It takes new sales reps one to four quarters before they start to perform at full speed. Thats especially true in businesses that depend on elephant hunting, where the bulk of the company’s revenues come from a relatively small number of big deals. Those big deals take a long time to close, and depend on trusted relationship that take months or even years to build. Understanding this dynamic in a practical and realistic way can save sales executives and their companies from embarrassment and planning fiascos that are virtually impossible to recover from.
The key to planning properly for the New Rep Ramp-Up Effect is a quantified, realistic assessment of what a new rep can actually accomplish in his/her first few quarters. Suppose, for example, that a reasonable expectation for new reps at XYZ Corp. is zero in their first quarter on the job, 50% of full production in the second, and then full production thereafter. Lets further assume that the annual quota for an up-to-speed sales rep is $1,000,000, or $250,000 per quarter. If XYZ Corp. has 6 reps on board and fully up-to-speed at the beginning of 2010, with plans to hire 5 more during the year, heres a realistic assessment of what the sales force can produce:
Just because there will be 11 full-time sales reps on board by the end of 2010 is a terrible reason to commit to a corporate plan of $11MM. The above table suggests that a much more reasonable expectation for the year is $8.25MM. And the situation is even riskier than that: if some of the sales reps take longer to hire than expected, or even worse one of the new hires doesn’t work out and XYZ Corp. needs to find a replacement, thats yet another hit to the company’s ability to make its number. If XYZ Corp. was hoping to set a 2010 plan of, say, $10MM in revenues, they have two choices: (a) increase the hiring plan to generate the additional revenue, and do it soon enough in the year that the additional hires can be productive during 2010; or (b) revise the $10MM plan downward.
I have two principal recommendations for companies staring this sales rep ramp-up effect in the face, especially companies that are depending on as-yet-unhired sales people to contribute significantly:
- Sales and financial management should work together to develop a clear, comprehensible model of new sales rep production, so everyone is on the same page.
- In my last post on this Website, I advocated over-assigning quotas at every management level in the sales organization, to give everyone some breathing room on the plan numbers. The risk surrounding the sales rep ramp-up effect is a great example of the kind of dynamic that makes over-assigning quotas a wise thing to do.