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What does sales force turnover cost you?

A landmark study of the causes and implications of sales force turnover


In 1989, Learning International sponsored the first major study of the extent and causes of sales force turnover in the United States and Canada. Some of the results of the study, summarized in this report, provide valuable insights to management on: * how salespeople feel about their

jobs, * why salespeople leave their jobs * what management can do to

improve sales force retention

and, more specifically, * what role training can play in

reducing turnover.

Why examine sales force turnover? Because we suspected that turnover among sales professionals was a costly and pervasive problem. And we were right. Our study showed that 27 percent of all salespeople left their job in 1988. And for many companies, the impact of that turnover was devastating -- to client relationships, company image, and profits. Just consider the fact that it costs a company nearly $40,000 every time a salesperson leaves and a new one has to be hired.

It's true that many managers have come to accept turnover as endemic to the sales profession -- an "eternal" problem with no real solution. But this study suggests otherwise. Among other conclusions, the study reveals that sales force turnover may be strongly related to job dissatisfaction and that the causes of this dissatisfaction can be addressed.

What causes sales people to become restless and leave? For the most part the complaint is not linked to compensation or the products or services they sell. The main disincentive, they say, is the lack of support they receive from management in helping them prepare for and carry out their responsibilities -- both to their company and to their customers.

One solution: a more systematic management strategy to provide salespeople with the fundamentals they need to perform their job effectively. Sales training is one integral part of this strategy. This study shows conclusively that training not only gives salespeople confidence but also contributes to their job effectiveness. Most important of all: Salespeople themselves view training as a key to overall job satisfaction.

What do managers think are the causes of turnover? Few admit that their high turnover rate may be related to their company's management policies. Most, in fact, say that turnover is imply the natural consequence of a healthy and expanding economy. One in ten managers said that today's economy is more competitive, making it especially difficult to keep good salespeople.

But do sales managers really believe that management bears little or no responsibility for turnover? It's unlikely, because when turnover rates decline, it's management who takes the credit. Proof: When those managers reported that their turnover rate was declining, the four explanations they cited most frequently related to management policies and practices: better recruitment methods, better management leadership, better sales training, and better pay.

The Impact of Turnover -- Both Good and Bad

"If turnover can help you get rid of somebody who's hurting your reputation, then it's a good thing. But it costs a lot of money -- to recruit, train, and supervise somebody new -- and it usually demoralizes the rest of the staff."

-- Marketing vice president,

$500-million life insurance company

Some of the managers interviewed for this study said that turnover can be beneficial: It enables them to weed out nonperformers or bolsters the experience level of their sales force by allowing them to hire more knowledgeable people.

But the vast majority of the sales managers (72 percent) said that turnover is detrimental to their business. Customer relationship, potential new business, and morale are just three areas that suffer. The most serious consequence of all, one in four managers agreed, is that it costs a company a great deal of money.

The average corporation loses five salespeople a year -- an investment of $100,000 -- and spends another $100,000 to hire, train, and supervise their replacements. Hence, the direct cost of turnover could run to nearly a quarter of a million dollars a year. And half of all sales managers believe that these costs will rise dramatically over the next few years.

How do managers plan to reduce these costs? One-fifth were at a loss to come up with any solution. The contention: Turnover simply "cannot be reduced." Another 13 percent were confident they will try to "reduce turnover somehow," while 15 percent said they plan to improve their screening practices. About 20 percent of the managers said that the best way to reduce turnover costs is to improve their company's sales training programs.

Most salespeople, appear to be highly satisfied with the quality of the product or service they sell (87 percent), the reputation of their company (87 percent), and the quality of their firm's customer service (79 percent). And salespeople seem to be moderately satisfied with their company's aftersales service (64 percent), compensation package (57 percent), and "recognition" practices (57 percent).

Salespeople are least satisfied with the quality and attention given to items that help them prepare for and carry out their job: sales tools (47 percent), sales incentives (41 percent), and sales training programs (33 percent).

Why Salespeople Leave Their Jobs

"Why do people leave? They're unhappy with management in general. They aren't paid enough, and the work load is too great."

-- Vice president of sales

$700-million publishing company

When salespeople were asked why they leave their jobs, many gave the standard answer: "compensation." When salespeople were questioned further, however, money didn't emerge as a key factor. When asked specifically how they'd like to see their current job improved, for example, "better management support" was the response given by one out of three salespeople, more than twice as many as those who cited "better compensation."

Sales Training: A Key to Job Satisfaction and Effectiveness

"We don't have formal training in this company, and I wish we did. It's something you can't get enough of. It would make everything easier -- for our customers as well as our company -- if our salespeople were better trained."

-- Business development officer,

$250-million banking and financial

services company

Two-thirds of the salespeople in this study who participated in a formal sales training program said that the experience was "extremely important" or "very important" in contributing to their sales effectiveness .

