Hiring Salespeople and the
Economics of Failure
An AMG Executive Briefing

Meet your
presenter…
Amitai Givertz
AMG Management Advisors

The Economics
of Failure
Sizing up the overall problem

The Economics
of Failure
Sizing up the overall problem
Identifying existing and potential
problems

The Economics
of Failure
Sizing up the overall problem
Identifying existing and potential
problems
Reversing bad hiring processes and
implementing good ones

The Economics
of Failure
One-to-many: A “purposeful primer”

The Economics
of Failure
One-to-many: A “purposeful primer”
Many-to-many: Stay posted online, join in
the conversation

The Economics
of Failure
One-to-many: A “purposeful primer”
Many-to-many: Stay posted online, join in
online
the conversation
One-to-one: Follow-up, follow-through
and making sense of it all…

Bad Recruiting Practices:
Sizing up the problem

Systematically winging it
Bad Recruiting Practices:
Sizing up the problem

Failing to benchmark
Bad Recruiting Practices:
Sizing up the problem

Not hiring to profile
Bad Recruiting Practices:
Sizing up the problem

Wrong time, wrong place
Bad Recruiting Practices:
Sizing up the problem

Recruiting bad apples
Bad Recruiting Practices:
Sizing up the problem

Getting to grips with costs
Bad Recruiting Practices:
Sizing up the problem

The cost of acquisition
Bad Recruiting Practices:
Sizing up the problem

The cost of turnover
Bad Recruiting Practices:
Sizing up the problem

Cost of mediocre performance
Bad Recruiting Practices:
Sizing up the problem

Hidden costs
Bad Recruiting Practices:
Sizing up the problem

What’s acceptable to you?
Bad Recruiting Practices:
Sizing up the problem

Method one:
Number crunching
Bad Recruiting Practices:
Sizing up the problem

Method two: Utility analysis
Bad Recruiting Practices:
Sizing up the problem

METHOD ONE:
Number Crunching
Did you find and
download the
spreadsheet:
Calculating The
Cost of Bad Hires?

RECRUITMENT and
DEVELOPMENT
COSTS
The number
of salespeople
hired in the last
12-months?

RECRUITMENT and
DEVELOPMENT
COSTS
The number
of salespeople
hired in the last
12-months?
18

RECRUITMENT and
DEVELOPMENT
COSTS
The number of
salespeople fired
or who quit in the
last 12-months?

RECRUITMENT and
DEVELOPMENT
COSTS
The number of
salespeople fired
or who quit in the
last 12-months?
06

RECRUITMENT and
DEVELOPMENT
COSTS
The number
of candidates
interviewed for
each position?

RECRUITMENT and
DEVELOPMENT
COSTS
The number
of candidates
interviewed for
each position?
03

RECRUITMENT and
DEVELOPMENT
COSTS
Approximate
number of hours
interviewing each
candidate?

RECRUITMENT and
DEVELOPMENT
COSTS
Approximate
number of hours
interviewing each
candidate?
02

RECRUITMENT and
DEVELOPMENT
COSTS
The number
of times each
candidate was
interviewed?

RECRUITMENT and
DEVELOPMENT
COSTS
The number
of times each
candidate was
interviewed?
03

RECRUITMENT and
DEVELOPMENT
COSTS
How many hours
invested coaching
each person?

RECRUITMENT and
DEVELOPMENT
COSTS
How many hours
invested coaching
each person?
40

RECRUITMENT and
DEVELOPMENT
COSTS
Any fee paid for
each position?

RECRUITMENT and
DEVELOPMENT
COSTS
Any fee paid for
each position?
$12,500.00

RECRUITMENT and
DEVELOPMENT
COSTS
Cost of advertising
each position?

RECRUITMENT and
DEVELOPMENT
COSTS
Cost of advertising
each position?
$0.00

RECRUITMENT and
DEVELOPMENT
COSTS
The value of an
hour of your time?

RECRUITMENT and
DEVELOPMENT
COSTS
The value of an
hour of your time?
$85.00

RECRUITMENT and
DEVELOPMENT
COSTS
Fees paid for
training each
salesperson?

