Poor sales performers kill your revenue

We all know about the 80-20 rule. You know: 80% of your sales comes from 20% of your salespeople, 80% of your profits come from 20% of your customers, and so on. The official name of this rule (yes there is one, this wasn’t made up by the sales manager) is the Pareto Principle, also called the Law of the Vital Few and the principle of Factor Sparsity. In a nutshell, it says 80% of the consequences stem from 20% of the causes. Business management thinker Joseph M. Juran suggested the principle and named it after the Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went to 20% of the population.

The Law of the Vital Few vs the Principle of Factor Sparsity.

I have just read an interesting article on Joseph P. Murphy, a principal and Vice President of Shaker Consulting Group, Inc. Murphy talked about what he called the Performance Variation:

• 20% of your hires produce 80% of your business profits
• 20% of your jobs consume 80% of your staffing budget
• 20% of your candidates waste 80% of your recruiting resources

These are figures I have used a lot in my recruitment seminars, but Murphy struck a chord when he talked about sales. He shared a sales effectiveness study he recently completed for a large client. His client wanted to increase average territory sales from current base of $1,000,000. Like most Sales Managers, this company hoped Murphy could identify what made their top sales performers click.

Murphy however threw a kink into their thinking. It’s not that he doesn’t believe cloning the top 20% would be effective. It’s just that recruiting only the top 20% of candidates is difficult and expensive especially in today’s competitive and short skilled job market. Besides, managing a team of super-stars is a challenge, even for the most adept Sales Manager.

Instead Murphy believes the first step in improving sales performance is reducing the “impact of the bottom 20%.” How many times have I raised this in my sales recruitment seminars! One obvious advantage of this strategy is that it greatly expands the talent pool…. without compromising sales!

Let’s go back to the $1,000,000 average territory sales I mentioned earlier? Well, Murphy discovered, that the average of the bottom 20% was only $300,000 per territory. Yes, that’s right – only $300,000.

By removing the bottom 20% of the sales force and averaging only the sales of the top 80%, the average sales per territory increased 50% to $1.5 million!

If you really want to get your blood pressure up, consider all the recruitment, training, mentoring, coaching and in many cases the personal grievance money you eventually spent on the bottom 20% on top of that million dollars of lost sales from each of the low performers.

This client was scheduled to hire 10 new salespeople over the next 12 months. Based on their current hiring process, the expected result would be $10 million in sales. But by identifying what differentiated the bottom 20% from the top 80%, the average sales per territory increased to $15 million, a 50% increase in sales just by not hiring the wrong people. The lost opportunity gap? $5 million!!

Where do you go from here?

The most obvious solution would be to terminate the lower 20% of your sales force BUT, with today’s employment laws, this is not feasible. The first step is to identify who your top 80% and lower 20% performers are. Next, identify through behavioural, cognitive, values and personality assessments, traits, patterns and trends that might help identify differences between top and bottom performers. In other words, check out the roots. SalesMax is an ideal tool for this process.

Third, create a top AND bottom performer profile and compare candidates to both when screening, interviewing and hiring – interview accordingly. Finally, develop a performance development plan for each low performer, identifying traits and behaviours that might be interfering with their success. I bet this will become a managing out process, because these people will not have the innate personality characteristics to make a career out of selling and no amount of training will fix that. You hired the wrong person and eventually you will part company! Surprisingly, many of these separations are a relief for the Sales Manager AND the Salesperson. Job fit is important to all parties!

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