Hiring new sales reps may be the most important decision many sales managers make. If there is a way to do it better, surely it is worth some effort and moderate cost. Online testing of sales recruits offers some major potential gains.

 

 

 First, look at the costs of a bad hire. These costs show up most quickly and most obviously in rapid turnover. Even a $7-per-hour sales clerk who leaves after 90 days can cost the hiring firm from $5,000 to $7,000 in wasted investment for pay, benefits and overhead, and training. Reps who fail can cost their employers anywhere from 30 percent to 100 percent of their first year’s compensation, according to Tim Condon, senior sales VP at Profiles International, a sales-testing firm.

 

 

 Howard Stevens, president of another testing firm, HR Chally Group, estimates that truly bad hires cost companies about 150 percent of first-year compensation, at least in professional sales positions. “You have substantial training expenses; you have a six-month ramp-up period; you are generally paying fixed compensation for a while; and you have managing and coaching costs,” Stevens notes. The wastage can be even greater in such fields as pharmaceutical sales, where product and skill training are lengthy.

 

 

 Stevens estimates that thorough testing of potential hires by validated predictive sales tests can usually reduce turnover by 15 percent to 25 percent. That represents a saving anywhere from 5 percent to nearly 30 percent of first-year compensation – just from reducing turnover. 

 

 

 This estimate does not include the effect of a poor hire on customers. Bad service can drive customers away – often for a long time. When this happens, you lose current sales as well as the future value of these customers. Penalties for poor service can be particularly high in relationship selling, such as life insurance, where direct encounters with customers are key to sales.

 

 

 Then there is the long-term performance of the reps who stay. Every selling organization wants people who will meet or exceed revenue goals. That means you need to look for people who not only can sell but also who fit into the culture of a company and can sell specific products. Condon notes many firms still sell 80 percent of revenue through 20 percent of their reps. What if you could boost that to 70 percent through 30 percent of reps? What if all your new hires sold as well as the top half of your current sales force? How much would that be worth?

 

 

 Hiring reps by doing interviews and checking resumes can be expensive, without yielding much improvement. Unless a rep has a clear track record of performance in a similar sales position, many hiring decisions become a coin toss, in Condon’s view. “Just because they are friendly and outgoing in an interview does not mean they can sell.”

 

 

 Moreover, interviews cost money. The cost is best measured not by the time and compensation rates of the interviewing managers but by the revenue lost by taking their time away from their primary jobs. “You might lose $1,000 in sales by having a manager who is paid $100 per hour do an interview,” Condon notes.

 

 

 Stevens says you should start off with a simple random probability of picking the right candidates, based on initial recruiting and screening methods. This probability could be 50–50, or slightly higher or lower, depending on how well you recruit and screen candidates (and perhaps how attractive your company is to top salespeople).

 

 

 An informal interview will raise the probability of a good hire by only about 1 percent, according to Stevens. A well-planned, structured interview can do better, boosting the odds by 7 percent to 8 percent. A personality test, or what Stevens calls a descriptive test, can add 4 percent to 5 percent to your odds of making a good selection. The big gains come from a thoroughly validated predictive sales test, which Stevens says can boost the odds by 15 percent to 25 percent.

 

 

 Next, look at the money you are already spending to bring a new rep on board. Initial screening of candidates is the least expensive selection step, but it may have to be applied to hundreds of resumes. Interviewing, in contrast, is a major cost for most companies. Valuable manager time must be devoted to interviews, and candidates must be brought to the interview site, often requiring travel from out of the local area. For many professional sales jobs, interviews can cost $1,000 per candidate.

 

 

 Depending on the type of sales job, final background checks can be the most expensive selection step. You don’t need extensive background checks for some positions, such as telemarketers who turn over frequently. For high-level professional sales duties, however, careful background checks are wise. About half of new hires have minor misstatements on their resumes, but roughly a quarter have serious errors that should raise red flags.

 

 

 Light background checks for bad debts, felonies and driving records can be accomplished inexpensively, but some sales jobs require certification or licensing, and thoroughly meeting these requirements can be expensive. In all, it will typically cost from $5,000 to $8,000 to bring on a new professional sales rep, according to Stevens.

 

 

 Adding an online test to the selection process adds only modestly to these costs, and may reduce costs if a more expensive interview step is eliminated. Sales tests are really assessments or evaluations of recruits against the criteria established for each sales position. The result is a recommendation in a hiring process that includes resume reviews, reference checking, application reviews and interviews.

 

 

 Profile offers two assessments for sales positions. The first, called the Profile Sales Indicator, aims to predict behavior and measure cognitive skills. “How can the applicant perform in prospecting and closing?” Condon explains. “Is he a self-starter? Can he work on a team and build relationships? What are his compensation preferences?” The Sales Indicator takes about 20 minutes to complete over the Internet and costs anywhere from $20 to  $89 per applicant, depending on volume.

 

 

 Profile uses the same questions for different clients, but the assessment results are tailored for each sales force. Profile first looks at characteristics of successful salespeople at each client. “For example, at an auto dealer, success might be defined as selling 12 cars per months for 12 months and having no more than two customer complaints per year,” Condon says.

 

 

 Successful and not-so-successful people are given the same test that new hires receive. Profile then recommends candidates whose answers approximate those of successful performers. The report also suggests questions with which to probe candidates in interviews.

 

 

 A longer testing instrument, called Profile XT, looks for additional behavior traits and provides further reports for coaching and mentoring successful new hires. Profile XT takes about an hour to complete online and costs from $75 to $195 per applicant, depending on volume. Per-applicant costs are lower for large organizations that pay fixed fees for an unlimited number of tests. There is also a one-time fee of $500 for setting up a Website for each company’s job applicants.

