The costs of replacing a highly paid employee can be up to 213% of their annual salary. For sales in particular, research has found the average cost of replacing a failed sales hire is $114,957.
With such high costs associated with a single hiring mistake, it’s not surprising that people tend to follow the hire slow, fire fast mantra. But what’s missing from this decision is an analysis of the opportunity costs of not hiring.
What do these opportunity costs consist of? The potential sales revenue and market share you’ve lost out on by not hiring a sales rep. For a startup, the average runway after its last financing round is 20 months. Without sales reps generating cash flow and growth, your company may not survive.
Let’s take a look at the numbers of not hiring a sales rep.
Opportunities costs of not hiring a sales rep
You should be plugging in your own numbers (e.g., annual contract value, conversion rates, average ramp up time, etc.), but for the purpose of illustration here, I’ll be using the numbers from The Bridge Group’s 2015 SaaS Inside Sales Survey of 342 B2B SaaS (software as a service) companies.
Average annual sales quota: $705,000
Average annual contract value (ACV): $13,000
Losses in potential sales revenue
Potential number of accounts lost per week from not hiring a sales rep: 14
Potential sales revenue lost per week from not hiring a sales rep: $14,625
Potential number of accounts lost per month from not hiring a sales rep: 54
Potential sales revenue lost per month from not hiring a sales rep: $58,500
The bottom line
If you’re waiting to hire a sales rep in order to prevent losing time and money to a failed hire, make sure you’re including the opportunity costs of not hiring too (i.e., the costs of doing nothing).
Too much wringing of hands and holding out for the perfect hire for a role is just as devastating as hiring the wrong person—potentially even more so.
Instead of hire slow and fire fast, hire faster using data instead. And when you get the hire part right, the fire part becomes less of a problem.
Have you calculated what the opportunity costs of not hiring a sales rep are? Let me know in the comments.
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