April 2007
James T. Berger, Managing Editor
Originally published in The Wiglaf Journal online

Ever thought what it costs a company to hire an inferior sales person?

In their new book, “Never Hire a Bad Salesperson Again,” authors Dr. Christopher Croner and Richard Abraham examine that question in a chapter entitled “The High Cost of Low Performance.” In the process, they present an 8-step cost calculator.

Step 1

– Write down the revenues you expect an A Player to generate.

Step 2

– Write down what your average marginal sales person – your C Player produces. It’s usually about 50 percent of the A Player’s production.

Step 3

– Subtract Step 2 from Step to determine the revenue gap for each C player.

Step 4

– Now look at the “soft” costs such as: number of customers the C Player loses through neglect, misbehavior or both. As a rule of thumb, Croner/Abraham figures that cost to be 10 percent of the A Player’s revenue.

Step 5

– Next, look at the amount of administrative time it takes to coach the C Players. A 2004 study by Future Foundation and SHL (the world leader in objective assessment of the workplace) reported that a typical sales manager spends 13 percent of his/her time managing underperformers.

Step 6

– Next add the numbers generated from Step 3, Step 4 and Step 5.

Step 7

– “Gross profit is probably the most accurate way to determine the carnage caused by poor salespeople,” they write. To calculate the annual loss, Croner/Abraham suggest finding the loss in gross profit per C Player. Simple multiple the amount from Step 6 by the firm’s gross profit margin, and write down the results in Step 7. (For example if the total loss generated in step 6 is $600,000 and your gross profit margin is 20 percent, your annual loss is $120,000.).

Step 8

– Finally, calculate how much it costs to wait. What if the C Player is due to retire in three years and you decide to wait until then to replace him/her. Just multiply that $120,000 by 3, but it’s really even more thanthat given the time value (present value) of money.

One of the biggest problems when it comes to replacing poor performers is inertia and apathy, according to Croner/Abraham. “It never ceases to amaze us as business investors and advisers,” they write, “when we encounter the astonishing difference between a company’s zero tolerance attitude regarding the performance of, say, a $500,000 piece of machinery it has purchased and the passive response regarding a mediocre salesperson who burns $200,000 to $300,000 per year in opportunity and carrying costs. When we point this out to the owner-manager, we invariably get a response like, “It doesn’t cost us that much.”

The book is published by The Richard Abraham Company LLC and may be ordered from the publisher at https://salesdrive.info. The key to the book is first to focus on the The Elements of Drive which encompass things like: the need to achieve; the thrill of competition; optimism, and the high cost of low performance. The second part hones in techniques for identifying and hiring drivers.

The book is part of an entire system that employers can use in hiring of new sales people as well as the assessment of the present sales force. Elements include an online personality test for employment and follow-up consulting.

_______ Author James T. Berger, Managing Editor of The Wiglaf Journal, specializes in both finance and marketing and has spent a number in both the investor relations field as well as an account manager and officer at several Chicago advertising agencies.

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