0!

66. NO CRYSTAL BALLS
Without accurate
data your analysis
will produce fuzzy
readings at best.
Where are you
getting your
data from?
Can you trust it?

67. METHOD TWO:
Utility Analysis
Using statistics to
calculate standard
deviations of
performance

68. A Step-by-Step Approach

69. 1: Rank order, from top to
bottom

70. 1: Rank order, from top to
bottom
2: Tier production levels

71. 1: Rank order, from top to
bottom
2: Tier production levels
3: Assign salespeople to
their appropriate level

72. 1: Rank order, from top to
bottom
2: Tier production levels
3: Assign salespeople to
their appropriate level
4: Establish averages for
each production level

73. 1: Rank order, from top to
bottom
2: Tier production levels
3: Assign salespeople to
their appropriate level
4: Establish averages for
each production level
5: Analyze and work the
numbers

74. Rank from top to bottom

75. A typical sales team?
Mary
$1,000,000
Sarah
$500,000
Matt
$900,000
Ester
$400,000
Mark
$800,000
David
$300,000
Luke
$700,000
Sam
$200,000
John
$600,000
Martha
$100,000

76. Tier production levels

77. Add production from all
salespeople and divide by three.
This yields three break-points that
allow us to divide our salespeople
into meaningful production
levels, or “tiers.”

78. Mary
$1,000,000
Sarah
$500,000
Matt
$900,000
Ester
$400,000
Mark
$800,000
David
$300,000
Luke
$700,000
Sam
$200,000
John
$600,000
Martha
$100,000
Total sales
$5,500,000

79. Add production from all
salespeople and divide by three.
This yields three break-points that
allow us to divide our salespeople
into meaningful production
levels, or “tiers.”
Total sales of $5,500,000 divided
by 3 equals approximately
$1,800,000 per sales tier.

80. Assign salespeople to
their appropriate level

81. Mary
$1,000,000
Matt
$900,000
Top-tier
$1,900,000

82. Mary
$1,000,000
Matt
$900,000
Top-tier
$1,900,00
Mark
$800,000
Luke
$700,000
John
$600,000
Mid-tier
$2,100,000

83. Mary
$1,000,000
Sarah
Ester
Mark
Luke
John
Mid-tier
$300,000
Sam
Top-tier
$400,000
David
Matt
$500,000
$200,000
Martha
$100,000
$900,000
$1,900,000
$800,000
$700,000
$600,000
$2,100,000
Bottom-tier $1,500,000

84. Establish averages for
each production level

85. Divide production [within each tier] by
the number of people in that level.
This yields the average production per
salesperson by tier.

86. Divide production [within each tier] by
the number of people in that level.
This yields the average production per
salesperson by tier.
Mary + Matt = $1,900,000 / 2
= $950,000 average
top-tier production

87. Divide production [within each tier] by
the number of people in that level.
This yields the average production per
salesperson by tier.
Mark + Luke + John = $2,100,000 / 3
= $700,000 average
mid-tier production

88. Divide production [within each tier] by
the number of people in that level.
This yields the average production per
salesperson by tier.
Sarah + Ester + David + Sam + Martha =
$1,500,000 / 5 =
$300,000 average
bottom-tier production

89. Analyze and work
the numbers

90. Calculate the average production
difference between a mid-tier
salesperson and a bottom-tier
salesperson.

91. Calculate the average production
difference between a mid-tier
salesperson and a bottom-tier
salesperson.
Using a mid-tier sales “target” provides
a conservative estimate of lost
production.

92. Calculate the average production
difference between a mid-tier
salesperson and a bottom-tier
salesperson.
Using a mid-tier sales “target” provides
a conservative estimate of lost
production.
$700,000 average mid-tier –
$300,000 average bottom-tier
= $400,000 average production lost
per bottom-tier salesperson.

93. Multiply this figure by the number of
salespeople in the bottom tier.
This represents the total sales lost each
year by the bottom-tier salespeople.

94. Multiply this figure by the number of
salespeople in the bottom tier.
This represents the total sales lost each
year by the bottom-tier salespeople.
$400,000 x 5 =
$2,000,000/year

95. Most people don’t
realize recruiting costs
are more than the
cost of acquisition or
cost of turnover; they
are also deeply hidden
in the cost of variable
productivity.
From the largest
organization to the
smallest, bad hiring
practices tend to
secretly cripple
organizations.

96. Most people don’t
realize recruiting costs
are more than the
cost of acquisition or
cost of turnover; they
are also deeply hidden
in the cost of variable
productivity.
From the largest
organization to the
smallest, bad hiring
practices tend to
secretly cripple
organizations.

97. More Number
Crunching
Does anyone
know what the
actual cost of
making a bad hire
really is, huh?
Who is measuring
what, exactly?

98. More Number
Crunching
Does anyone
know what the
actual cost of
making a bad hire
really is, huh?
Who is measuring
what, exactly?

