Reducing the Break-even Time for New Salespeople

Transcription

Reducing the Break-even Time
for New Salespeople
Overcoming a major barrier to growth
Imparta White Paper Reducing the Break-even Time for New Salespeople
What’s your biggest barrier to growth?
The sales team is a significant engine
of organic growth for most companies.
Unless you already have a dominant
market share, or operate in a commodity
business where price is the only issue,
increasing the size of your sales team
would have a major impact on your
growth rate.
The problem is that the cost of a new
salesperson starts to affect your P&L
as soon as you hire them, but, for B2B
products with a relatively long sales
cycle, they may not start generating
significant revenue until at least a year
later. As a result, you can only invest in
a limited number of new salespeople
each year without damaging current
profitability. For many companies, this is
a major barrier to growth.
“For many companies, the time it takes
for new salespeople to generate revenue
is their biggest barrier to growth”
At Imparta, we have been researching
this issue in depth, because we see
overcoming this barrier as vital for us to
maintain the growth we have achieved
over the past decade. It is also a critical
issue for many of our clients, especially
at a time when sales headcounts and
budgets are under pressure. Even
companies with no growth need to
replace salespeople lost through attrition
(often 10-15%) and deliberate churning
of the bottom 10% of performers.
Our research shows that if you
can reduce the time it takes a new
salesperson to start generating revenue
from 12 months to nine, you begin to
unlock the organization’s ability to grow
fast. If you can reduce the ramp-up time
to six months, each new person has a
good chance of breaking even or even
making a profit within the first year, and
the barrier to growth goes away almost
entirely.
This White Paper sets out our analysis
in more detail, and outlines a number of
approaches that Imparta has identified
to create a dramatic reduction in the
time for new salespeople to
generate revenue.
How much does a new salesperson cost?
Hiring a salesperson is a very expensive
process. If you use a recruiting agency,
fees are typically around 22% of first
year salary, plus internal resource is
needed for the recruiting process itself. If
three senior people spend an hour each
interviewing five candidates for every
successful one, the opportunity cost
(along with the cost of psychometrics,
administration and so on) can easily
reach $3k per hire.
At that point the costs start to accelerate.
A solid induction process can cost
another $7.5k, and if the salesperson
has been given a guaranteed
commission scheme for, say, the first
three months, that also needs to be
factored in.
Not every hire succeeds in their new
role, of course. A company is doing well if
75% of new salespeople are found to be
© Imparta Inc. All Rights Reserved
1
the ‘right stuff’ and make it through the
first six months. The cost of the 25% that
do not needs to be spread across the
new hires to give an accurate picture.
“For a typical salesperson on a $80k
salary, the first-year cost can be as
high as $200k”
The recurring costs of a new salesperson
include their salary, healthcare and
401K (if applicable), but you also need
to include travel expenses and the cost
of the manager’s time in coaching and
performance management.
For a salesperson on an illustrative $80k
salary, as the following table shows, the
first-year cost before commission can
be as high as $199.9k – two and a half
times the headline figure.
The total first-year cost in your business
will vary, of course – from, say, $40k
for telesales to over $300k for a senior
salesperson in a high value business.
Please see the ‘Next Steps’ section
of this White Paper for a tool that will
calculate this figure in more detail for
your organization.
Cost
$ 000
One-off costs
Recruiter fee @ say 22% (if appropriate)
18
Internal cost of recruiting
3
Internal cost of induction
7.5
Guaranteed commission (where given)
10
Share of costs of failed hires
45
Total one-off costs
83.5
Recurring costs per year
Salary, approx.
80
Travel & accommodation expenses
24
Manager time (coaching etc.)
12
Total recurring costs
116
Total first year costs
199.5
2
The impact of this cost on your profit
and loss statement (P&L) will of course
depend on the point in the financial year
when they are hired, but without question
the cost is a larger number than most
people realize. If you are hiring enough
salespeople to make a real difference to
your revenue, their costs will also make
a real difference to your profits.
How long does it take a salesperson to generate
revenue?
If you hire a typical new salesperson at
the beginning of your financial year, the
analysis above shows that they will cost
you approx. $200k in that year. Clearly,
if it takes them a year to start generating
revenue, you will incur a loss of $200k in
year one, which means you cannot afford
to hire many of them without seriously
damaging your P&L.
