Sales Force Turnover: The Crippling Expense Your CFO Doesn t Understand

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1 Sales Force Turnover: The Crippling Expense Your CFO Doesn t Understand Scott Sands Aon Consulting Trends in Sales turnover have been exactly what you would expect 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Source: Aon Hewitt Sales Compensation Survey 2 1

2 Cost There are established theories about ideal turnover levels % 5% 10% 15% 20% 25% 30% Turnover The cost of this turnover can be quantified (here 200 reps, 20% turnover) 4 2

3 Case Study: Raising Pay to Lower Cost Situation: Advertising sales force with 13% CCOS and low growth Turnover was running 50% overall, 75% in the first two years As a result, the company could not grow revenue Complications: CFO wants to lower base salary to reduce fixed costs Goals are being increased to try to drive more growth Sales comp plans were already aggressive mix commission structures 5 Benchmarks made part of the case Role N= Median Base Median Incentive Median Total Actual Comp Pay Mix Survey 50 th Percentile Base TAC Mix TAC % Field Sales Rep 500 $32,000 $54,000 $86,000 38:62 $43,523 $92,651 47:53 94% Telesales Rep 200 $27,000 $36,000 $63,000 43:57 $34,942 $70,606 49:51 89% Key Account Rep 50 $60,000 $70,000 $130,000 43:57 $91,843 $129,688 71:29 101% Product Specialist 100 $38,000 $48,000 $86,000 44:56 $43,333 $97,220 45:55 89% Sales Engineer 300 $40,000 $35,000 $75,000 53:47 $43,333 $97,220 45:55 77% Telesales Specialist 25 $30,000 $15,000 $45,000 67:33 $34,942 $70,606 49:51 64% Sales Manager 50 $83,000 $34,000 $117,000 71:29 $98,977 $147,169 67:33 79% Telesales Manager 20 $74,000 $26,000 $100,000 74:26 $73,298 $97,506 75:25 103% 6 3

4 Compensation Cost of Sale 2014 Turnover % and comparing turnover to market pay made the rest 60% 50% 40% R² = Product Telesales 30% 20% 10% Market Sales Turnover = 18% Product Specialists Field Sales Rep Telesales Reps Key Account Rep 0% 0% 20% 40% 60% 80% 100% 120% % of Market Median Pay 7 This chart, fairly standard for most companies, sealed the deal 300% 250% 200% 150% 100% 50% 0% Tenure (in years) 8 4

5 Case Study: Common needs across demographics Situation: Small businessfocused sales organization Primary role requires strong hunters, but also Emphasis on route, ongoing service and issue resolution Complications: Pay mix is aggressive and below market in many markets Growth plan requires headcount growth Allegations of biased hiring practices exist CEO wants to be a best employer 9 For whom is salary necessary? First Packages - Drivers by Sales Tenure 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Base Salary Quota TTC Less than 2yrs 2-5yrs 5-10yrs 10-15yrs 15-20yrs 20-25yrs Over 25yrs 10 5

6 What salary is necessary? Expense Monthly Annual % Rent - 2 bedroom apartment $950 $11,400 28% Car payment $400 $4,800 12% Food $400 $4,800 12% Clothing $200 $2,400 6% Auto insurance $100 $1,200 3% Gas & maintenance $100 $1,200 3% Healthcare $100 $1,200 3% Utilities $100 $1,200 3% Phone & internet $80 $960 2% Miscellaneous $50 $600 1% 401k $200 $2,400 6% FICA $100 $1,200 3% State tax $100 $1,200 3% Federal tax $483 $5,800 14% Total $3,363 $40, % 11 Why can t we trust exit interviews? They are inconsistently performed They are inconsistently analyzed They are inconsistently replied to They are inconsistently acted upon 12 6

7 Drivers of Turnover Importance of Each Factor in Deciding Whether to Stay in Role or Take Another Variable Incentive Opportunity Base Salary Health Benefits Future Career Advancement Percent of Respondents Retirement Benefits Company Strength Company Culture Paid Time Off Quota Size Sales Training Provided Value of Sales Leads Provided Equity/Stock Grants Recognition Trip Company Car 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Not a Consideration Not Important, but Considered Important Critical 13 Many companies are using engagement metrics to better predict turnover risk GLOBAL EMPLOYEE ENGAGEMENT IS ON THE RISE AND STEADYING FOLLOWING GLOBAL ECONOMIC STABILIZATION North America Europe Asia Pacific Africa/ Middle East Latin America Source: Aon Hewitt Database 14 7

8 There are very specific things driving these changes Senior Leadership (+5) EVP (+3) Manager (+2) People/HR Practices (-5) People Focus (-6) Resources (-7) Despite some steady increases in employee engagement, these trends point to a general work experience of frustrated engagement Largest changes in the North America Work Experience 2013 to 2014 Sense of Accomplishment (-3) Career Opportunities (-3) Resources (-3) Source: Aon Hewitt Database Communication (+8) Customer Focus (+7) Innovation (+6) Senior Leadership (+5) 15 There is some fear about the ability to recruit and retain millennials in Sales Source: Aon Hewitt Inside the Employee Mindset Study

9 Best practice is to move from tail lights to head lights with predictive analytics Process Metrics Efficiency Metrics that are focused on ensuring process efficiency Lower Integrated Outcomes/Metric Effectiveness Metrics that integrate processes/programs and measure their effectiveness in driving the desired outcomes Relative Value to Business Predictive Analytics Future Impact Measures that allow for long term strategic planning and risk mitigation in an organization. This includes scenario planning and development of statistical models to drive decision making in the future Higher HR Process Areas HR Strategy and Management HR Support for the Business Attract & Select Engage & Develop Reward & Differentiate Exit Workforce Administration 17 Predictive analytics can help identify specific employee segments 18 9

10 How are companies curing turnover? Base salary increases Retention bonuses Cash or stock 2-3 year vesting New role or title Achievable goal / richer territory Special project Training & development Recognition 19 Case Study: Creating Sales Chemistry Situation: Large global chemical company had a fairly generic sales force The company had historically been engineering focused To achieve the next level of growth, the firm wanted to build a stronger sales force Complication: The company was losing share in some of the most profitable and fast-growing verticals Sales people felt marginalized Customers were beginning to express very different needs (with different margins) 20 10

11 ISR-T ISR-C CAM-T SE-T CAM-C SE-C NBD-T AM-T NBD-C SAM-C Sales Career Path Example Sales Professional Leadership 7 GAVP VP Sales 6 GAD GAD SE Dir SD 5 Alli. Mgr Architect IS Mgr SE Mgr RSM 4 IS Sup DSS 3 2 TSR 1 Support Support Support Support Inside Technical Field Direct Virtual Dedicated Indirect Hunter Farmer 21 Combine turnover and other metrics CCOS Market Pay Turnover Action Market Pay Percentile L CCOS Low Low Low Hold Low Low High Raise Pay Low High Low Hold H Sales Force Turnover H Low High High Add Staff High High Low High High High High Low Low High Low High Reduce Pay Restructure Raise Talent Transform Sales 22 11

12 Questions 23 12