Let’s assume that you, the owner of the business, have been doing all the sales so far. You have grown as far as you could, your responsibilities have multiplied and you need to manage your team. So you no longer have the time to run after new deals. And you believe that hiring a sales person is the way to go forward. You have just created one of the trickiest situations for an entrepreneur.
Can you afford to hire someone? How much of your annual revenue can you really allocate for sales? You probably do not have a sales budget because you have been doing it all yourself. But you can calculate the cost. Let’s say you pay yourself £60,000 a year and you spend 50% of your time selling and managing your clients. That means your sales effort already costs you £30,000 a year. You can also add additional costs, such as a percentage of your car expenses, client entertainment and phone bills, to complete the picture.
How much do you expect a sales person would bring in? Most entrepreneurs expect a sales person should sell at least as well as themselves, if not better. We have seen that very rarely and only when the sales person came from the same industry, with similar relationships and experience as the entrepreneur. If you can find someone like that, lucky you. Keep that person really motivated to work for you.
Most of the time however, entrepreneurs get someone with less experience and fewer contacts because they cannot afford otherwise. If that is you, lower your expectations now. Do you have the energy and patience to wait for results? It may take anywhere between 6 months to 18 months for a sales person to start bringing in significant clients. If they are fully supported with a healthy pipeline, encouragement and support. If they bring in anything in the first three months, congratulate yourself, you found gold.
Do not dismiss past experience as exceptions because it tells you how realistic your expectations are. Look for patterns. What happened in the past when you hired sales people? How much did past sales people bring in and how? Where from? How long did it take them to sell? Did they first need to manage some existing accounts to get the gist of it before they started selling to new clients? Were sales coming from their contacts, your contacts, incoming calls? How many people were they able to establish relationship with?
Here are some measures to keep an eye on when hiring a sales person.
Sales & Marketing cost as percentage of Revenue – monitor the cost to avoid being drained out. Add all costs that you can identify as related to sales and marketing activities in your business. Divide the total annual amount by your annual revenue. Your sales and marketing budget combined should stay within 10% of your revenue. If you already spend 5% of your revenue on marketing activities, you only have 5% for your sales budget. In other words, you either invest in direct sales (push) or in marketing (pull). You would find it difficult to sustain the financial effort for both and your patience to wait for results gets shorter under financial pressure.
Number of prospects in the pipeline – plan the expected sales effort. How many accounts do you yourself handle in one year? How big is the pipeline you are offering to your sales person? In a B2B environment and contract value of £50,000, a sales person can manage relationships with about 40 to 50 client companies in a year. A good result is selling to 20 of them. Do you have that in your pipeline or do you expect the sales person to build it up from nothing? If you don’t, then increase the expected time for results.
Sales cycle – plan the expected sales effort. How long does it take to close a deal in your company? Do your averages in a year, but also averages per client segment – high value clients tend to take longer. This calculation will give you an indication of how long you need to be patient and support your sales person for. In a B2B environment and contract value around £50,000, the closing time is 3 months for a warm prospect or incoming call and as long as 2 years for a cold call.
Hit ratio – monitor results. In the first year, a new sales person with good results establishes relationships with 1 in 10 prospects and sells to 1 in 20. In the second year, you should expect that the ‘hit ratio’ to go up to 1 in 10. In the third year it could go up to 1 in 5. The best hit ratio is 1 in 3 and comes with longevity: the longer your sales person stays with your company, the higher the hit ratio. If your sales person’s hit ratio is still 1 in 10 after three years with you, providing your services is not a ‘one-off’ and you should be able to retain clients for longer, take a closer look at their ability to form relationships and manage accounts.
Number of relationships within one client-company – monitor results. It may sound funny, but counting relationships help. You don’t want your business to depend on one single point of contact. If she decides on what budget gets to you and then goes away, so does the budget. You may be able to start all over. Or not. It is useful to count how many contacts your sales person establishes to determine their ability to form multiple relationships in an account. If they do, shower them with praise and commissions.
Here are some pitfalls we have seen business owners doing over and over again.
Do not hire someone to sell for you if you are not ready to share your contacts and clients with them. In professional services, no one can start selling ‘cold’ without experiencing first-hand how the service is delivered. Give your sales persons access to incoming calls and existing accounts to manage and then expect them to start selling to new clients. If you are not willing to share, you are setting them up for failure.
Do not hire a sales person on commission only. Anyone who offers to work on commission only is probably desperate and will exit at the first opportunity for a more solid offer, or is not that committed to your business and has something else going on for her. Either way, you did not really hire someone to grow your business, you just went through the motions.
Do not hire a sales person on fixed salary only. We are yet to see someone who enjoys selling not wanting a bonus to celebrate the effort and the success. Create a motivational package with a fixed salary and a commission that rewards effort differently: higher when the sale is harder and lower when the sale is easier.
Pay the commission. Even if you supported the sale or it was an easy one to close. It creates the positive premise for future success and you give the message that you recognise effort. The worst you can do is to get squeamish and start looking for reasons why that was not a ‘real sale.’ There is no such a thing as a ‘real sale.’ If you get cheap, no one will continue putting themselves out there for you to be rejected countless times.
Do not monitor noise, monitor results. Anyone can fake the sales process. Do not count emails, meetings, proposals, or any other similar noises. Great sales people may not even make that noise because they are not in the office – they are out, meeting clients and networking. And great sales people do not like to be asked about their sales effort – they will be the first to tell everybody the good and the bad as they take pride in what they do.
Beware of envy. Your envy. We have seen entrepreneurs who hire good sales persons, let them be until they start striking gold, and then push them out because of ‘personality.’ Or ‘aggressiveness.’ Or ‘lack of team spirit.’
You as the owner of the business are responsible for your sales person’s success. Either you have not chosen them right, you have not given them enough information and support, or you have not paid them right. There is no such a thing as a bad sales person, only badly set expectations.