99. Calculating hidden costs

100. Administrative costs:
Discipline and termination
Separation processing

101. Administrative costs:
Discipline and termination
Separation processing
Vacancy costs:
Open territories
Unsold inventory

102. Administrative costs:
Discipline and termination
Separation processing
Vacancy costs:
Open territories
Unsold inventory
Replacement costs:
Recruiting and related
Management time

103. Administrative costs:
Discipline and termination
Separation processing
Vacancy costs:
Management time:
Hand-holding
Less time for
sales management
Open territories
Unsold inventory
Replacement costs:
Recruiting and related
Management time

104. Administrative costs:
Discipline and termination
Separation processing
Team Morale:
Lower achievements
Resentment
Anxiety
Vacancy costs:
Management time:
Hand-holding
Less time for
sales management
Open territories
Unsold inventory
Replacement costs:
Recruiting and related
Management time

105. Administrative costs:
Discipline and termination
Separation processing
Team Morale:
Lower achievements
Resentment
Anxiety
Vacancy costs:
Training costs:
Open territories
Unsold inventory
Onboarding
Time to ramp-up
Management time:
Hand-holding
Less time for
sales management
Replacement costs:
Recruiting and related
Management time

106. Administrative costs:
Discipline and termination
Separation processing
Team Morale:
Lower achievements
Resentment
Anxiety
Training costs:
Onboarding
Time to ramp-up
Lost opportunity:
Missed deals
Lost business
Vacancy costs:
Management time:
Open territories
Unsold inventory
Hand-holding
Less time for
sales management
Replacement costs:
Recruiting and related
Management time

107. Administrative costs:
Discipline and termination
Separation processing
Team Morale:
Lower achievements
Resentment
Anxiety
Training costs:
Lost opportunity:
Missed deals
Lost business
Vacancy costs:
Management time:
Open territories
Unsold inventory
Onboarding
Time to ramp-up
Customer costs:
Complaints and poor service
Lost referral business
Brand erosion
Hand-holding
Less time for
sales management
Replacement costs:
Recruiting and related
Management time

108. Administrative costs:
Competitive advantage:
Discipline and termination
Separation processing
Lower ROI per salesperson
Lower margin on sales
Proprietary stuff
Team Morale:
Lower achievements
Resentment
Anxiety
Training costs:
Lost opportunity:
Missed deals
Lost business
Vacancy costs:
Management time:
Open territories
Unsold inventory
Onboarding
Time to ramp-up
Customer costs:
Complaints and poor service
Lost referral business
Brand erosion
Hand-holding
Less time for
sales management
Replacement costs:
Recruiting and related
Management time

109. Identifying existing and
potential problems

110. Top-down and bottom-up
Identifying existing and
potential problems

111. Questions of perspective
Identifying existing and
potential problems

112. Organizational dynamics
Identifying existing and
potential problems

113. Managing crunches, crises
and complexities
Identifying existing and
potential problems

114. Talent management
Identifying existing and
potential problems

115. Process improvement
Identifying existing and
potential problems

116. Benchmarking, audits and
assessments
Identifying existing and
potential problems

117. Sizing up the organization

118. 1: Understanding the
dynamics of change

119. 1: Understanding the
dynamics of change
2: Flat world attitudes

120. 1: Understanding the
dynamics of change
2: Flat world attitudes
3: Establishing a new
model

121. 1: Understanding the
dynamics of change
2: Flat world attitudes
3: Establishing a new
model
4: Aligning the sales
organization with goals

122. 1: Understanding the
dynamics of change
2: Flat world attitudes
3: Establishing a new
model
4: Aligning the sales
organization with goals
5: Separating the heretics
from the faithful

123. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
What is “talent?”

124. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Look at the
recruiting process:

125. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Look at the
recruiting process:
What works?

126. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Look at the
recruiting process:
What works?
What doesn’t
work?

127. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Look at the
recruiting process:
What works?
What doesn’t
work?

128. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…

129. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Workforce
planning

130. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Profiling

131. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Employment
branding

132. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Sourcing
strategies

133. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Screening and
assessment

134. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Selection

135. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Onboarding

136. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Engagement

137. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Performance
management

138. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Training and
development

139. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Retention

140. ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Succession
planning

141. Assessing who’s who
and who’s up for change

142. TALKING THE TALK
WALKING THE WALK

143. TALKING THE TALK
The Unfaithful
WALKING THE WALK

144. TALKING THE TALK
Heretics
The Unfaithful
WALKING THE WALK

145. TALKING THE TALK
Heretics
The Unfaithful
Good Soldiers
WALKING THE WALK

146. TALKING THE TALK
Heretics
Champions
The Unfaithful
Good Soldiers
WALKING THE WALK

147. WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…

148. WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…
Unfaithful?

149. WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…
A heretic?

150. WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…
Good
soldier?

151. WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…
A champion?

152. A sales manager’s role
[Why recruiting is a stretch]

153. Grunt work

154. Bad economics

155. Core competencies

156. Unbundle it

157. Strategic versus
tactical

158. Are your sales managers
up to the job?

159. 1. A systematic,
integrated and
routine approach?

