Why are three of your nine sales reps delivering 50% of the revenue?
Have you ever noticed that a handful of people in a team typically contributes most of the results? For example, your top 3 sales reps, out of 9, deliver 50%-60% of the revenue. This principle is called Price’s Law. Price, a British physicist, discovered this pattern which was later named after him.
What is Price’s Law?
50% of the work is done, or 50% of the results are achieved,
by the square root of the total number of people who participate in the work.
Yes, only a handful of people deliver half of the results. As a Fractional Sales VP, I have observed this same principle in effect for most of my clients at the beginning of my engagement with them. Without fail, there are often 3 sales professionals in a team of 9-10, contributing well over half of the total revenue.
What are the implications of Price’s Law?
As a business owner, CEO or sales manager it is not only important to be aware of this law, but it is even more important to understand the implications and what to do about it. Here are a few implications to consider:
If one or more of your three top performing sales professionals (out of a team of 9), contributing 50%-60% of the results leave, you will undoubtedly see the impact on your top-line revenue. It is therefore important to make sure you don’t take your top performing sales professionals for granted. Not all sales professionals are created equal. Consider using compensation plans that: a) pay large multipliers for overachieving goals, and b) that pay out a percentage of the commission 6 or 12 months later. This will increase the likelihood of them staying with your company.
It is equally important that you reconsider the rest of the team. The lower performing sales professionals will probably not be looking for other opportunities outside your company and they are probably not being pursued by recruiters. If they are a culture fit for your company, it may be possible to find better positions for them somewhere else in your business, and replace them with more A-players.
Jordan Peterson expanded on Price’s law by saying: “As your company grows, incompetence grows exponentially, not linearly, while competence grows linearly.” Hiring more sales professionals is not going to fix the problem; if anything, it might make it worse.
If you want revenue growth, it is unlikely that you will achieve your desired goal just by hiring more sales professionals, especially by following your current hiring practices.
Let’s address the elephant in the room. I often hear “Replacing non-performing sales professionals is not the loving thing to do. We should give them time to develop and grow.” I will always start by offering coaching and the chance to improve to a non-performing sales professional. But if that does not work, should we not rather consider the risk or impact of the non-performing sales professionals on the other 95% of your employees?
Back to Price’s law…. Dr. Peterson also stated that “There are several things to consider when thinking about performance prediction based on an individual performance capacity. Price’s law dictates that there’s massive individual productivity differences between people so increasing your capacity for predictive performance, even small increments, has huge economic consequences.” All of this is to say that if we are more careful about who we hire, by conscientiously looking for a few of those small increments in performance predictors in one person vs another, it would result in hiring more A-players, which would result in significantly better sales results.
The obvious natural next question would be: What could we do to hire the right salesperson?
6 steps to hire the right salesperson:
1. The Right Strategy
When you drive to a new destination, do you do so without using your favorite navigation tool? Probably not. The only way to get somewhere quickly is by following a map. Likewise, before you develop a job description, start by developing or updating your sales growth strategy. Your sales strategy is your map to success. Only when you have a well-defined sales strategy will you know if you need “farmers” (account managers) or “hunters” (new business development managers) and will you know what performance predictors to look for. And NO, farmers and hunters are not the same, and require different skillsets. As mentioned, “…even small increments in the right predictive performance indicators have huge economic consequences.” Therefore, hiring the right person who is best qualified for a specific position (hunter vs farmer) will have a significant impact on the results.
How confident are you that your Sales Strategy will deliver your desired results?
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2. The Right Experience
Hire someone who can sell things, and has a proven track record. Don’t fall in the “we can train him/her” pit. 66% of companies rate themselves poorly in knowing if their sales training is effective, and 92% of companies don’t provide sales training to address the gaps in their sales competencies. Remember, it takes a lot longer for someone to learn how to be a good salesperson than it does to learn about a product. Furthermore, ensure that the candidate’s sales experience is relevant to your sales process. If you have a long complex sales process, don’t hire someone who has only done short sales cycle transactional sales, even if he/she has overachieved every one of his/her goals for the last few years.
3. Assessment Tools
Use an assessment tool. Did you know that merely using interviews as an indicator of a good employee hire is less than 20% accurate in gauging future success? A pre-employment personality assessment test is a great way to verify that a sales candidate you are considering for hire has the requisite knowledge, skills and dispositions for a sales position.
Validate their track record. Don’t believe everything you read on a resume or what you hear in the interview. Call a few of the reference a candidate provides and ask specific questions to confirm his/her results, behavior and culture.
5. Don’t Settle
I know you want to hire someone quickly, but hiring the wrong person will cost time and money. Remember, it is often much more difficult to fire than hire an individual!
6. Onboarding is Key
Develop a Structured Onboarding Process. 61% of CEOs and Sales Leaders give their onboarding effort a poor rating. Your onboarding is going to make a lasting impression, and will impact whether or not someone is going to remain with the company. If you are able to find and attract A-players, make sure that their first experience with you is amazing.
• You want to achieve big hairy audacious goals, and people are the most valuable asset through which you will achieve your goals. But it is important to recognize that not all your sales professionals are created equal.
• Take care of your top performers, and give them the sales strategy and sales tools needed to deliver their best results.
• Coach, but if that doesn’t work, replace non-performing sales reps by hiring more A-players.
• Face the facts that your current hiring process might have some room for improvement. If it didn’t, you would have had a larger percentage of A-players. Follow the six steps mentioned above to improve your hiring outcome, and with that, your top line revenue.
About Daniel Steyn, the Author
I am an accomplished sales consultant and leadership professional with a proven track record driving top-line results. I am a part of a sub-group of Sales Xceleration Advisors dedicated to pooling our knowledge and expertise to generate insights, tips, and tools to help business leaders exponentially grow their revenue. We are seasoned Executive Sales Leaders who have guided B2B businesses ranging from start-ups to Fortune 500 companies.