Ep 42: True Cost of a Sales Person

BuzzSprout Audio

“Consider this a purpose-driven understanding of what a salesperson costs… If you have got a ramp-up plan, great! Define it. Define what that 30, 60, 90 looks like. What do they accomplish at each level? What is a milestone? What is a true takeaway at 30 days? Test, a quiz, whatever you want to do to make sure they are on track to button up the exact time frame or close to it that you believe it is going to take them to ramp up.” – Taylor Barnes



Josh Sweeney: Hello, I’m your host, Josh Sweeney. I’m joined by my co-host, Taylor Barnes. Taylor, how are you today?

Taylor Barnes: I’m busy with the calculator, Josh. I’m busy because I got all these people and I know what the salaries cost me but I don’t know about any of the other costs because I’m not educated enough. And that’s what I want to talk about today.

Josh Sweeney: Yeah. I mean, it’s crazy. You hire a salesperson and, all of a sudden, you’re spending way more money than you thought.

Taylor Barnes: Exactly. How did this happen?

Josh Sweeney: So, that’s our challenge today and that’s our leader challenge, Sales Leader Challenge. Salespeople cost more than I expected. Question mark.

Taylor Barnes: Yes. Is this true?

Josh Sweeney: Right. Question — yeah. A little uptick at the end of that. Huh?

Taylor Barnes: That’s right. I’m Ron Burgundy?


Challenge Illustration

Josh Sweeney: Yes, you are. So, why does this happen? Why do salespeople cost more than what we expect?

Taylor Barnes: Well, I mean, I’ve been here a million times. You really look at the salary and maybe the comp or a combination and that’s where you stop. So, we don’t research past the salary and comp a lot of times to consider what the salespeople really cost us. Now, there’s a million things that we could go into and we’ll talk about that when we go into the solutions, but if you were looking at the individual and you were saying this individual is going to cost me $50,000 a year, 20 percent more in health and benefits and I know that right off the top my head, okay, got it, let’s stuff it in the P&L and we’re good to go. Wrong. That is not what it costs you. So, that is number one, Josh. We don’t research past the salary and comp. And I want to ask you this because I know that you’ve — I know that you’ve gone over this so many times because you deal with so many organizations that are like this.


Challenge Follow up ( I too have been through this… )

Josh Sweeney: Talk to me about the management time. People never consider that.

Josh Sweeney: This is a great one. I was actually talking with a prospect about this the other day and they’re like, “Should I hire some salespeople? Do we use your services? How do those work together?” We’re just going through the ins and outs and I said, “So, here’s the challenge. If you do hire salespeople,” which I think eventually you should have your own salespeople, right? You should have a sales team. “Who’s going to manage them?” And they’re like, “Oh, yeah, that’s no problem. We’re gonna hire three and we’ll put them in this office and that’s not a — no big deal,” and I’m like, “Okay. Well, that’s the number one indicator that you haven’t really worked with a sales team —” 

Taylor Barnes: Exactly.

Josh Sweeney: — because management time is way more than what you would expect. And I think we talked about this on a previous podcast too. You know, I interacted with somebody and they’re like, “Well, we only have three SDRs so we really don’t need a manager,” and I was like, “Okay, let’s run through the management time. So, who’s gonna listen to their calls and coach them on what they need to know?” Because SDRs are normally a first sales job, right? It’s not a senior level salesperson. Now, there are senior SDRs and there’s paths for that, but, most of the time, it’s an earlier sales role. So, who’s going to coach them on what to say? Who’s going to look at what they’re doing and make sure that they’re on brand and on point? Who’s going to check all the sales activities every day to make sure like, hey, if you expected them and you had a sales contract with them, saying, “Hey, you’re gonna do 120 outbound e-mails and 60 sequences and everything a day,” who’s going to manage that? Because if it doesn’t get managed, it doesn’t get done.


The leaders challenge/purpose

Taylor Barnes: Right, agree with you. And people look at the SDR example that you just illustrated, I see a lot, and what they will say, the hiring manager or what have you or whoever’s stuffing this idea in the P&L will say, “No, no, no, they’ve got some peers they can train with. No, no, no, they can just do some peer-to-peer training. We’ll put him at her desk or her at her desk and they’ll be fine.” Let me explain something to you. Josh just said that is their first job. That is a very early sales job. Would they need more guidance than working with a peer-to-peer in that SDR example, but even outside of that specific SDR example, across the board, no matter what it is, especially, and I’ve seen this so many times, if you were going to hire a salesperson and you were expecting any sort of upgrade or any sort of culture upgrade or anything like that, why would you put that individual with someone that has already been in your organization for the last 10 to 12 years? It’s just not going to work. What you’re going to get is more of the same. Management time is required. Now, what we can get from that is, you know, some results or whatever, but, specific to this topic, the management time relating to this, what is your hourly rate? Think about it like that. What is your hourly rate as a manager or what do your managers constitute as their hourly rate? Build that in. If you think it’s going to take 50 hours, 60 hours, whatever it is, that is opportunity cost, ladies and gentlemen. You have to build that in when it comes to this. And also, Josh, I think a lot of this comes into the training, the ramp-up time, the ROI, etc. I know you see this all the time.

