O.R. Applications
Controlling sales force turnover costs through optimal recruiting and training policies

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Abstract

Although some sales force turnover has been shown to be desirable, too high a turnover rate has adverse consequences on the sales organization, is costly, and should be controlled. This paper shows that under typical circumstances, over a certain period of time, no firm can reasonably expect to always have exactly the number of salespeople it desires. In most cases, a firm may have more salespeople than it needs, and bear the associated costs of idle personnel, or too few sales representatives with the related vacant territory costs. This paper shows that (1) these costs are related to the length and costs of new salespeople’s recruiting procedures and training programs, and (2) management can minimize them by devising proper policies about the frequency of new salespeople recruiting campaigns and about the size of the various new recruit cohorts. Data requirements and implementation issues are discussed.

Introduction

Salespeople turnover is a pervasive and costly problem that affects most sales forces (Learning International, 1989; Pinkowitz et al., 1997; Richardson, 1999). Recent research in industrial psychology and in sales force management draws a useful distinction between functional and dysfunctional turnover, depending on whether the departure of salespeople results in a benefit (functional) or a loss (dysfunctional) for the sales organization (see for instance Dalton et al., 1982; Johnston and Futrell, 1989). Another important aspect of turnover does not seem to have retained researchers’ attention yet: As a result of turnover, a sales organization generally cannot keep its desired (optimal) number of salespeople in the active sales force over a sustained period of time. One of the main reasons is that at least some part of the turnover happens unexpectedly. In such occurrence, a sales manager typically does not have enough time to select, recruit, and train a new salesperson just in time for the new recruit to take over as soon as the departing salesperson leaves. In this case, there is a period of time over which the sales force is understaffed, and during which substantial territory vacancy costs are incurred (Richardson, 1999).

Alternatively, a sales manager may decide to deliberately overstaff the sales force, and avoid any territory vacancy. Thus, at any time, a new salesperson is kept ready to take over whenever a salesperson leaves unexpectedly. In this case, however, overstaffing the sales force can also be a costly proposition. In more usual intermediate situations, a sales force is alternately over- and understaffed, and experiences both types of cost over time. In addition, these costs are likely to vary according to the frequency of the hiring and training programs, and according to the number of salespeople in each cohort of new recruits. Consequently, management should be able to exert some control over these turnover costs by devising proper recruiting and training policies.

The objective of this paper is to determine the recruiting and training policies under which a sales force which experiences a given turnover rate minimizes its turnover costs. This paper is divided into three parts: (1) The turnover problem is discussed within the framework of previous turnover research studies; (2) a theoretical model is proposed; and (3) an application is outlined, and the managerial implications are discussed.

Section snippets

Problem setting

Turnover plays a central role in the management of a sales force, and consequently, this problem has been studied by sales management researchers. Sales force turnover researchers have borrowed several relevant results and concepts from related disciplines such as industrial psychology. For instance, many studies have tried to find out the behavioral determinants of the decision to quit (see for instance the critical reviews of Bluedorn, 1982; Mobley, 1982; Locke, 1976; Mobley et al., 1979;

Assumptions

This model relies on a number of assumptions which are briefly outlined below:

  • 1.

    Sales force turnover is assumed to remain constant over some period of time, and cannot be significantly reduced in the short-run. As most actions for reducing turnover are likely to be effective in the long-run only, this assumption should not be too constraining in most sales force situations.

  • 2.

    The target sales force size remains constant over some period of time. In other words, the sales force is not significantly

Data

A large consumer product firm with a 120-salesperson sales force provided the data for this application. In order to protect confidentiality, the numbers have been disguised, but in such a way as to yield the same analysis and conclusions as the actual case study. The company experienced a turnover rate of 36% per year, including a predictable turnover rate of 7.2%. In this company, the practice was to initiate a recruiting program every 2–3 weeks in average. The recruiting program lasted about

Discussion and conclusion

The managerial implications of this study are straightforward. Given the high territory vacancy costs, keeping an average of seven vacant territories over time causes a substantial amount of opportunity costs for this sales force. Because the costs of excess personnel are substantially lower, it makes sense to reduce the total costs by hiring more salespeople than actually needed at each session. Thus, the best policy for this sales force seems to be to organize 6–7 hiring/training sessions per

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