160. 1. A systematic,
integrated and
routine approach?
2. Growing the sales
team, raising
the bar?

161. 1. A systematic,
integrated and
routine approach?
2. Growing the sales
team, raising
the bar?
3. Part of the talent
management
continuum?

162. Standard deviations…

163. …digging deeper

164. Uncovering underlying problems…
…digging deeper

165. Uncovering underlying problems…
Why do underperformers
underperform?
…digging deeper

166. Uncovering underlying problems…
Why do underperformers
underperform?
Is it a motivation problem?
…digging deeper

167. Uncovering underlying problems…
Why do underperformers
underperform?
Is it a motivation problem?
Are core behaviors, attitudes and
techniques out of synch?
…digging deeper

168. Uncovering underlying problems…
Why do underperformers
underperform?
Is it a motivation problem?
Are core behaviors, attitudes and
techniques out of synch?
Are the problems situational?
…digging deeper

169. Rooting out problems

170. Investigate

171. Investigate
Competencies

172. Investigate
Competencies
Measurable, observable

173. Investigate
Competencies
Measurable, observable
Relate to job performance

174. Measuring applicants

175. Measuring applicants
Tests and simulations

176. Measuring applicants
Tests and simulations
Behavioral interviewing

177. Measuring applicants
Tests and simulations
Behavioral interviewing
Targeted Selection

178. Reversing bad hiring processes and
implementing good ones

179. Chunking the problem
Reversing bad hiring processes and
implementing good ones

180. Jumping the tracks
Reversing bad hiring processes and
implementing good ones

181. Start with the end in mind
Reversing bad hiring processes and
implementing good ones

182. What next?
Reversing bad hiring processes and
implementing good ones

183. CALCULATING THE
COST OF HIRING
MISTAKES
If time is money,
the typical
interview is a
waste of both…

184. CALCULATING THE
COST OF HIRING
MISTAKES
If time is money,
the typical
interview is a
waste of both…
Poor predictor of
performance

185. CALCULATING THE
COST OF HIRING
MISTAKES
If time is money,
the typical
interview is a
waste of both…
Who is selling who
what?

186. CALCULATING THE
COST OF HIRING
MISTAKES
If time is money,
the typical
interview is a
waste of both…
What gets
measured and
how?

187. CALCULATING THE
COST OF HIRING
MISTAKES
Using top
producers as a
model misses
the mark…

188. CALCULATING THE
COST OF HIRING
MISTAKES
Using top
producers as a
model misses
the mark…
Measuring the
difference

189. CALCULATING THE
COST OF HIRING
MISTAKES
Using top
producers as a
model misses
the mark…
True or False:
All salespeople
have big heads?

190. CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…

191. CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…
Personality

192. CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…
Aptitude

193. CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…
Experience

194. CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…
Validated skillsbased and job
related testing

195. CALCULATING THE
COST OF HIRING
MISTAKES
Getting used
to it…

196. CALCULATING THE
COST OF HIRING
MISTAKES
Getting used
to it…
Analyzing poor
performance

197. CALCULATING THE
COST OF HIRING
MISTAKES
Getting used
to it…
Retention
problems

198. CALCULATING THE
COST OF HIRING
MISTAKES
Getting used
to it…
Understanding
why people leave

199. Baselines and benchmarks

200. Profiling
Job profiling

201. Profiling
Job profiling
Candidate profiling

202. Profiling
Job profiling
Candidate profiling
Performance profiling

203. Profiling
Job profiling
Candidate profiling
Performance profiling
Fit

204. Assessments
Talent management audits

205. Assessments
Talent management audits
Sales management evaluation

206. Assessments
Talent management audits
Sales management evaluation
Statistically validated screening

207. Assessments
Talent management audits
Sales management evaluation
Statistically validated screening
Sales- and job-specific assessments

208. Accelerate ramp-up
Performance Management

209. Accelerate ramp-up
Minimize deviations
Performance Management

210. Accelerate ramp-up
Minimize deviations
Effective management
Performance Management

211. Accelerate ramp-up
Minimize deviations
Effective management
Growing the organization
Performance Management

212. What next?

213. 1: Get real about the costs
and consequences

214. 1: Get real about the costs
and consequences
2: Step back and evaluate
your options

215. 1: Get real about the costs
and consequences
2: Step back and evaluate
your options
3: Take a leadership role
and get involved

216. 1: Get real about the costs
and consequences
2: Step back and evaluate
your options
3: Take a leadership role
and get involved
4: Systematically apply
best practices

217. 1: Get real about the costs
and consequences
2: Step back and evaluate
your options
3: Take a leadership role
and get involved
4: Systematically apply
best practices
5: Repeat

218. Thank you!
http://amgadvisors.net/events
(561) 283-4744 | info@amgadvisors.net