Josh Sweeney: Yeah. I mean, you just highlighted all of the management time issues, right? You have to carve that out if you want somebody to get going. But then, like you said, you have the training. Is that person they’re sitting with really a trainer? Do they know how to train another salesperson?

Taylor Barnes: Exactly.

Josh Sweeney: Just because they can sell doesn’t mean they can train somebody else.

Taylor Barnes: Well said.

Josh Sweeney: And then you get all kinds of bad habits, right? Like, “Well, this is how we do it,” you know? Or, “This is how I do it.” It’s like, well —

Taylor Barnes: Yeah.

Josh Sweeney: — you know, they’re gonna get the bad habits from that person too.

Taylor Barnes: That’s right.

Josh Sweeney: But, yeah, the ramp-up time is a big piece of this. You know, one thing I did some research on is the average tenure is 1.8 years right now. And if you think about it and say, “Okay, well, a sales rep is really up to speed and really knows how to do their job after 90 days,” they’re really already a good portion through their tenure at your company.

Taylor Barnes: Good point.

Josh Sweeney: So, the ramp-up time is actually even more important. How quickly can you ramp them up? How quickly can you train them?

Taylor Barnes: Yep.

Josh Sweeney: And that causes a big challenge because now that’s, again, an additional cost that wasn’t expected.

Taylor Barnes: Now, let me ask you, that 1.8, just out of curiosity, is that specific to sales or is that what you’re seeing across the workforce?

Josh Sweeney: I think that was an industry across the workforce —

Taylor Barnes: Wow.

Josh Sweeney: — type of model. It would be interesting to see it in sales, that might be long for sales in some cases, I don’t know, or short.

Taylor Barnes: Or, hell, it might be a lot shorter. I think you and I were talking about the organization the other day that specifically does churn and burn and expects the crop to rise, the cream of the crop, whatever that is, whatever that saying is. That’s something that blows my mind. And I think that’s a really good thing for people to take away here. If the average is 1.8 and you think it’s going to take 6 to 12 months to ramp up, buyer beware. I mean, that’s a long time, right? So — and, look, if that’s the way it is, okay. Just be aware of that. Be aware of the cost and the risk associated with that and make sure, in that same regard, that, and this is just another reason I think this happens is people might project 90 days, Josh. They might say, “It’s gonna take 90 days to ramp up. It’s gonna take 120 days,” or they have absolutely no idea and they guess, which is even worse, and it takes longer. And then they look back and they go, “Oh, my gosh, I’ve spent $10,000 a month, all things included, on this individual and it’s been nine months, I’m 90 grand in the hole, I’ve got nothing to show from it,” right? “How could this be? I thought their entire salary was 50 grand,” right? This happens all the time. And so it’s really important not just when we’re talking about researching past the salary and salary and comp, the management time, the training, but unrealistic expectations to return on investment, ROI, I think is another big one.

Josh Sweeney: Yeah, most definitely. I mean, if you’re projecting they’re functional in 90 days and they’re not, then when we’re looking at like the ROI and setting expectations on a sales rep, why do they cost more? Well, the lead-up time to their first deal close was longer than we expected, right? If you look at a salesperson as a P&L, then you have all of this outlay of capital and the longer that goes out, the longer it takes to recoup that capital —

Taylor Barnes: That’s right.

Josh Sweeney: — so if you thought they were going to close their first deal in 90 days but it was really 6 months in, or 12 months in, well, that was all a cost and now you don’t even recoup that money.

Taylor Barnes: Yep.

Josh Sweeney: Going back to the 1.8, if you just paid for $100,000 sales rep, let’s say, over a year, and they only last two years and they close their deal after the first two months, you may not even recoup your money when they close, you know, the next few deals.

Taylor Barnes: Right.

Josh Sweeney: The numbers literally just don’t work. So, just having unrealistic sales expectations.