But does it really take a year for a new
salesperson to start generating revenue?
The average time for any given business
depends on many factors to do with the
business itself, including:
•The precise role you are hiring into
(e.g. pure new business vs. hunting
within existing accounts);
•The length of the sales cycle in your
business (a single call, or an 18-monthlong pursuit?);
•The complexity and economics of your
market (is it growing or shrinking? Are
you differentiated or commoditized?);
•The stage at which you engage your
field salesforce.
These factors help to determine the
average time it would take someone
in a given role and industry to start
generating revenue. Your actual
salespeople will then be distributed
around that average by more individual
factors, including their knowledge,
motivation, skill and connections,
the quality of their induction into the
company, the accounts and leads they
are given, the commitment and skill of
their manager, and so on.
For a B2B business with a field
salesforce and typical sales cycle of
six to nine months, our research has
identified four main types of sales hire,
as follows:
•The Sprinter (first revenue less than
six months). Sprinters often get a head
start in their new role, either because
a number of their own contacts are
relevant to the new company and
ready to buy, or because they are given
productive accounts to develop and do
so successfully. They are generally not
held back by factors like a poor induction
process, lack of confidence, etc.
•The Middle Runner (first revenue
in nine months). These salespeople
often exhibit similar characteristics
to the Sprinters. However, they may
have been held back somewhat by a
background and contact base that was
not as relevant as had been thought
(e.g. new to the product or service
area), or by not being given access to
new opportunities and client contact
early enough.
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•The Distance Runner (first revenue in
12 months or later). Most new starters
fall into this category. It is typically the
result of having to learn new customers
and new products at the same time,
and is common where salespeople are
expected to generate their own leads.
•The Non-Runner (no significant
revenue before employment is
terminated). These are the hiring
mistakes – though they may well have
performed well in other environments.
We have found that good selection and
assessment processes can reduce
these dramatically.
It is interesting to note that in statistical
terms, this is not a normal distribution,
i.e. there are many more Distance
Runners than there are Sprinters.
We have found that Sprinters are not
only fast revenue generators; they are
also more likely to exceed their targets
year after year. This is partly because
the same factors that led them to early
success remain relevant, and partly
because they are made more confident
by that success.
The exact length of time before revenue
is generated will vary depending on
the length of the sales cycle in your
business, but the general categories will
still remain valid.
Cumulative Revenue as % Full Year Quota
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What is the impact of different times to generate
revenue?
The revenue required for a new
salesperson to break-even depends on
their cost, and on the average gross
margin of the business. The higher
the gross margin, and the lower the
salesperson’s cost, the more time you
can afford before they start to perform.
However, it is helpful to note that for
many companies, the break-even
revenue for a new salesperson is around
40-50% of a typical full-year sales quota.
(It is lower in subsequent years.)
The previous graph shows in broad
terms how quickly Sprinters, Medium
Runners and Distance Runners reach
that break-even point, i.e. the point at
which they have a neutral impact on the
profits of the business.
Although this analysis will vary based
on the precise characteristics of your
business and on the point in the financial
year when someone joins, it allows us to
draw some important conclusions:
•A Distance Runner, even one that you
hire at the beginning of your financial
year, will cost you a great deal to begin
with. In our example above, they will
generate a loss of close to $200k in
that first year.
Even if they are profitable thereafter,
this means that your ability to grow the
business by growing the sales team
is severely limited if you also want to
preserve profits.
•In marked contrast, a Medium Runner
joining your team at the beginning of
your financial year will have a minimal
impact on your P&L in year one, and
hopefully a positive one in year two and
beyond. This means that you can add
many more salespeople, as long as
most of them join at the beginning of
the financial year, and you don’t make
too many hiring mistakes.
•If you are able to hire (or create)
Sprinters, they will actually generate
a profit in their first year. This means
that you can add as many as you like
at almost any part of the year, even if
there are some bad hires.
So… your ability to grow your business
through the engine of the salesforce is
dramatically affected by your ability to
hire – or create – Sprinters.
The next logical question is: “Are there
things we can do to hire or create
more Sprinters?” And the answer is
emphatically “Yes”.
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How can you speed up revenue generation?
To understand how management actions can affect the ‘ramp up’ of new salespeople,
we researched a wide range of new starters, and the revenue they generated in their
first year. The main factors that we identified as affecting sales ramp-up are shown in
the following diagram, along with the levers that managers can pull to affect them.
