You Don't Stop Selling When Production is Busy...Why Do You Stop Hiring Because You Have a Few Salespeople?
Introduction to SignalsFromTheOP
Guide to episode
- Industrial manufacturers don't hire enough - they aren't good at it, and so hesitate to do it. Mediocrity reigns in capital equipment sales.
- Hiring mistakes are really expensive, so companies stick with the "Devil they know"
- The solution is a good, consistent, refined process
- There are four keys to success
Hi, I’m Ed Marsh. Welcome to this episode of Signals from the OP. In these videos I work to share emerging ideas for senior management of middle-market industrial manufacturers - in digestible chunks.
Let’s talk today about recruiting and hiring salespeople for capital equipment and industrial sales roles. And let’s get the bad news out of the way first. We’ll start with the cost of a mistake when you hire poorly – by poorly I mean slowly, against an urgent requirement, or the wrong person.
And let’s also start with some context. In many of the middle-market industrial manufacturers that I work with, the HR function is focused on compliance and benefits, maybe managing temp labor and some skilled labor recruiting, but not so much on recruiting sales. That’s good, because sales is different than any other role they hire for. But it’s also a barrier because often company owners and senior execs who have full plates of operational responsibilities end up carrying the burden of sourcing, interviewing, and selecting candidates.
I also find that in these companies Salesforces tend to be stable – partially because that’s the nature of the industries and companies where tenure is associated with technical expertise, and partially because executives don’t have time and so they don’t spend time on it. This creates a reinforcing cycle – they do it less, it becomes an extraordinary task, and so they avoid it.
And in the end, there’s very little recruiting and hiring, and like any muscle, if it’s not trained and developed, it atrophies. So recruiting and hiring are not practiced and mediocre performance is therefore tolerated.
The solution to improve performance – both of the sales team, and of the execs who are hiring – is to develop a strong process and then iterate.
That’s what I’ll focus on later in this video.
But first, Let’s quickly run through costs so we can quantify the impact of a mistake.
- management time – that can be significant if executives are responsible for a lot of the “HR” type work. This is hard to quantify, but certainly measured in the opportunity cost of tasks that go undone, and stress for folks that already have full plates
- head hunters – based on a typical compensation of $100K to get a good person on board, call that roughly $35K
- typically capital equipment companies tell me they need six months for a rep to get up to speed, and there’s a six-12 month sell cycle. There’s a lot that we can do to compress that, but let’s just say you’re going to sponsor someone for 6 months to bring in a deal. That’s roughly $50K
- coaching and training for a new person – perhaps outside, perhaps more management time….or perhaps it just gets overlooked. Either way, there’s real cost there, even though it’s tough to measure.
- so we’re at $85K plus aggravation for most hires – before you get a dollar of return
- now, let’s say they’re bad. You’re probably going to hesitate to pull the trigger, so you’ll tolerate poor performance for 6-12 months. That’s another 50-100K, plus benefits, plus management time. And based on a $5MM territory and 15% after commission margin, you lose $375-750K in margin
- So a bad mistake costs you about $500K conservatively between direct costs and missed profit opportunity. Yes. That’s 500.
- now, let’s assume they’re not horrible, but just average. For instance, if you have $5MM territories and the average rep you hire sells $2.5MM every year. That means you’re losing deals to competitors (and some of those will be hard to disrupt later as incumbents and you may be locked out of accounts permanently) Further, assuming a net margin after commission of 15%, that means the average rep costs you $375,000/year in missed margin – not to mention the extra quotes they demand, consuming resources, the drag their average performance creates for the full team, etc. so over the first 1.5 years that rep costs you a bit less – about $85K in direct costs and $375 in profit opportunity, or $460K. Yup. Gulp.
And this doesn’t take into account benefits, severance, disruption, length of time the territory lies fallow while you hire and train again, impact on Glassdoor reviews, etc.
The point is that a poor hire, or even an OK hire, is expensive. You might quibble with the numbers, but it’s not an order of magnitude difference.
So it’s important to get it right. And sadly, companies rarely do.
Right now, while nobody’s watching, count off on your fingers how many of your reps are just OK and how many are unsatisfactory. If you need more, don’t take your shoes off, just make a note.
So the question we have to ask then is why do so few do it well?
There are a few reasons.
- First, sales talent follows the same distribution of any other attribute. If you’re looking for 2nd standard deviation folks (you should be), there aren't that many. So it takes time and work.
- Second, in most companies like yours, the burden falls on folks that are keeping things together in core functions. They don’t have time.
- Third, hiring is infrequent in these types of sales forces, so there’s little opportunity to refine processes and improve efficiency.
- Fourth, the hiring process often hinges on resume review and a couple conversations – perhaps with a personality test like DISC thrown in there. Decisions are often based on gut feeling, projections of how the hiring exec succeeded themselves, and brief glimpses of best behavior of candidates. This is particularly odd for companies that so focus on process and precision in their core business. There’s no rigorous and quantitative assessment tool to inform the selection, and later the interviewing of candidates.
- And finally, fifth, because it’s not done often, the status quo (some mediocre folks) is the default. There’s no compulsion to replace them.
So how can a company overcome those issues? There are four key steps.
- Establish rigorous sales process criteria and implement sales training and CRM so that you can understand who’s a performer according to real-time criteria instead of waiting for end-of-year revenue and profit numbers which often include flukes that hide the opportunity cost of inconsistent performance.
- Evaluate your sales force to see where there are gaps that can be closed with training, and other gaps that you can’t close with the current team. A good evaluation should also help you quantify the opportunity – in other words, the revenue – you’ll realize through improvement.
- Implement a best practice process for recruiting, screening, interviewing, hiring, and onboarding sales. This means from beginning to end – writing the job posting, managing applicants, using a scientific and quantitative method to screen applicants, interviewing, and onboarding. This should be efficient enough that you can run it consistently.
- Start to recruit all the time – every week, every month, whether you have open positions or not
When you run that way you build the muscle, you limit wasted time, you constantly identify strong potential players, you’re more likely to make changes when you need to, and you’re less likely to settle.
And if you do it right, you’ll reduce your recruiter costs and shorten the ramp-up – putting the right people in the field faster and without excess cost. That will drive revenue up while it drives costs down.
OK, you might be saying. Sounds nifty, but that’s not real life.
I hear you. So let me quickly tell you how I can help.
- I can help you develop, refine and implement a rigorous sales process that’s appropriate for your products, market, buyers, etc. And then implement the right technology to support that.
- Further, I use proven sales force evaluation tools to run the equivalent of an MRI on your sales team to figure out how much better they could do, where there are strengths, and where there are opportunities for improvement.
- I can train you and your admin on a proven system to dramatically simplify the process.
- And if you prefer, I can take much of that on for you – doing all the work on the front end and only putting really qualified candidates in front of you for sales, sales management, and VP of sales type roles.
- With that burden alleviated, I can help you start recruiting consistently
So if you’re having trouble with your industrial sales recruiting, hiring the right sales folks, or worried about the cost of turnover or mistakes in hiring. Or if you hesitate because you don’t have time and things aren’t at a crisis point yet – let’s talk.
I can help you improve process, improve efficiency, improve hiring and improve revenue outcomes for far less than the traditional model that’s delivered frustration and cost.
I’m Ed Marsh. Thank you for joining me for this episode of Signals from the OP. If you enjoyed it, please share it and subscribe – either to my YouTube channel EdMarshSpeaks.TV or at the related blog SignalsFromTheOP.com.