Companies are experiencing pain from the Great Resignation, rising turnover, and teams seeking and paying heightened salaries for A-players. SBI wanted to help leaders assess the cost of sales rep turnover with greater accuracy and determine the best talent strategy for their businesses—build versus buy. We previously released a tool, the Turnover Calculator, which evaluates the total cost of replacing a sales rep with either an internal or external hire
In thinking about the cost of a sales rep turning over, there were three overarching components in the turnover calculator model. The expenses saved, the expenses incurred, and the opportunity cost. Regardless of the number of inputs, whether four or forty, these three components don’t change. Below is a breakdown of the three components.
1. Expense Saved: Employee Salary, Commission, and Benefits
When a sales rep leaves, there is no longer an expense to maintain that sales rep as an employee. savings is most often noticed by the Finance Team and is the silver lining in a sales rep turning over. However, you can see the total impact is often minimal in comparison to the other components.
Savings from a rep departure:
- Base Salary
Sales Rep Salary: $180,833
2. Expense Incurred: Resources, Time, & Money on Recruiting
Expenses are incurred when a sales rep is replaced. From external to internal fees, there are per use and per hour costs for people, time, and processes. You can use a portion of salaries or calculate an hourly base rate per internal resource.
Expenses from a rep departure:
- Headhunter fee
- Internal recruiter
- Sales manager
- Interviewing committee
- Recruiting software
- Posting open jobs
- Onboarding costs - people and tools
- Compensation increases for the new rep
Expenses Incurred—External Hire
Head Hunting Fee: $95,000
OTE Delta $: $30,000
Recruiter’s Time: $5,270
Hiring Manager Time: $32,550
3. Opportunity Cost: Lost Revenue
When a quota-carrying position is unfilled, that is one less revenue generating position. Every moment that job sits empty or a filled with new sales rep that is not fully ramped, revenue is not generated affecting the sales number. This lost revenue is an opportunity cost. Every day it takes to fill the position and fully ramp is lost revenue.
As shown below, the opportunity cost of an external hire tied to having no sales rep or a ramping rep is very high. However, the possible reduction in quota for promoting from within can be a large number as well.
External Hire—Lost Revenue/Opportunity Cost
Empty Sales Rep Seat: $496,000
Due to Ramping Rep: $800,000
Due to Net Revenue Retention: $280,000
Internal Hire—Lost Revenue/Opportunity Cost
Empty Sales Rep Seat: $66,667
Due to Ramping Rep: $83,333
Due to Quota Change: $600,000
Due to Net Revenue Retention: $25,000
When replacing lost or adding new sales reps, organizations tend to look externally assuming that hiring A-players will reduce downtime. However, our modeling shows that in most scenarios it is better to promote from within. Having a bench of junior talent is an investment in future sales to avoid downtime and lost productivity. Based on recent research, SBI has identified that professional development is a key benefit that top-players look for within an organization beyond total compensation. By having a formalized professional development program, your organization has a strong talent acquisition selling point. It will likely decrease overall attrition in the long term setting your organization up for sustainable, predictable revenue growth.
To better understand how to use the Turnover Calculator, and understand the true cost of sales rep turnover, connect with our team.