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What's the Real Cost of a Bad Hire?

Cost_of_a_bad_sales_hire

Ask a sales manager about the most important decisions he or she makes, and you will probably hear about exceeding budget, growing market share, or achieving year-over-year growth. While those decisions are critically important aspects of the job, and they require a great deal of attention, none of them can be accomplished without an even more important decision being made first.  

The most important decision you will ever make as a manger is the decision of who to hire. If you don’t have great people working in the sales department, you can’t accomplish the rest.

Think of the very best salesperson you have working for you. Not the highest biller or the person that has been there the longest. I want you to think about the best seller. Imagine if you had an entire sales department of people just like that. Would sales go up? Of course.

If you want to accomplish more, there is something you can do about it.

Hiring Just "Ok" is Not Ok.

No hiring manager wants to hire someone who's average, but it happens all the time. This is because most sales departments do not have a strong system in place to ensure that they consistently make good hires. Company time and money is spent investing in systems that manage inventory, account lists, sales pipelines, and pending business. But you won’t often see a company with a bona fide sales recruitment plan in place and used consistently. 

The recruitment plan falls to the bottom of the priority list because the costs are less apparent. The real cost of a bad hire is hidden. It doesn’t affect your pay check directly or show up on the P&L statement as a line item. But make no mistake: there are substantial costs with making a bad hire. Hiring for experience while ignoring talent is not good enough anymore, and being OK at hiring is just not OK. 

What Are the Real Costs of a Bad Hire?

Depending on which expert you ask, you will learn that the cost of a bad hire ranges from 1 to 5 times the employee’s annual projected compensation. 

It's much more substantial than many realize. Here’s a short list of the hidden costs of making a bad hire.

  • The cost of the hiring process to hire this individual
  • The cost of the training and onboarding
  • The cost of the lost draws or salary
  • The cost of the time spent with that person that could have been spent somewhere else
  • The cost of an account that was mishandled and lost
  • The cost of an account that was never sold but could have been if another sales person had been on the job
  • The cost of the lowered morale by others on staff
  • The cost of customer attrition because of the bad service customers received
  • The cost of time spent having to re-hire

The cost of a bad hire could easily range from $50,000 to $500,000. Three or four of those a year you’re looking at a $200,000 to $2,000,000 loss. 

Here's the Solution to Bad Hires:

  1. The first step is to acknowledge that one of the most important decisions you make as a manager is the decision of who to hire. And who to not hire.
  2. Next, build a recruitment plan and stick to it. Keep your standards high and don’t settle because you feel the pressure to get someone hired. 
  3. Commit to making talent a priority. Recognize that experience and the right fit are important but not at the expense of talent.  
  4. Don’t forget to check references.You’ll be amazed at what you can learn when you check references diligently.

Great manages and business leaders attribute much of their success to surrounding themselves with exceptional people. This is no different for sales managers—in fact, it may be more so. I encourage you not to settle for just OK the next time you hire. Set the bar high, and look for exceptional.

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Topics: hiring salespeople, sales management, Sales