% Successful Hires
% of Year ‘Up to Speed’
•Size/quality of candidate pool
•Relevance of background
•Rigor of assessment process
•Judgment of people doing the
assessment
X
•Early warning system for poor hires
•Quality of induction process
•Injecting new hire into receptive client
situations early on
•Quality/quantity of coaching
X
Average Deal Size
Number of Leads
•Attractiveness of the new hire’s target
market (sector; geography; buyer type
etc.)
•Relevance of new hire’s contact base
X
•Use of formal planning methodology
•Number of ‘undersold opportunities’
available
•Quality of overall lead generation and
referrals
•Availability of sales support and
coaching
•New hire’s skill/will in networking
X
Conversion Rate
•Level of competitive advantage
•Use of formal pitching process
•Use of ‘deal clinics’
=
Revenue Generation in Year One
•Locus of control
The rest of this White Paper examines these management levers in more detail.
As with all such approaches, you will already be doing some of the things that
follow, and many will be obvious in retrospect. The value lies in taking a systematic
approach to the issue.
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Increase the quality of hires
It goes without saying that the better your
sales hires, the more likely they are to
break even quickly. It has taken Imparta
many years to get the formula right, and
our key findings are:
Improve the size/quality of the
pool of candidates. Even if you use
recruiting firms, you need to analyze
your successful hires to understand
which types of people sell best in your
business, what they do well, and where
to look for them. By preference, target
people with a strong contact base selling
a similar type of product or service (sales
cycle; level of customization; decisionmaking process) to the same buyers
as you. Be careful of hiring only from
direct competitors, though, in case they
are prevented from talking to their best
connections during that all-important
first year. And beware the simplistic
approach: just because someone has
sold something called the same thing,
doesn’t mean it’s the same sales process
or buyer. For example, training can mean
a single off-the-shelf product sold to an
individual, or a complex academy sold
to a large decision-making group that
includes L&D and sales leaders.
Improve the rigor of your assessment
process. Do you use competencybased interviews already? Great. But
salespeople are notoriously good at,
well… selling themselves. So you need
to assess what they can actually do
with your product, rather than what they
say they can do. A robust assessment
process may sound expensive, but in
reality it saves huge amounts of time and
money.
“Our hit-rate on salespeople has
improved to almost 100% since
adopting this process”
Our process includes:
•CV screen against specific criteria;
•Initial telephone interview to test further
against those criteria;
•Diagnostic simulation to assess sales
skill;
•Mastery test to assess sales
knowledge;
•Psychometric and motivation
assessment, which also identifies areas
to question/probe during the interview;
•Only then do we bring people in for
a face-to-face meeting, where we
conduct a:
◦◦Competency-based interview;
◦◦Sales role-play (face-to-face) to test
‘real-life’ selling skills against our
competency model;
◦◦Other tests as appropriate (e.g.
mini case study to test commercial
acumen).
Our hit-rate on hiring good salespeople
has improved to almost 100% since
adopting this process. Indeed, if I could
go back to when I started the company
and change one thing, it would be to
implement this selection process from
day one.
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Choose the people doing the
assessment very carefully. We have
found that the best hiring decisions are
made by a team of two people working
together: an excellent sales coach, and
an excellent salesperson. They bring
different viewpoints to the selection
challenge, and together will interpret the
competency-based assessments more
accurately than one person alone.
Create an early-warning system for
poor hires. Even with a best practice
hiring process, a few Non-Runners will
slip through. Not only do they cost a
great deal in their own right, but they
also use up a space on the team that
could be used by someone far more
productive. You need to spot them
and take action (in everyone’s best
interests) as soon as possible. Don’t
just work on the basis of actual revenue
generated, though, or you could end
up removing a Distance Runner who
could eventually be a strong performer.
Your early-warning system should focus
on the actions that lead up to revenue.
Look out for people who have not built
trust, formed relationships, identified
opportunities, displayed the right
competencies, or built the early stages
of a pipeline. Don’t be fooled by a single
‘huge opportunity’ on which all rests;
a good salesperson will develop many
threads in the first six months.
Speed up the ramp-up
“A best-practice induction process can
shave months off the ramp-up of a
new salesperson.”
