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Seven Reasons a Nominal Turnover Rate is Healthy

By: J. Mark Davis, Managing Principal, Valitus Group, Inc.

At a recent conference panel discussion I attended, the CEO of a rapidly growing business services company said that one of his company's key performance metrics is employee turnover. I didn't find that surprising as many companies keep a watchful eye on turnover - particularly voluntary turnover. However, the CEO went on to say that his company's number one goal - above all else - is to have zero employee turnover. As he went on to discuss the various programs they had in place to help facilitate the achievement of that goal, I thought to myself, "Why would you want to aspire to that?" Good thing I didn't share the podium with him as I would have been obliged to challenge the notion that zero turnover is necessarily a good thing. I maintain it may not be. As food for thought, here are seven reasons why a nominal amount of turnover is one sign of a healthy organization.

1. Internal business environments change - When business objectives change, they often beget changes to the go-to-market strategy, which may beget changes to how selling roles and their success requirements are defined. Yesterday's prototypical sales rep will likely not be the same as is required today or tomorrow. One example I've seen is the salesperson that has lower-tier accounts pulled out of the territory to be handled by an indirect channel partner. Now, in addition to continuing to handle the larger accounts on a direct basis, the sales rep must also manage an indirect channel partner to ensure proper coverage of the smaller accounts. Not all sellers can handle such a blended role.


2. Customer buying preferences change - When customers change the way they prefer to buy from their vendors, this, too, can speak to a difference in sales person skill requirements. These may include a new product qualification process or vendor proposal process. Salespeople who don't respond well to customer-imposed changes are likely to cause another type of turnover - the customer variety.


3. Businesses mature - As an organization evolves from the start-up and volume growth phases to business maturity in its natural life cycle, the aggressive new account seller who in the early days thrived in an ill-defined, cold-calling environment is likely not well-suited to the more structured existing account management role in a mature business.


4. Salespeople don't change - You may have long-tenured salespeople who have grown stale in their role because they simply lack an orientation for continued learning and growth. A client I worked with some years ago faced this challenge with their long-tenured sales force (they averaged over 13 years of service). Many of the tenured salespeople weren't technologically proficient and were greatly resistant to becoming so. It made the introduction of new technology-based selling tools, such as e-mail and CRM software, quite difficult.


5. Salespeople do change - In contrast to the prior example, some salespeople will naturally outgrow their assigned role, making a job change imperative for continued productivity. These evolving sellers will need a new opportunity to match their expanding skills, either with their current employer or with a new one.


6. Guarding against underperformance - One of the most obvious challenges to the idea of limiting turnover is when underperformers are allowed to hide among the ranks of those who are pulling their own weight. In a normal distribution of performance, one would typically expect five percent of the sales force to fall below established threshold performance levels (i.e., the minimum level of performance required to earn incentive pay and, ultimately, keep one's job). Despite the best recruiting and training practices, eventually any sales force will have its underperformers who need to be counseled into another job opportunity.


7. Avoiding excessive compensation - When compensation is above competitive norms, it can cause disgruntled employees to hang on longer than they would otherwise. This can be particularly true for the marginal performers who realize they can't match their current pay elsewhere. I've interviewed countless salespeople over the years and have commonly found these individuals. They're neither fully engaged nor very productive, but the high pay they know they can't replicate numbs the pain of a fundamentally poor fit. If you have incredibly low turnover, it may be time to analyze the competitiveness of your cash compensation levels.

In summary, there are many reasons a nominal amount of turnover is to be expected. When analyzing your turnover experience, rather than focus on a total turnover number, segment your turnover analysis to better assess where and why it's happening (e.g., voluntary vs. involuntary turnover, high performers vs. under-performers, highly compensated sellers vs. lower compensated sellers, as well as by role and geography). Yes, the cost to replace a sales person is often considerable. However, it can pale in comparison to the longer term opportunity cost of lost customers or under-producing salespeople who, for everyone's sake, need to move on.