David Geller: Cost of a Bad Salesperson

Look at how much a poor performer drags you down.

Published in the May 2014 issue

In general, sales staff should cost you anywhere between 8 to 13 percent of total sales. If they cost as low as 8 percent they are very efficient. (Yay!) If they cost about 14 percent of their sales they are inefficient (Wah-wah trombone noise.) You’d like to get rid of the inefficient salespeople, but then you start looking at things like turnover costs, which some estimate as high as half the salesperson’s annual pay.

But I look at what they cost if they stink!

In my store, I had five salespeople all paid on 10 percent commission only, so it was easy to see how much they sold based on their W-2s. My two lowest earners made $32,000 and $41,000, meaning they made $320,000 and $410,000 in sales respectively.

So I gave extra coaching to the $32,000-a-year salesperson to no avail, and I finally let her go. Why? Simple, look at the difference in sales between her sales of $320,000 and the other person at $410,000. She cost me $90,000 in lost sales. That’s a real cost.

When I let her go, the sales staff said, “Please don’t replace her. We’ll take up the slack.”

I didn’t and they did take up the slack. That’s how I look at the costs of a salesperson leaving. If you pay them well and train them, they will stay.

TRAINING

We had one-hour meetings every other Friday morning. We divided the sales meeting into four 15-minute sessions:

• Our price book: Everyone had a price book, brought out a whiteboard for illustrations and started with Page 1 of my book. We went over how we do the work, why we charge this amount, how to sell it and what to say to customers with a price objection. We stopped at 15 minutes, picked up at the next page at the next meeting.

• Product Knowledge: We let the staff sign up to teach the staff about a different product at each meeting. They would tell us where tanzanite, for instance, comes from, its description, rarity, where it’s mined and its characteristics. Then they had to sell one to someone at the meeting. Each meeting was a different stone or maybe about the different kinds of movements in watches, where pearls are farmed, and so on.

• Salesmanship: We used Harry Friedman’s book No Thanks, I’m Just Looking and went over roughly a chapter at a meeting. Order the book here: instr.us/5143, or go to friedmanlearning.com for online sales training.

• Store News: Not store complaining: store news. What’s happening this week in advertising, new products we got in, John’s wife had a baby, sales are only $10,000 away from goal, here are bonus checks for last month. Etc.

To understand the cost of a bad hire, think of your closing ratio.

The average jewelry store in America sells only two to three people out of 10 who come in and look in the case. If your store closes three out of 10, and you could get just one more person to buy, that would be a 33 percent increase in sales without any additional advertising cost. That’s huge. If your average sale is $400 for every three who buy, that’s $1,200 in sales.

If you could go to four out of 10, that would be $1,600 in sales!

Now, if you add to that raising your average sale from $400 to $450 (or get a $50 add on), and you now sell four out of 10, sales for every 10 people who came in would go from $1,200 to a whopping $1,800. That’s a 50 percent increase in total store sales for just getting one more person to buy a $50 higher ticket item.

Huge, Huge, Huge.

Don’t worry about what it costs if an inefficient salesperson leaves. Worry about what it costs if he stays!