Every sales leader can identify with that pit in the stomach when a star salesperson on the team notifies you that he will follow other paths... And there goes the talent, training and ramping time, relationships built with prospects, etc.
Of course, it's a bad situation for any team to deal with layoffs, but the cost of turnover in the sales force can be particularly higher than average. In most organizations, salespeople are the main drivers of growth and their work efforts directly impact the final result. Furthermore, truly effective salespeople spend time deeply understanding the product or service, as well as building trusting relationships with their customers. They, in a way, become the face of the organization and the ideal partners for the success of their portfolios. When they decide to leave, it's not just future business that is at risk, but existing business, retention and expansion efforts (Up-sell and Cross-sell) can also be delayed which can potentially interfere in the intended revenue.
While it's important to have an action plan on how to act after major layoffs, it's also essential to understand how much it will cost to lose a good salesperson – and more importantly, what steps you can take to minimize your sales turnover.
Why is sales turnover so high?
The high turnover of the sales department has always been much discussed in companies around the world. Several studies have shown that sales turnover rates are up to 3 times higher than rates for the general workforce. In some sectors, the average time a salesperson stays in a job is just two years.
If you're in a high-growth or very competitive industry, you can bet there's stiff competition in the market to hire your salespeople. In any economy, the best professionals are always in high demand and always looking ahead.
The truth is, a modest amount of turnover can even be normal, expected, and healthy. Every company goes through moments of poor performance and it can be interesting to bring in new people with new ideas, different perspectives, skills and attitudes that shake up the status quo.
However, if these turnover rates stay close to 35%, it can be very expensive for companies, not only because of the wasted time in training and investment costs, but also the costs of hiring and ramping up a new salesperson. This high turnover margin we see in the industry happens because of a variety of factors.
You can see some of these factors below:
Ineffective ramping process
Ramp-up time (time that includes training and immersion in the company until the salesperson gains enough practice to reach their quota) has increased in recent years, with 40% of companies reporting that it can take more than 10 months for a salesperson to reach revenue productivity. One way to reduce this time is to invest in your onboarding process with structured learning and training, coaching, ongoing feedback and guidance.
It may sound like a cliché, but it's true: people resign most of the time from their managers, not from companies. From 60% to 80% of employees leave due to lack of connection with leadership or managerial incompetence.
Bad management can create tension between team members, demotivating employees. Just look at exit interviews and employee feedback, as well as turnover numbers by team to determine whether or not a specific manager might be creating retention issues.
Lack of direction and training
Like most employees, salespeople also need proper direction, leadership, and training. Sales is a team-oriented environment, so it's important to ensure that everyone on the team is aware of the big picture and feels included in the organization's culture. Without that feeling of belonging and evolution, your employees (especially millennials) are unlikely to stay in your house.
The basic idea in sales is that you work under a lot of pressure. When companies determine their goals, there is the premise that they must be challenging, but it is important that they are not impossible to achieve. This will keep the sales team motivated. However, if these goals are completely out of the realm of possibility, salespeople will become discouraged and often give up before they even get to work.
While money isn't everything, it's the main reason sales people go to work every day. 89% of employees leave a company because of low wages.
Some salespeople are paid salaries, some are paid by the hour, some are paid commissions, and some are paid a combination of all of the above. Regardless of your pay model, top talent will generally stay if the compensation is worth it. Therefore, do the math and understand whether your company is paying enough for what it is asked in terms of results. (And don't forget to check how much your competitors are paying their teams).
"Market needs" is when there are functional or emotional needs of a specific target market. 75% of employees leave companies due to concerns about the organization's ability to meet these market needs.
A successful company will know how to identify when a customer segment is not well served by existing suppliers and will develop products or services to fill this space.
But when a company does not do this research correctly, it can end up creating a constant worry in the team about the growth and success of their results. And that's understandable, given that nearly 400,000 startups close their doors each year.
How much does a salesperson turnover cost?
Conventional wisdom will tell you that it costs a company about 1.5 times the annual salary of the departing employee to hire a replacement. But when it comes to salespeople, the cost is usually much higher.