What does training do for salespeople? "It helps give me confidence" was the number-one answer. Among those with no training background, 83 percent predicted that training "would help me perform my job better." And the study bore them out. About half the salespeople who participated in training reported that they exceeded their 1988 quota, compared with 42 percent of the group with no training.

The impact of training on job satisfaction appears to be equally as strong as its impact on job performance. Proof: Salespeople who've undergone training rate their company higher -- in virtually every category -- than do untrained salespeople. What's more, the differences in satisfaction ratings between the

two groups is greatest in precisely the areas cited by all salespeople as being the most deficient -- sales training, sales tools, incentive programs, and management policies.

But given the status of training in most U.S. and Canadian firms, this desire is bound to remain an unsatisfied one -- at least for now. Over three-fourths of all the sales managers interviewed said that the kind of sales training offered by their company is essentially "on the job," with nearly half reporting that this is their primary method of training new salespeople. And only 45 percent of all the corporations surveyed said that they currently offer formal sales skills training.

Salespeople are quick to judge the training they receive. When asked to indicate how happy they are with their company in a variety of areas, salespeople rated their firms lowest in sales training. And of those who said that they see room for improvement in their company's training program, the largest percentage said that what they want is more training.

The findings strongly suggest that training can be more fully exploited as a means of reducing turnover, in that it has a positive effect on both job performance and job satisfaction.

What Can Be Done?

The survey findings suggest that turnover is a bigger problem than many managers realize. In addition to the obvious cost, inconvenience, and disruption caused by a salesperson's departure, the sales organization faces the insidious risks of strained or severed customer ties, damaged company image, and organizational upheaval. These are strategic issues for a company that depends on a high-performing sales team to win and retain customers for the long term.

What can be done to reduce -- if not eliminate -- the problem of unwanted sales force turnover? Listed below are guidelines for managers and their managers. Some may seem basic; others are self-evident. The survey results reveal that, in many companies, in-attention to the basics has contributed to turnover problems that could have been avoided.

Sales managers' guidelines:

* Sales managers interviewed for this study mentioned that stronger recruiting and hiring practices could go far to lessen turnover. Being more systematic and thoughtful about identifying a "most-likely-to-succeed-here" profile helps increase the likelihood of a productive match of salesperson to company performance standards. * A productive, motivated sales team cannot function without high-quality information. Sales managers need to communicate their company's performance expectations, both short- and long-term. With that strategic back-drop, they need to discuss with each rep exactly what is expected of him or her. The discussion should include not only the obvious quota expectations, but also what is expected in each rep's dealings with customers, inside and outside the organization. * Remove obstacles that prevent reps from fulfilling their role. Impediments may involve the quality of support from other functions, especially the all-important customer service department. Other obstacles: a lack of technical support throughout the sales process, insufficient competitive information, and inadequate skills or product knowledge. * Consider utilizing technology and sales tools that lead to efficiency in the sales process: car phones, automated order processing, front-log systems, etc.

Organizational guidelines:

* Reexamine your compensation and reward systems: Do they motivate to achieve? Salespeople and top management have always had incentives to perform. By creating incentive systems for the functional areas that work with your sales organization (e.g. research and development, marketing, and customer service), you can drive organizational goals as well as improve support for your sales team. Possible tactics include compensation or incentives for increased productivity, improved skills, or decreased costs. * Build a strong sales management team. In today's competitive climate, sales managers must be highly skilled at juggling organizational goals, marketplace demands, and sales team needs. To equip them for the demands of the job, identify potential sales managers early in their careers. Support them with leadership and skills training. Finally, make your sales managers aware that piloting corporate strategy to the marketplace ultimately depends on their ability to develop their salespeople's careers.

Use a worksheet to find out what turnover is costing your company. First, estimate the immediate damage sustained every time a salesperson leaves. This includes the loss of business from clients annoyed over disrupted service, or clients who simply refuse to work with anyone new.

Next, assign a dollar value to the productive time lost while the job is left open. Example: If your average territory brings in $250,000 a year, you're losing about $5,000 a week, minus any salary or commissions you'd normally pay.

Now add up the expenses associated with hiring, selecting, and training a new recruit and then calculate the revenues that won't be coming in because your new hire isn't up to speed. (Hint: On average, new employees lose about five months of productive work time during their first year on the job. But you might want to base your calculation on a figure more appropriate to your business.)

Finally, enter the administrative and secretarial expenses that turnover incurs then multiply the sum of all these variables by the number of salespeople who leave each year.
COPYRIGHT 1990 Canadian Institute of Management
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Publication:Canadian Manager
Date:Jun 22, 1990
Previous Article:Total quality: a strategy for organizational transformation.
Next Article:Sales, customer service: perfect symbiotic relation.

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