RECRUITMENT and
DEVELOPMENT
COSTS
Fees paid for
training each
salesperson?
$2,700.00

RECRUITMENT and
DEVELOPMENT
COSTS
Average yearly
base salary paid to
each salesperson?

RECRUITMENT and
DEVELOPMENT
COSTS
Average yearly
base salary paid to
each salesperson?
$85,700.00

RECRUITMENT and
DEVELOPMENT
COSTS
Average number
of months worked
before being fired
or quit?

RECRUITMENT and
DEVELOPMENT
COSTS
Average number
of months worked
before being fired
or quit?
09

PERFORMANCE
of KEEPERS
Average annual
revenue per sale
or customer?

PERFORMANCE
of KEEPERS
Average annual
revenue per sale
or customer?
$26,700.00

PERFORMANCE
of KEEPERS
Number of sales
or customers per
month?

PERFORMANCE
of KEEPERS
Number of sales
or customers per
month?
04

PERFORMANCE
of KEEPERS
What is the gross
margin on sales?

PERFORMANCE
of KEEPERS
What is the gross
margin on sales?
30%

PERFORMANCE
of LOSERS
Average annual
revenue per sale
or customer?

PERFORMANCE
of LOSERS
Average annual
revenue per sale
or customer?
$26,700.00

PERFORMANCE
of LOSERS
Number of sales
or customers per
month?

PERFORMANCE
of LOSERS
Number of sales
or customers per
month?
01

PERFORMANCE
of LOSERS
What is the gross
margin on sales?

PERFORMANCE
of LOSERS
What is the gross
margin on sales?
21%

What if you decreased your
sales staff turnover by 30%?

Decreased costs…
$385,452

Flipside…
Before After
Turnover % 33% 23%
…Upside

Flipside…
Before After
Turnover % 33% 23%
Cost of recruiting $1,175,040 $822,528
…Upside

Flipside…
Before After
Turnover % 33% 23%
Cost of recruiting $1,175,040 $822,528
Development costs $109,800 $76,860
…Upside

Flipside…
Before After
Turnover % 33% 23%
Cost of recruiting $1,175,040 $822,528
Development costs $109,800 $76,860
The cost of bad hires $1,284,840 $899,388
…Upside

What’s your number?
#DIV/0!

NO CRYSTAL BALLS
Without accurate
data your analysis
will produce fuzzy
readings at best.
Where are you
getting your
data from?
Can you trust it?

METHOD TWO:
Utility Analysis
Using statistics to
calculate standard
deviations of
performance

A Step-by-Step Approach

1: Rank order, from top to
bottom

1: Rank order, from top to
bottom
2: Tier production levels

1: Rank order, from top to
bottom
2: Tier production levels
3: Assign salespeople to
their appropriate level

1: Rank order, from top to
bottom
2: Tier production levels
3: Assign salespeople to
their appropriate level
4: Establish averages for
each production level

1: Rank order, from top to
bottom
2: Tier production levels
3: Assign salespeople to
their appropriate level
4: Establish averages for
each production level
5: Analyze and work the
numbers

Rank from top to bottom

A typical sales team?
Mary $1,000,000 Sarah $500,000
Matt $900,000 Ester $400,000
Mark $800,000 David $300,000
Luke $700,000 Sam $200,000
John $600,000 Martha $100,000

Tier production levels

Add production from all
salespeople and divide by three.
This yields three break-points that
allow us to divide our salespeople
into meaningful production
levels, or “tiers.”

Mary $1,000,000 Sarah $500,000
Matt $900,000 Ester $400,000
Mark $800,000 David $300,000
Luke $700,000 Sam $200,000
John $600,000 Martha $100,000
Total sales $5,500,000

Add production from all
salespeople and divide by three.
This yields three break-points that
allow us to divide our salespeople
into meaningful production
levels, or “tiers.”
Total sales of $5,500,000 divided
by 3 equals approximately
$1,800,000 per sales tier.

