The 80/20 Rule of Sales & Sales Staff
November 2010 by Dr. Wendell Williams www.ere..net
Imagine you were in charge of quality control, and no matter what you did you still had a problem with 80% of your product. Do you think it would be a good idea to carefully examine raw material quality?
That is a lot like hiring salespeople. You might think 80% of the salespeople would produce 80% of the sales, but that is seldom the case. In most organizations 80% of the salespeople generally produce about 20% of the sales. I know. I was a sales manager for a long time. I was also a sales trainer who used the best-known training and coaching programs I could find. Guess what? I never once saw a workshop or sales manager consistently turn poor salespeople into exceptional ones. It was 80/20 from the day of hiring to the day of firing.
Our organisations might have mastered machines and processes, but overall, they fall short in the human resources department. By that I mean we seldom, if ever, measure accurately candidates for the specific skills they need on the job. Instead, we take their word for it.
That s why sales performance stays at a rock-solid 80/20 ratio.
Aseement: A Part of Evyday Life
People tend to think they are the best judge of other people. Normally, this keeps us out of trouble, but in jobs where specific human performance skills are required, it makes for disaster. Easy to fake pre-hire practices encourages hiring and promoting unskilled people and rejecting skilled ones.
Perhaps you noticed a few misspellings in the title of this section. Based on these errors, you might have jumped to a negative conclusion. Making sweeping assumptions based on insignificant snippets of information is human. If we like candidate X, we tend to assume he or she has positive skills (i.e., halo). If we see small mistakes, or dislike candidate Y, we do the opposite (i.e., horns). Both halo and horns decisions lead to dead-weight employees, abusive managers, and, narcissistic executives, to say the least.
We cannot avoid assessment halo-horns decisions are pre-wired. Have you ever gone on a date? Both you and your date were in assessment mode. Have you ever taken a written driver s exam, eye test, or drove around the block to get a driver s license? You were being assessed. Have you ever taken a certification exam, completed an application, or answered interview questions? You were being assessed.
Forget for a moment the rumor that assessment is a virulent disease that hitchhiked to earth on moon rocks (e.g., I have it on the highest government authority that high-altitude weather balloons were involved); people are in assessment mode all the time. Assessment has been around since God made dirt. It happens every time a hiring manager or HR specialist asks an interview question, chooses a recruiting source, decides whether someone is worthy of promotion, reviews a job application, reads an ad, or checks a reference. Assessment done well is a blessing. Assessment done poorly leeds to organizational disaster.
Sales: The Life Blood of an Organization
Are you doing a good job avoiding sales candidate halo? Rank-order your current salespeople based on personal productivity. Next, subtract the right-time-right-place sales. Did you notice that a few folks produce a majority of the sales? Didn t you expect everyone you hired to be a high producer or at least perform equally?
Productivity differences are often the result of halo decisions. The low producers burn through potential clients and drain cash faster than a career politician. As an example, take a 10-person salesforce generating 5 million in sales. Four folks generate about 4 million and the rest generate about 1 million. Sales costs are budgeted at 10% of revenue, or about $500,000. The top four salespeople earn twice the commissions as their low-producing brothers and sisters. Assuming everything else is constant, we want to discover how much the bottom six sales people really cost.
Start by allocating sales costs by producer; that is, $500,000 /((4 people times 2x) + (6 people times 1x)) = 35.7K. Using this figure, we learn the top sales group costs $285,714 (4 x 35.7K x 2) and the bottom costs $214,285 (6 x 35.7K x 1). Next, we ll calculate sales as a percentage of revenue. Top sales = 7 cents on the dollar ($285,714 expense/4mm revenue). Bottom sales = 21 cents ($214,285 expense/1mm revenue).
Our oversimplified math shows the bottom group costs three times the top group and generates 3 million less revenue. And, we have not even added the cost of recruiting, training, coaching, turnover, lost sales, poor customer service, and so forth.
Seven Steps to Hiring Successful Salespeople
Top salespeople have seven things in common:
1) the ability to quickly build and maintain trustworthy relationships;
2) skillfully asking questions to discover potential problems;
3) making persuasive recommendations and presentations;
4) helping people overcome purchasing risk;
5) having strong motivations to win;
6) willing to put the prospect or customer first; and,
7) doing all these things at the right time. Whew!
Look closely. Can any of these factors be ignored without sacrifice? Even if they could be accurately measured using traditional interview questions, do you expect a candidate to be honest? Suffice it to say unless each factor is thoroughly and accurately assessed pre-hire, we are doomed to be lifetime members of the 80/20 club. Breaking free requires hard-to-fake tests, behavioral interviewing, and simulations.
So are you ready to start hiring top producers? A few readers may say, Yes! , but my experience predicts the majority will be paralyzed by indecision. After all, payroll money does not come out of HR s pocket; low performers are someone else s problem; horns and halo decisions are comfortable; people are afraid they will lose control; filling slots gets more emphasis than hiring qualified people; and, in spite of the rank-ordered facts to the contrary, many sales managers insist they know em when they see em! Meanwhile good candidates are turned away and bad ones are hired.
Is gut important? Of course! The gut is always the final form of assessment but, right or wrong, guts are always 100% convinced of their infallibility. Hiring professionals cannot afford the luxury of uninformed guts. There are good reasons why every organized sports team only hires players who pass tryouts. No skills, no play. The same goes for many other professions where the costs of unskilled people are too big to ignore.
So, unless your organizational objective is to pay for attendance instead of performance, your job is to thoroughly and accurately assess every sales candidate for each of the seven factors. Yes, you will kiss more frogs to find your prince or princess because only one about 1 in 10 sales candidates can perform all seven satisfactorily; however, the newly hired royalty will produce like champions.
One last note: depending on their involvement in the setup process, expect a few hiring managers to override some of your early rejections (e.g., it s not easy to control uninformed guts). But, fast learners don t make the same mistake twice.