Hiring, training, paycheck and bonuses in this case are also part of the math. American companies, for example, spend $15 billion a year on training salespeople and another $800 billion on incentives.
The truth is, in any company it can take time to onboard and leverage a new salesperson before they close deals and deliver a return on their investment. This ramp time can vary depending on the industry and the complexity of the sale, but, for example, in a SaaS company, it can take between 12 and 18 months before the company has a return with the new sales hire. Profitability in this case will come around month 21.
Meanwhile, the sales manager has to invest time to help the new hire to grow, and other salespeople end up taking on existing customers who have lost their salesperson, with the job to make sure that the transition period is smooth, and that all ongoing deals receive the necessary attention and follow-up to close the deal.
As a result, the loss of that salesperson can have a ripple effect on the productivity and morale of the entire sales organization. And worse: it can even cause more salespeople to leave because they feel overwhelmed. So, a salesperson's quitting greatly increases the likelihood of other salespeople to quit.
Particularly, when turnover is a result of downsizing, they can lose trust in management and feel disengaged in their work. Even if they don't go away, these negative attitudes have a hidden cost, as they further reduce productivity and internal engagement.
How to reduce sales turnover?
Now that you know how expensive it is to lose a good salesperson, the question is, is it possible to mitigate this churn rate? The good news is that there are some specific actions you can take to decrease turnover and retain your good reps longer:
Develop a culture of learning and provide training
In an increasingly complex and rapidly changing market, no one can afford to stop studying and evolving. The pandemic was a moment that forced sales teams to migrate to Inside and Remote Sales, and it was possible to see that even experienced salespeople faced a crisis of confidence, questioning whether they had what it took to succeed in the world of remote sales.
Sales success is closely related to internal motivation and determined actions, as well as learning specific techniques or methodologies. Therefore, it is necessary to constantly train them and encourage learning. To reduce salesperson turnover, think of training not just for new hires or underperformers, but as part of the learning culture.
Engage salespeople in the larger goals of the company
People who believe that what they do will make a difference for their customers are more engaged and motivated in their work – and more likely to stick with it, even in times of greater challenge.
It is important that leaders reinforce these goals and hold attitudes and behaviors such as integrity, trust and mutual respect as role models as well. If your company works on these values, you'll retain more salespeople and customers.
Do Sales Coaching
Sales coaching is not the same as Sales training (and both are important). Coaching, when done frequently and effectively, can become one of your biggest strategic differentiators, helping you attract and retain sales talent. High performers who know their leader is invested in their development will be less likely to leave and more likely to continue delivering results for the company. Research shows that companies that coach high-performing salespeople achieve 10% higher sales targets.
The most effective way to avoid high sales turnover rates is to hire the right people from the start. Of course, it's not that simple, but investing in a well-done hiring process can save you a lot of money in the long run. This may extend your hiring process time, but it will ensure you have people on your team for longer.
Improve the work environment
It is relevant to think about whether the environment in which the salesperson works is ideal for him or her. For example, if you're hiring someone who used to work in the field but is now working remotely, it's important to assess whether this transition has gone smoothly.
If the potential salesperson comes from an office environment, think about how they build relationships with clients and co-workers.
This is something to pay attention to because not always someone who is used to the remote will perform well in an office. Yes, there are excellent introspective salespeople who can lose a lot of potential if they are in a busy environment. That said, the environment is a vital factor to consider. So take the time to figure out what a successful environment looks like for a potential salesperson and align that with the company's expectations.
Each of these actions requires some investment of time, money or attention. But it will be worth it if you calculate the high cost of losing good salespeople. The best part is that these steps will pay for themselves many times over, helping you to attract talented people, keep them engaged and grow as your market evolves and brings even more value to your customers.
Keep you headcount under control
Turnover has become a serious problem for many of today's organizations. Research shows that nearly a third of people leave their job within the first six months, and 68% of those people leave their job within the first three months.
While there's no magic formula for beating turnover, understanding the causes we've discussed here can help you act more wisely to anticipate and prevent this scenario. And with the right effort and focus, you can keep your elite salespeople in the house for a long time.
Another important factor that encourages increased retention is improving your sales process. Find out how you can leave your sales team "on edge" with the help of Insight Sales consulting.