 

 

 Some Profile clients use only the shorter Sales Indicator or the longer XT version. However, some clients use both, giving initial candidates the Sales Indicator version and finalists the XT version. This two-step process makes sense for firms that invest $50,000 to $100,000 in a high-level business-to-business rep.

 

 

 Chally’s selection test has up to 300 separate questions and takes about an hour to complete online. Stevens argues that reliable, predictive selection tests need at least 200 questions. Chally normally tests three candidates for every sales position to be filled.

 

Usually, there is a monthly fee, and then clients can use the test as many times as necessary. The scores and recommendations belong to the clients and can be used in the future for career development or for assessing the value of the tests.

 

 

 There is a small start-up cost for Chally clients, and Chally establishes a Website for each client and its candidates. Chally offers brief training by phone or Webinar on how to use test results. “The only real time burden on their staff is when they are evaluating Chally and other testing firms,” Stevens says. “Once they have picked one, the time costs are minimal.”

 

 

 How well will all this work for your firm? Chally offers a turnover-cost calculator on its Website to help you estimate what your net gain will be from using Chally tools to refine selection, after paying for the tests.

 

 

 The best corporations track performance of new salespeople against scores on selection tests. Stevens says sales performance usually correlates 20 to 30 percent with results of descriptive personality tests, but up to 50 percent with results of solid predictive testing. No test is perfect, but doubling the odds of a smart selection is a major gain.

 

 

 Case histories of companies using selection tests are a good way to measure their accuracy. Look for reductions in turnover and increased revenue production per rep. The gains to your firm will be different, due to different costs and revenue goals, but the rough proportion of change should be similar, if similar methods are pursued.

 

 

 Profile ran a pilot project in one of nine divisions of a major insurance company. The division had a 34 percent annual turnover rate in its sales, customer-claim and underwriting staff. In one year, adding Profile tools to its selection process, turnover was reduced to 19 percent. There were also dramatic gains in performance by new reps against sales quota. Condon says new assessments and other changes cost the firm less than $1 million, while the gains were worth more than $17 million. It was a no-brainer to take the pilot national.

 

 

 The key to improving employee selection is always having clear and realistic goals. What numbers do you want to boost, by how much? Is it cutting short-term turnover? Is it boosting long-term retention? Is it increasing average revenue production?

 

 

 What are reasonable improvements in these measures? How much improvement can be sought just from better selection? If your product or compensation package is unattractive, it may be impossible to reduce turnover much. One way to estimate reasonable goals is to compare your company with your peers. What are the retention and turnover levels of companies similar to yours in product, market presence and pay levels?

 

 

 “It does not matter how well you select people if you don’t make other appropriate changes,” Stevens emphasizes. “If you do not have a good pool of candidates, it will not matter how you select them. Conversely, if everyone in the pool is outstanding, you do not need to select well.”

 

 

 Neither of these extremes is common,  So the general rule is, make sure you recruit well and broadly, select the best top candidates, then interview intelligently before final decisions.

 

 

 When do you not need to test? Stevens acknowledges that if you are willing to try many people and lose the unsuccessful ones quickly, you can get away with little or no true selection. In effect, the job is the test. But few companies are comfortable with this approach. Most tend to keep even weak performers on too long. This eats up management time, costs at least some overhead and compensation, and gives up revenue opportunities.

 

 

 Stevens sees a place for both the high-power predictive tests as well as the less powerful descriptive, or personality, tests. He thinks that managers should give predictive tests first, to make sure everyone interviewed can do the job. Then he would use personality tests to help the interviewing managers decide their big question: can I work with this person?

 

 

 Indeed, interviews may best be used for this kind of gut-check question. Personal interviews, along with being expensive, are often not good at predicting future performance in highly complex sales jobs. Managers, however, should want to make sure the sales team can work well together.

 

 

Sales testing firms

 

 

There are a number of different firms that offer sales tests, and their tests usually are available online for economy and convenience. Here are a few of the better known testing firms:

Caliper: www.caliperonline.com           

CraftSystems: www.craftsystems.com           

SalesTestOnline.com: www.salestest

online.com       

 

 

Making top reps top managers

 

 

Every sales VP and CEO knows the consultant’s advice: the best sales reps do not

necessarily make the best sales managers. Yet the experience and superb skills of top salespeople are invaluable assets of any sales department. So top reps are frequently the top candidates for management jobs. Best-practice sales strategy must then work to turn them into top managers.

 

 Richardson, a sales training and consulting firm that specializes in boosting the

productivity of both reps and managers, has a new tool that can help. The 360-degree Sales Coaching Assessment and Diagnostic Tool promises to improve sales management skills. New managers (and veterans, too) can get online feedback regarding how their bosses, fellow managers and subordinates, including front-line reps, view their leadership and coaching skills.

 

 The 360-degree assessment is based on 28 specific questions that Richardson

developed over 27 years of research and work to improve sales productivity. The assessment can work on a stand-alone basis or be integrated into Richardson’s overall training program for leadership and coaching. When integrated, the assessment gives managers confidential data on their current skills to help them focus on the areas where they need improvement. A candid assessment of a manager’s strengths and weaknesses by those who know the manager best can also be a powerful prod for motivating change.

 

 

  The key is going beyond the conventional management skills that most good reps pick up on their own. “Turning effective managers into effective coaches remains a challenge for most sales organizations,” stresses Linda Richardson, Richardson’s president and CEO. “Many managers come up through the ranks, and sales skills are their strong suit.

But they need to build equally strong management skills. Feedback on their coaching styles helps open their eyes to the new skills required to improve the skills of their reps.”

 

 

  The assessment by itself is not a magic bullet. Richardson emphasizes that assessment results must be combined with practical training in coaching, a solid training process and specific plans for developing both sales teams and managers.