Assign salespeople to
their appropriate level

Mary $1,000,000
Matt $900,000
Top-tier $1,900,000

Mary $1,000,000
Matt $900,000
Top-tier $1,900,00
Mark $800,000
Luke $700,000
John $600,000
Mid-tier $2,100,000

Mary $1,000,000
Sarah $500,000
Matt $900,000
Ester $400,000
Top-tier $1,900,000
David $300,000
Mark $800,000
Sam $200,000
Luke $700,000
Martha $100,000
John $600,000
Bottom-tier $1,500,000
Mid-tier $2,100,000

Establish averages for
each production level

Divide production [within each tier] by
the number of people in that level.
This yields the average production per
salesperson by tier.

Divide production [within each tier] by
the number of people in that level.
This yields the average production per
salesperson by tier.
Mary + Matt = $1,900,000 / 2
= $950,000 average
top-tier production

Divide production [within each tier] by
the number of people in that level.
This yields the average production per
salesperson by tier.
Mark + Luke + John = $2,100,000 / 3
= $700,000 average
mid-tier production

Divide production [within each tier] by
the number of people in that level.
This yields the average production per
salesperson by tier.
Sarah + Ester + David + Sam + Martha =
$1,500,000 / 5 =
$300,000 average
bottom-tier production

Analyze and work
the numbers

Calculate the average production
difference between a mid-tier
salesperson and a bottom-tier
salesperson.

Calculate the average production
difference between a mid-tier
salesperson and a bottom-tier
salesperson.
Using a mid-tier sales “target” provides
a conservative estimate of lost
production.

Calculate the average production
difference between a mid-tier
salesperson and a bottom-tier
salesperson.
Using a mid-tier sales “target” provides
a conservative estimate of lost
production.
$700,000 average mid-tier –
$300,000 average bottom-tier
= $400,000 average production lost
per bottom-tier salesperson.

Multiply this figure by the number of
salespeople in the bottom tier.
This represents the total sales lost each
year by the bottom-tier salespeople.

Multiply this figure by the number of
salespeople in the bottom tier.
This represents the total sales lost each
year by the bottom-tier salespeople.
$400,000 x 5 =
$2,000,000/year

Most people don’t
realize recruiting costs
are more than the
cost of acquisition or
cost of turnover; they
are also deeply hidden
in the cost of variable
productivity.
From the largest
organization to the
smallest, bad hiring
practices tend to
secretly cripple
organizations.

Most people don’t
realize recruiting costs
are more than the
cost of acquisition or
cost of turnover; they
are also deeply hidden
in the cost of variable
productivity.
From the largest
organization to the
smallest, bad hiring
practices tend to
secretly cripple
organizations.

More Number
Crunching
Does anyone
know what the
actual cost of
making a bad hire
really is, huh?
Who is measuring
what, exactly?

More Number
Crunching
Does anyone
know what the
actual cost of
making a bad hire
really is, huh?
Who is measuring
what, exactly?

Calculating hidden costs

Administrative costs:
Discipline and termination
Separation processing

Administrative costs:
Discipline and termination
Separation processing
Vacancy costs:
Open territories
Unsold inventory

Administrative costs:
Discipline and termination
Separation processing
Vacancy costs:
Open territories
Unsold inventory
Replacement costs:
Recruiting and related
Management time

Administrative costs:
Discipline and termination
Separation processing
Vacancy costs:
Open territories
Management time: Unsold inventory
Hand-holding
Less time for
sales management
Replacement costs:
Recruiting and related
Management time

Administrative costs:
Discipline and termination
Separation processing
Team Morale:
Lower achievements
Resentment
Anxiety Vacancy costs:
Open territories
Management time: Unsold inventory
Hand-holding
Less time for
sales management
Replacement costs:
Recruiting and related
Management time

Administrative costs:
Discipline and termination
Separation processing
Team Morale:
Lower achievements
Resentment
Anxiety Vacancy costs:
Open territories
Training costs: Management time: Unsold inventory
Onboarding Hand-holding
Time to ramp-up Less time for
sales management
Replacement costs:
Recruiting and related
Management time

