Performance Sales Best Practices
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3 Sales ROI numbers that are killing your business

Andrew Ford
By | High Performance Sales Tips, Sales Metrics, Sales Strategy, Sales Team Management | August 26, 2014 | Comments (1)

What is the average tenure of the salespeople on your team today?

In the SME market the overall average is 2.5 years. Are you doing better than that?

How about the ramp up time for a new salesperson to hit target productivity?

Most B2B companies expect the salesperson to take between 6 and 12 months to hit this run rate.

What is the contribution margin (CM) in your business from a salesperson on plan?

A good rule of thumb is a target CM ratio between 3 and 5 to 1. In other words, with a $50,000 salaried salesperson, in a business with 45% margins, we need about $65,000 in margin to break even on the salesperson investment in salary, commission, benefits and T&E (approximately $150,000 in revenue). Therefore, with a 5/1 ratio we would expect an on-target salesperson to deliver approximately $325,000 in annual contribution margin (this creates a quota of $1,000,000).

If we use the example above, the monthly CM is $27,000 from a salesperson hitting their monthly quota run rate. That number is the target sales return on investment (sales ROI) for the sales role in this example.

Calculating the real impact of a 6 month ramp up and 2.5 year tenure on sales ROI

SME’s struggle to get their teams of 4 or 5 salespeople solidified. Usually they have one or two that have got past the 2 year mark, but are constantly churning through the people in the next two or three positions.

Inside of this churn are salespeople that are missing the mark on their CM target – they are not even coming close. We emphasize “not coming close” because, surprisingly, many SME’s will keep salespeople who are delivering as little as 25% of their target CM, and many of these same salespeople will stay at that level too (we will save that for another blog). In other words, the churn is on salespeople doing even worse than this modest contribution. Whether termination is voluntary or imposed, the salespeople leaving have been under delivering for a while on their target ROI.

Filling the open territory

Now the replacement cycle begins, and the opportunity cost meter is clicking at $27,000/month.

Recruiting

Average Recruit Time = 3 months. Opportunity Cost = 3 x $27,000= $81,000.

Ramp up to productivity

At some point in the average 6 to 12 month ramp up the salesperson will begin to contribute margin, just not the target margin; therefore, after the new sales rep is in the job there is a further opportunity cost equal to the difference between the target CM and the ramp up CM.

The real return is well past target productivity

Unfortunately, getting the replacement salesperson in the territory to the target CM does not actually reach the hoped for ROI until the hard costs of the under producing salesperson replacement have been recovered. As mentioned above, for many SME’s this biannual churn between 40% and 60% of their sales team has been going on for years! Such teams never deliver the target sales ROI! This is madness, and it has to stop. Unfortunately too many companies, and the vendors that serve them, are treating the status quo as adequate, and the focus on the recruiting/on-boarding cycle as a transaction that demands costs are driven down. This approach is a death spiral for sales team ROI.

No matter how it is sliced, the impact of 2.5 year average tenure and 6 to 12 month ramp up is killing the ROI in today’s sales teams.

Getting it right demands an investment

Yes, the point here is that shortening ramp up times and extending the average tenure demands a greater investment in recruiting processes, on-boarding formulas, salesperson development, and improved team performance. However, the status quo is costing a lot more than this investment, and today’s normal is impeding the growth of virtually every business that does not have an average tenure past 4 years and CM ratios between 3 and 6/1.

Watch for the upcoming webinar series – Stop the madness: How to build a sales team that delivers results for life

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