Clearly, the more relevant their
background, the less they have to learn,
but there are also a number of concrete
steps you can take to speed up the
ramp-up.
Use rapid and laser-like on-boarding.
A best-practice induction process can
shave months off the ramp-up of a new
salesperson. Take a close look at your
own process and ask:
•Do we transfer knowledge about the
company’s products, services and
operating procedures as soon as
possible? People won’t remember
everything, but it’s essential to get
them to a basic level of understanding
as soon as possible. Use your best
salespeople to help create the training.
•Do we have a shadowing process?
•Do we help to build the all-important
internal network from day one?
Previous Imparta research has shown
that the best salespeople know how
to get things done inside their own
organizations (and incidentally, that
the best managers spend a great deal
of their time ‘getting things to happen’
for their teams). Introduce new hires
to contacts in as many functions as
possible, from credit control to technical
support and service.
Once someone has accepted an offer to
join, the first few weeks are absolutely
critical to how quickly they begin to
create and drive opportunities.
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•Do we train new hires in our sales
methodology as quickly as possible?
Training new hires together helps to
build cohorts for mutual support, and
focused development (e.g. through
a Sales Academy) will embed best
practice from the outset.
help to achieve quick wins and build
confidence. Assigning a ‘buddy’ and
a company mentor can also provide
additional support.
Increase the number of leads
•Do we create a sense of teamship and
belonging? Helping new salespeople
to feel as though they really belong –
especially if they are not office-based –
is a key driver of motivation levels, and,
in turn, performance.
The new hires most likely to score early
will have a relevant set of contacts
that they can work through to identify
opportunities. However, there are
other things you can do to increase the
number of leads they generate in the first
year:
Inject the new hire into receptive
client situations early on. Our research
showed that Sprinters often benefited
from being introduced into the heart of
a customer situation – either an existing
client or receptive contacts – very
early in their tenure. This helps to build
confidence and gives people a test-bed
for their techniques. It is also much
easier for a good salesperson to leapfrog
from one contact to another, than it is for
them to penetrate the hard shell of a cold
target. So introduce new salespeople
to a few customers – or even just warm
connections – as soon as you can, and
sooner than you might think sensible.
I’m not suggesting you should take
them along to meet the CEO at your
biggest client, but there will be receptive
situations where it makes good sense to
get their feet wet.
Look for ‘undersold opportunities’.
If your sales team is genuinely busy
talking to customers and writing
proposals, the chances are there are
opportunities that would benefit from
increased sales attention. They may
be sitting down at the lower reaches of
your pipeline, at say 10-30% probability,
or they may be dormant customers
(or near misses) that have not been
spoken to for a while. Transferring these
undersold opportunities to a new starter
may cause an emotional reaction in the
current account owner, but you need to
persuade them that they will do better
by focusing their efforts on winning the
deals they have. Compensate them if
you must, but allow an eager new mind
to give these undersold opportunities
enough attention to generate significant
revenue.
Provide intense coaching. By now
most people are aware that focused,
functional sales coaching is a primary
tool for building capability and
performance. It is all the more important
in the early days, when accompanied
sales calls, joint planning sessions
and careful, constructive feedback can
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Look for accounts in the ‘comfort
zone’. Take an especially close look at
accounts that have been a customer of
just one part of your business for a long
time. Can you use the new salespeople
to cross-sell to them? At the very least,
use the new hires as a fresh pair of eyes.
Work on the quality of your overall
lead and referral generation. It goes
without saying that stronger lead
generation at the company level will
translate directly into more Sprinters.
Some important questions include:
Is a single person tasked with lead
generation, or has it fallen down the gap
between Marketing and Sales? Is there
an active referral request scheme? Have
you optimized your Google Adwords
and SEO? Are your sales segmentation
and target lists up to date? Are you
using events for new hires to interact
with potential Centers of Receptivity and
establish relationships?
Improve the new hire’s skill and
will in networking. Good networking
is a learned skill, and early training in
this area can pay off. Equally, many
otherwise good salespeople are actually
quite uncomfortable networking (whether
that is informally or within a customer
context), and it is the manager’s role to
ensure that their motivation (or ‘will’) for
this task is kept high.