Administrative costs:
Discipline and termination
Separation processing
Team Morale:
Lower achievements Lost opportunity:
Resentment Missed deals
Anxiety Lost business Vacancy costs:
Open territories
Training costs: Management time: Unsold inventory
Onboarding Hand-holding
Time to ramp-up Less time for
sales management
Replacement costs:
Recruiting and related
Management time

Administrative costs:
Discipline and termination
Separation processing
Team Morale:
Lower achievements Lost opportunity:
Resentment Missed deals
Anxiety Lost business Vacancy costs:
Open territories
Training costs: Management time: Unsold inventory
Onboarding Hand-holding
Time to ramp-up Less time for
sales management
Customer costs:
Complaints and poor service Replacement costs:
Lost referral business Recruiting and related
Brand erosion Management time

Administrative costs: Competitive advantage:
Discipline and termination Lower ROI per salesperson
Separation processing Lower margin on sales
Proprietary stuff
Team Morale:
Lower achievements Lost opportunity:
Resentment Missed deals
Anxiety Lost business Vacancy costs:
Open territories
Training costs: Management time: Unsold inventory
Onboarding Hand-holding
Time to ramp-up Less time for
sales management
Customer costs:
Complaints and poor service Replacement costs:
Lost referral business Recruiting and related
Brand erosion Management time

Identifying existing and
potential problems

Top-down and bottom-up
Identifying existing and
potential problems

Questions of perspective
Identifying existing and
potential problems

Organizational dynamics
Identifying existing and
potential problems

Managing crunches, crises
and complexities
Identifying existing and
potential problems

Talent management
Identifying existing and
potential problems

Process improvement
Identifying existing and
potential problems

Benchmarking, audits and
assessments
Identifying existing and
potential problems

Sizing up the organization

1: Understanding the
dynamics of change

1: Understanding the
dynamics of change
2: Flat world attitudes

1: Understanding the
dynamics of change
2: Flat world attitudes
3: Establishing a new
model

1: Understanding the
dynamics of change
2: Flat world attitudes
3: Establishing a new
model
4: Aligning the sales
organization with goals

1: Understanding the
dynamics of change
2: Flat world attitudes
3: Establishing a new
model
4: Aligning the sales
organization with goals
5: Separating the heretics
from the faithful

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
What is “talent?”

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Look at the
recruiting process:

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Look at the
recruiting process:
What works?

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Look at the
recruiting process:
What works?
What doesn’t
work?

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Look at the
recruiting process:
What works?
What doesn’t
work?

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Workforce
planning

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Profiling

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Employment
branding

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Sourcing
strategies

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Screening and
assessment

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Selection

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Onboarding

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Engagement

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Performance
management

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Training and
development

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Retention

ARE YOU A
TALENT-CENTRIC
ORGANIZATION?
Developing a
working model
and systematic
approach…
Succession
planning

Assessing who’s who
and who’s up for change

TALKING THE TALK
WALKING THE WALK

TALKING THE TALK
The Unfaithful
WALKING THE WALK

TALKING THE TALK
Heretics
The Unfaithful
WALKING THE WALK

TALKING THE TALK
Heretics
The Unfaithful Good Soldiers
WALKING THE WALK

TALKING THE TALK
Heretics Champions
The Unfaithful Good Soldiers
WALKING THE WALK

WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…

WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…
Unfaithful?

WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…
A heretic?

WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…
Good
soldier?

WHO IS
YOUR BEST
RECRUITER?
Fill in the
blank…
A champion?

A sales manager’s role
[Why recruiting is a stretch]

Grunt work

Bad economics

Core competencies

Unbundle it

Strategic versus
tactical

Are your sales managers
up to the job?

1. A systematic,
integrated and
routine approach?

1. A systematic,
integrated and
routine approach?
2. Growing the sales
team, raising
the bar?

1. A systematic,
integrated and
routine approach?
2. Growing the sales
team, raising
the bar?
3. Part of the talent
management
continuum?

