The Harvard Business School identified the cost of inferior selection of sales representatives, at 3X the rep's annual compensation, including expenses, training, benefits, wages and commissions/bonus. Thus a $60,000 per year salaried/commissioned sales rep hiring mistake actually costs the company more than $300,000.
In hiring a sales representative, what is the cost of a poor hiring process?
There are hard and soft costs to consider. The hard costs include, but are not limited to, time from dispatching the job order to hire. For instance, a sales territory is open an extra week, or month, or quarter, the reduced revenue and profits can be calculated according to the following formula: annual quota, divided by the time period, divided by gross profit-less salary, recruiting fees, travel and administration expenses. All numbers are annualized to the week or month or quarter.
Example:
Annual quota $2,000,000.00
Gross Profit 35%, = $700,000.00
Salary+ commissions = $175,000.00
Recruiting fees= $25,000,
Administration, Benefits, Travel and Entertainment=$25,000
Gross Profit: $700,000
Total Costs:$225,000
Net Profit:$475,000
Net Profit loss per week:$9,500, Net Profit loss per month:$39,583.
Presented here is a simple and true case study highlighting additional hard costs not easily evident in the equation above.
"During FY2000, “Tom”, a recruiter, presents a sales engineer to a national company. The company in business since 1985 has annual revenues in excess of $50 million. The company hires this candidate. Two years later the same person is still employed (the definition of a good hire). The company requires another sales engineer (in the same territory) to compliment the employee placed 2 years ago. Does the hiring manager call “Tom”? NO! The position still open 2 weeks later, the employee calls “Tom” and suggests he call his boss. The boss acknowledges the opening but insists they have it handled using internal recruiting efforts. Meanwhile, “Tom” presents an on-target candidate. One month later, the boss/hiring manager calls “Tom” and asks about the candidate. The manager agrees to pay the fee. Discussing the hiring process, “Tom” learns the hiring manager is interviewing eight additional people. Five managers from around the country fly into the territory to interview these 8 candidates. “Tom's” candidate makes 9. However, his candidate is the only one that the hiring manager is excited to meet. Five upper level managers fly into a city, stay in hotels and spend a complete day meeting 9 candidates when they only need one.
Six weeks had gone by before contacting “Tom”. The hiring manager knew “Tom” was competent. Has he saved any money? Based upon the example above he has already lost close to $60,000. If we attempt to equate the cost of one day of management hours of a company, the equation looks like this: $150,000 times 5(managers)= $750,000 divided by 200(days)= $3,750. Plus, what revenue generating activities could be accomplished instead of a complete day in front of 7 or 8 people they will never see again? How frustrated will these managers be by the end of the day? How many will quit if the company continues this wasted effort? How much revenue is lost annually because of this type of behavior?
Additional, definable soft costs: The hiring manager has spent 10 hours minimum, reading resumes and speaking to candidates over the phone. An additional 5 hours spent coordinating with other managers. What activities could the manager had done instead? If I gave you back 2 full working days, every 6 weeks what would the time be worth to you?
Plastics Recruiter Hiring is Expensive
Dan Regovich - Plastics Recruiter - Formerly with RSI Recruiter Solutions International
AJ Augur Group, LLC
440-357-7600
www.ajaugur.com
dregovich@ajaugur.com
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