Taylor Barnes: Yeah, yeah. And some side stuff, the stuff that comes along with the hiring that people forget, such as, man, I really forgot that individual needed an ERP license, I need to add a license to my enterprise agreement. Oh, my goodness, I forgot that individual that I hired for sales needs a CRM license. I forgot about — oh, wait a minute, they don’t come with a computer? They don’t come with a laptop? They don’t come with a mobile phone? All this hardware they need in order for them to do their job successfully. I mean, all the travel expenses. If I’ve got a pharmaceutical rep that’s going around selling, I’ve got gas and mileage and T&E and per diems. Oh my gosh, I forgot — I thought I was just paying the guy or girl 40 grand. No, no. You’re forgetting about all the stuff that comes with the rep. So be aware of the stuff.

Josh Sweeney: Yeah, “the stuff” is a good way to put it because it just piles up. I know, we ran the numbers one day and we said, for every new person we hire, we give them like a stand up desk, they’re on a new, you know, Mac, 24-inch monitor, everything’s ergonomic, off the desk, like we want to give them a really good environment and have a great culture and feel like, “Hey —

Taylor Barnes: Yeah.

Josh Sweeney: — I know you’re going to be here 8 to 10 hours a day. You’re going to have at least the best hardware you can so that you’re not fighting your laptop all day because it’s a piece of junk.” Right?

Taylor Barnes: Right.

Josh Sweeney: Well, we calculated that each new person is $2,000 of outlay just for equipment right out of the gate. Like you said, there’s all kinds of stuff that comes into play.


Taylor Barnes: What you just said is something that I think everybody should take away. The stuff Josh had an example that each new individual cost 2,000 bucks outlay originally. Now, if you’ve got a depreciation schedule, which I hope you do with capital assets and all that, fantastic, but don’t misconstrue that. That is $2,000. That’s a cost, okay? That’s going to happen. I think we’ve done a pretty good job at explaining a lot of the reasons this happens. Getting into the solutions, Josh, you said, if there is a P&L for the sales rep, give us a practical solution when it comes to kind of building out a P&L for a sales rep.

Josh Sweeney: Yeah, so P&L is maybe overkill for an individual person, right? We usually do those for your companies, but it’s really just understanding. The thing about the P&L is what are they going to cost? So, for example, there are some general numbers out there. An employee costs either 1.1 to 1.3x their salary just to bring on board with just FICA and matching and just other general benefits, like just HR benefits. We’re not even talking about the laptops and things like that. So, there’s some numbers you can run to understand that. The P&L also will get everything — and it gives you a good plan too of what all you need to have. So, you know, do you need to have their swag and their business card and their laptop ready? What all do you need to purchase? What is that going to cost? What are the software licenses? And then, with the P&L, the best thing to do is to ramp that out over 12 months where you say, “Okay, what is the average sales cycle?” And, you know, you really have to go in and know, is your average sales cycle 90 days or 120 days and what does that give me, right? And the P&L gets you away from hopes and dreams and back to reality a little bit where you know, okay, they’re 30 days before they even really start selling anything and then they start working with a lead after 30 days or two weeks or whatever your ramp-up time is and then 120 days from there, they close their first deal. Well, now, you really know what the economics of an individual sales rep is. And then you know how to go to repeat that. So, if you have success with them, you know what the next one looks like. It really gives you an idea of the capital outlay and when it’s going to come back into the organization.

Taylor Barnes: Yeah, I think that’s great. I think another solution, just intention. We talk about this all the time. What is purpose-driven sales? Well, consider this a purpose-driven understanding of what a salesperson costs. If you’ve got a ramp-up plan, great. Define it. Define what that 30, 60, 90 looks like. What do they accomplish at each level? What’s a milestone? What is a true, I don’t know, takeaway at 30 days? A test, a quiz, whatever you want to do to make sure that they’re on track to button up the exact timeframe or close to it that you believe is going to take them to ramp up. So many times, at least what I see, Josh, you know, a lot of organizations say, “Yeah, it takes about 180 days. Yeah, it takes about 90 days,” and they’ll say that and every day will be something new and they’ll just kind of wing it. They’ll be like, “Yeah, we’re gonna put this girl with this other lady and it’s gonna be a peer-to-peer review for the next week. I’m going to put this SDR with the salesperson just so they can see what a sale is like.” Oh, what am I going to do today? Maybe I’ll put them with HR. Maybe I’ll put them with marketing. And it’s completely winging it. If you’ve got a real 30-, 60-, 90-day ramp-up plan with specific KPIs, milestones, accomplishments at each step of the way and, look, if it’s right or wrong, at the end of the day, you know, that happens, but at least it will solidify a repeatable process to get them up and ramped as soon as possible.

Josh Sweeney: Yeah, most definitely. And, I mean, the whole purpose is also to set those expectations. So, by this date, week number 3, we’re actually going to put you on the phone. You’re only going to do five calls though, right? Here’s what you’re gonna do. And because you’re only doing five calls on that week, we’re going to go ahead and schedule somebody to sit with you. We intentionally know who’s going to sit with you, how we’re going to do it, why we’re going to do those things, and then really figure out what that ramp-up plan looks like and how can we accelerate that, right? So, I think that leads into the next thing around training.