Standard deviations…

…digging deeper

Uncovering underlying problems…
…digging deeper

Uncovering underlying problems…
Why do underperformers
underperform?
…digging deeper

Uncovering underlying problems…
Why do underperformers
underperform?
Is it a motivation problem?
…digging deeper

Uncovering underlying problems…
Why do underperformers
underperform?
Is it a motivation problem?
Are core behaviors, attitudes and
techniques out of synch?
…digging deeper

Uncovering underlying problems…
Why do underperformers
underperform?
Is it a motivation problem?
Are core behaviors, attitudes and
techniques out of synch?
Are the problems situational?
…digging deeper

Rooting out problems

Investigate

Investigate
Competencies

Investigate
Competencies
Measurable, observable

Investigate
Competencies
Measurable, observable
Relate to job performance

Measuring applicants

Measuring applicants
Tests and simulations

Measuring applicants
Tests and simulations
Behavioral interviewing

Measuring applicants
Tests and simulations
Behavioral interviewing
Targeted Selection

Reversing bad hiring processes and
implementing good ones

Chunking the problem
Reversing bad hiring processes and
implementing good ones

Jumping the tracks
Reversing bad hiring processes and
implementing good ones

Start with the end in mind
Reversing bad hiring processes and
implementing good ones

What next?
Reversing bad hiring processes and
implementing good ones

CALCULATING THE
COST OF HIRING
MISTAKES
If time is money,
the typical
interview is a
waste of both…

CALCULATING THE
COST OF HIRING
MISTAKES
If time is money,
the typical
interview is a
waste of both…
Poor predictor of
performance

CALCULATING THE
COST OF HIRING
MISTAKES
If time is money,
the typical
interview is a
waste of both…
Who is selling who
what?

CALCULATING THE
COST OF HIRING
MISTAKES
If time is money,
the typical
interview is a
waste of both…
What gets
measured and
how?

CALCULATING THE
COST OF HIRING
MISTAKES
Using top
producers as a
model misses
the mark…

CALCULATING THE
COST OF HIRING
MISTAKES
Using top
producers as a
model misses
the mark…
Measuring the
difference

CALCULATING THE
COST OF HIRING
MISTAKES
Using top
producers as a
model misses
the mark…
True or False:
All salespeople
have big heads?

CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…

CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…
Personality

CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…
Aptitude

CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…
Experience

CALCULATING THE
COST OF HIRING
MISTAKES
Measuring the
wrong stuff…
Validated skills-
based and job
related testing

CALCULATING THE
COST OF HIRING
MISTAKES
Getting used
to it…

CALCULATING THE
COST OF HIRING
MISTAKES
Getting used
to it…
Analyzing poor
performance

CALCULATING THE
COST OF HIRING
MISTAKES
Getting used
to it…
Retention
problems

CALCULATING THE
COST OF HIRING
MISTAKES
Getting used
to it…
Understanding
why people leave

Baselines and benchmarks

Profiling
Job profiling

Profiling
Job profiling
Candidate profiling

Profiling
Job profiling
Candidate profiling
Performance profiling

Profiling
Job profiling
Candidate profiling
Performance profiling
Fit

Assessments
Talent management audits

Assessments
Talent management audits
Sales management evaluation

Assessments
Talent management audits
Sales management evaluation
Statistically validated screening

Assessments
Talent management audits
Sales management evaluation
Statistically validated screening
Sales- and job-specific assessments

Accelerate ramp-up
Performance Management

Accelerate ramp-up
Minimize deviations
Performance Management

Accelerate ramp-up
Minimize deviations
Effective management
Performance Management

Accelerate ramp-up
Minimize deviations
Effective management
Growing the organization
Performance Management

What next?

1: Get real about the costs
and consequences

1: Get real about the costs
and consequences
2: Step back and evaluate
your options

1: Get real about the costs
and consequences
2: Step back and evaluate
your options
3: Take a leadership role
and get involved

1: Get real about the costs
and consequences
2: Step back and evaluate
your options
3: Take a leadership role
and get involved
4: Systematically apply
best practices

1: Get real about the costs
and consequences
2: Step back and evaluate
your options
3: Take a leadership role
and get involved
4: Systematically apply
best practices
5: Repeat

Thank you!
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