Employing the right person has the potential to, in the long run, save you thousands of dollars. Clearly the right initial choice will save money by reducing turnover but there are many other costs involved, some less quantifiable than others. Most sales managers agree that they cannot afford even one non-productive team member, yet most managers have their own ‘horror’ stories regarding troublesome or struggling employees. This highlights the importance of recruitment and selection of sales people. Various practices can and should be employed to best avoid the unenviable situation of having hired the wrong person for the job. Effective recruitment processes are imperative in attracting and retaining high quality staff.
As shown in the diagram in the extract in Appendix A, the Talent Selection Processes are an integral part of sales management. Marterella (2005, p. 2) describes how validated recruitment techniques and processes based on critical sales skills will considerably enhance the chances of initial success in hiring the right person for the job. In brief, an effective recruitment process is generally recognised as a three step process. Johnston and Marshall (2005, p. 316) summarise the three steps as “(1) job analysis and description, (2) recruitment of a pool of applicants, and (3) selection of the best applicants from the available pool.” See Appendix B for a graphical depiction of the three steps.
The hiring process should commence with a list of what the job entails. This analysis of job requirements accommodates the next step of finding applicants. If no one internal is appropriate for the opening, referrals by employees might be helpful. Referrals can save administrative costs, but failing this advertisements or recruiting agencies are generally used. This stage of the recruitment process is much more critical to effective employee selection than some may think “The most thorough selection approach cannot make up for a poor candidate pool.” (Billikopf 2003, p. 13.).
Different types of testing can be useful in the final step; depending on what the job is. Job simulations for more labour oriented positions are often the most successful. Additionally, interviews by more than one person will provide diverse views on the applicant. General theory is rather speculative with regards to successful hiring as each individual situation has its own intricacies, so only a brief account has been given. However, we can further explore the common problems related with unsuccessful hirng.
Some of the problematic concerns related to hiring the wrong person may be:
– Increased turnover / decreased retention
– Increased training costs
– Poor sales coverage and customer follow-up
– Decreased overall sales team performance.
To illustrate; one large computer company predicts that “…the investment in each new employee is more than $200,000. The company uses the word “investment,” which should mean a return on investment at some point. If the company hired 10 people a year, that would be a $2 million investment. And with a 15% turnover rate, that’s more than $300,000 in wasted money.” (Derby Management n.d.). In recruitment, (Hiring the Wrong Person Costs You Three Times Their Annual Salary 2005, p. 14) suggests that in this high-stakes ‘game’ an industry rule of thumb may be applied.
That is, as the title suggests, the company incurs the costs of three times the annual salary of the position in which the wrong person was hired. So, a $25,000pa position involves a cost of $75,000. Similarly, a $350,000pa position involves a $1.05 million cost. One can also consider lost opportunity cost, lost business, customers, momentum and finding a replacement to fill the position. Some more conservative figures are described by Zeller (2005) who states “Hiring the wrong person is expensive. Costs include wasted salary, benefits, severance pay, recruiting and training costs and hiring time, according to the Corporate Leadership Council, a Washington-based consulting group. Costs of a bad hire are:
Entry-Level : $5,000 – $7,000
Mid-Level : $40,000
It is hard to accurately quantify the cost of hiring the wrong employee but academically most will agree that a bad recruitment decision will have highly negative consequences.
There are also, various other less tangible problems that are also by-products of poor employee selection, these include:
– Stalling other employees careers
– Lessened company reputation
– Negative energy within workplace
Hiring the wrong person can be quite costly. Expenses are incurred in locating, in some cases relocating, and training each employees. Additionally, a compensation package may have to paid out and revenue is lost during each individuals start up time. In a large company, for example, these costs can add up to hundreds of thousands of dollars if poor selection of new sales people is a recurrent practice. Hiring the wrong person can be expensive if the employee quits after money has been invested in training and even more expensive if an incompetent worker remains. “A poor hire is likely to be unhappy and unproductive – another cost to the company. And an employee who leaves on bad terms is not a good advertisement for the firm.” (Wilkie 2004).
Billikopf, G 2003, ‘Practical Steps to Employee Selection’, Labor Management in Agriculture: Cultivating Personnel Productivity, pp. 9-28
Derby Management n.d., Salesforce Hiring Mistakes. Retrieved September 1,
2005, from http://www.derbymanagement.com/knowledge/pages/recruiting/salesforce.html
‘Hiring the Wrong Person Costs You Three Times Their Annual Salary’ 2005, Robotics World, vol. 23, no. 3, pp. 14-15. Retrieved August 25, 2005, from Gecko database.
Marterella, J 2005, ‘The Eight Critical Success Factors of a High Performance Sales and Marketing Organization’, Lincoln Consulting LLC, pp.1-4.
Wilkie, D 2004, ‘Hire Standards’, Engineering Inc., May | June 2004, p. 17. Retrieved August 29, 2005, from http://www.acec.org/publications/may-jun04/hirestandards.pdf