Taylor Barnes: Yeah.

Josh Sweeney: How does a ramp-up plan overlap with training and then what are some of the solutions — we’ve talked about this before. A lot of people think of this as training is this work you have to do to get together all these documents and videos and sitting with people but there’s lots of other hacks for that. So, what are some training solutions we have for salespeople?

Taylor Barnes: Well, I mean, a lot of times, and I’ve seen managers do one of two things most of the times. Most of the times, they’re either hands on with every single aspect of training or they’re just completely hands off and expect the peer-to-peer kind of review and training to work. So, what I would say is find a balance. When you as a manager or as a sales leader, when you can delegate different training sessions to team members, then do it but do it with intention. Schedule it. Make sure that him or her have got, you know, full focus on what that’s going to be. Make sure that your stakeholders and your other team members expect it coming. One of the worst things in the world that I see a lot of times is a manager will walk a new employee up and down the aisles and introduce him or her, which is great, and then they’ll be like, “You’re going to sit with John today,” and John has no clue that’s coming. Okay, all right. That happens all the time. I saw that — literally saw that the other day. And I’m saying you have to be intentional about that. So, first off, understand what needs to come from you, understand what you can delegate from different team members, stakeholders, perhaps, others that have a subject matter expertise that need to make sure that someone knows. Be intentional about delegating and leveraging others. And, Josh, I think this applies to you a lot of times, I think there’s other ways to leverage potentially a partner or a vendor and utilizing their training platform to kind of speed up the process.

Josh Sweeney: Yeah, most definitely. Like I know we’re HubSpot partners and one of the first things you do in our organization is when you come in, you get a HubSpot certification and then you have multiple certifications you’re getting over the first 30 days. So we’re spreading out the video interaction, we’re spreading out just the heads down view of a laptop versus the interactive pieces where you’re training with somebody else on the team in a given area, but there’s lots of ways to leverage that. Like I was talking to another company the other day and they were having some challenges, they’re like, “You know, we got to take on these people but we can’t get them up to speed because everything we’re doing is so nuanced,” and well, I went to ’em and said, “Well, you guys resell this solution from all of these other vendors and partners. What videos do they have?” And we sat down and we even went on YouTube and like all of the early training around that industry were perfect videos. It was like, hey, all these other large companies posted on YouTube and we’re like, hey, here it is. Here’s what this is. Here’s what that is. It’s like, hey, sit them down and have them go through those. Your training videos are already out there on YouTube. You just didn’t think of that because you didn’t create it. You don’t have to create it. There’s other people that are really good at that.

Taylor Barnes: Exactly. And, side note, who knows better than them, right? I mean, we could sit here all day long as a supplier or a reseller, maybe you’re in distribution in pharmaceuticals, whatever business you’re in, there’s a lot of things that you can say about a product. A lot of things you can say about a technology. But I bet you can’t say as much as the people that have the product, own the product, and the people that have the technology and own the technology and built the technology. So, I see this all the time. People and organizations and sales leaders don’t look to a supplier, a vendor, an OEM, a partner, whatever it is, to provide training on their behalf. And it’s 1,000 percent included with their partnership, right? So people always try to say, “Here’s HubSpot, here’s what it is, here’s what it does,” and then I remember, wait a minute, someone knows this better than me. Someone has to know this better than me. And you look at subject matter expertise internally the best you can. Look to the vendor. Look to the OEM. Look to whoever actually is the supplier of whatever you’re using, and 9 times out of 10, they’re going to include that, because it’s in their best interest too. They’ve got skin in the game naturally. Why don’t you lean into it?

Josh Sweeney: Yeah, most definitely, and just to bring this back to the original challenge of salespeople costing more than you expected, if you can get them up to speed more quickly, then the ROI is faster, right? The return on your investment is faster. If you can train them more quickly, if you can leverage other training where you don’t have to spend the money to create the training from scratch or only certain portions, all of that changes the true cost of the salesperson for your organization.

Taylor Barnes: Yeah, well said. What are some ways that you can accelerate the process that will cost you nothing? What are some of those ways? Think about that. That example that we just brought up is a great way. Lean on other subject matter expertise, lean on your partners in order to do that. That will cost you nothing.

Final Question

Josh Sweeney: Yeah. So, our final question today is, are you calculating the true costs so that you don’t put unrealistic expectations on your new sales reps?

Taylor Barnes: And this has been Purpose-Driven Sales with Barnes and Sweeney. Now, go lead on purpose.

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