Increase average deal size
Once an opportunity has been identified,
the break-even on a new salesperson
can be accelerated by maximizing the
size of the potential deal.
attractive markets. It sounds obvious,
but target new hires at your most
attractive vertical markets, geographies
and buyer types (unless you have
already saturated those markets). The
more significant the needs of the market,
and the better the fit with what you offer,
the larger and quicker the deals will be.
If you are investing in growth, don’t use
new salespeople to fix your problem
sectors. Use them to push home an
advantage.
Use a formal planning methodology.
A good opportunity or account
management methodology will help
people to uncover opportunities in a
more systematic way. Many good
salespeople can succeed while ‘flying by
the seat of their pants’. Almost all great
salespeople supplement their gut feel
with a structured approach to uncover
needs and increase deal size.
Provide adequate sales support.
We’ve already mentioned the importance
of coaching, and coaching from peers
and managers can of course help to
drive up average deal sizes (and later, to
increase win rates). Equally important
is the availability of sales support –
technical sales staff, bid managers,
and so on. These resources broaden
your contact base with the potential
customer, and make up for gaps in the
new salesperson’s knowledge. Make
sure that you balance the hiring of new
salespeople with enough resources to
support them in the field.
Target new salespeople at your most
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Improve the conversion rate
The final step in our equation for ‘year one revenue’ is the conversion rate of the
deals that your new hires work on. As with deal size, targeting attractive sectors
(where you have competitive advantage) will help to improve your win rate. But you
can also:
Use a formal pitching process. It takes time to understand how customers view
your company’s products and services vs. those of your competitors. A good pitching
process takes the guesswork out by formalizing the process of understanding and
responding to your customers’ decision criteria. It has a measurable impact on win
rate in general (for one Imparta client it increased the win rate by a factor of three),
but especially so for new hires.
Use ‘deal clinics’ to win deals and build teamwork. In our experience, group
sessions facilitated by an expert coach improve conversion rate while also building
skills and confidence across the team. The facilitator brings specific skills such as
value mapping and stakeholder analysis, while the team brings their own personal
insights to the process.
Read up on the ‘locus of control’. An earlier Imparta research project examined
the factors that drive sales performance beyond a core set of sales skills. Of these,
the most significant was found to be the salesperson’s locus of control. Broadly
speaking, people with an external locus of control believe that things happen to
them, whereas those with an internal locus of control believe that they influence the
outcomes themselves. In selling, an external locus of control can lead to failure as
the salesperson doesn’t seek out ways to overcome barriers to the sale. Keep an
eye out for language that suggests your new hire is taking a defeatist approach, and
use coaching to get them to see what they can control.
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Why Imparta?
•Imparta is ranked among the top four global sales training companies by the ES
Research Group, and has been named among the Top 20 global Sales Training
Companies for the last four years running by TrainingIndustry.com
•Our long-term clients include some of the world’s leading organizations, including
GE, Intel, Thomson Reuters, Nespresso and Owens Corning.
•We cover sales, marketing and service, and are able to provide the ‘glue’ that aligns
those teams (e.g. Sales-Enabled Product Training) as well as in depth expertise in
each field.
•We have a dedicated Client Impact team that can help you roll out a single
workshop, or a sophisticated Sales, Marketing or Service Academy covering
reinforcement, application, coaching, measurement and accreditation.
•Our expertise in experiential learning design ensures very strong learning impact
(we are a pioneer in the world of simulations and remain a Microsoft Gold Certified
Development Partner).
Imparta has 140 trainers and associate trainers around the world and the capability to
deliver large-scale, global roll-outs in local languages.
Next steps
As we have seen, there are many actions you can take to turn your Distance Runners
into Sprinters and unlock growth in the business. You don’t have to take every action
here, by any means, but the importance of the issue warrants a systematic approach.
We have prepared a free Excel tool that helps you to calculate the true cost of a
new sales hire for a given team in your business, the impact of different times taken
to reach productivity, and a checklist and action planner to help you speed up their
ramp-up. You can download this free tool from the same place you got this white
paper – www.imparta.com/times.
We would very much like to hear about your experiences in this area, so please feel
free to drop us an email to introduce yourself. Naturally, we would also be delighted
to work with you to help reduce the average ramp-up time for your new sales hires
– and to measure and track their first-year profitability as a KPI – if that is something
you would value.
12

Reducing the Break-even Time for New Salespeople

Transcription

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