Calculating the Cost of a Bad Hire – What’s Your Formula?

If you’ve been in business for a while, chances are you’ve made at least one hiring mistake you wish you could take back. Whether a new employee was a complete disaster or just didn’t live up to expectations, a poor fit can cost your business time, resources, and of course, money.

When hiring is rushed, it’s easy to pick the wrong individual for a role. They may have all the qualifications you’re looking for, but the culture or company values, or even the team structure may not be a match. Here’s a breakdown of the true cost of a bad hire. 

The negative impact of bad hires

As you think about the expenses associated with bad hires at your company, there are a number of factors you may want to take into account. Among them:

Poor employee morale

According to small business owners surveyed by staffing firm Robert Half, the biggest impact of a bad hiring decision is lower staff morale. Employees who have to work with less-than-stellar new colleagues can easily feel frustrated having to deal with behavior issues or unsatisfactory work. Often, employees have to pick up the slack for underperformers, which can create resentment and even an increase in turnover. And long term, this can reflect negatively on your employer brand, making your next hire even more difficult to secure.

Lost productivity

People who aren’t fulfilling their job responsibilities can stall key projects at your company. It only takes one bad hire who doesn’t meet deadlines or quality expectations to cause slowdowns in the entire work process on a team. You’re not only losing productivity from that one person but the rest of the team falls behind, too.

Management time

Most companies don’t fire bad hires immediately, unless it’s a severe situation. Instead, managers typically spend a lot of time trying to help new hires get on track, meeting frequently with them to offer guidance. Managers may also have to spend additional time reviewing the underperformers’ work to ensure it meets standards — time that could have been devoted to bigger priorities.

Financial losses

If you’re paying for someone who isn’t doing their job properly, you’re losing money. It doesn’t matter if it’s the receptionist who isn’t keeping up with responsibilities or the salesperson who isn’t selling, you don’t want to be paying for work you’re not receiving.

Damaged customer relationships

Your company’s reputation is built largely upon how your employees treat others. If a new hire is rude to customers or doesn’t follow through with promises, you can lose business and you may not always be able to repair the damage done.

Recruitment and onboarding costs

Hiring and training employees is a long and expensive process. Think about the money spent on job ads and recruiters, not to mention the time involved in screening applicants and then onboarding them once they’re hired. Few managers want to repeat this process soon after thinking they’ve successfully filled an opening, either. 

The cost of a bad hire

The U.S. Department of Labor estimates that the average cost of a bad hiring decision can equal 30% of an individual’s first-year potential earnings, and according to CareerBuilder, the average cost of one bad hire is nearly $15,000. Whether you’re a small business or a large corporation, that’s a big chunk of change. But there are ways to avoid making a bad hiring decision. 

How to decrease bad hiring decisions

As you think of the cost of bad hires at your company, don’t forget to reflect, too, on what you can do better next time around. What were the missteps that led to the poor selections? Here are some ways to make sure your next hire sticks.

Clarify expectations to candidates: Your hiring team should set the candidate’s expectations from the get-go. The initial phone screening should include alignment on salary, as well as making sure the candidate understands what will be expected of them in the position.

Ensure a good culture fit: It’s important to outline the culture of your company on your career site so that your company values are clear to everyone that applies. That way, you can weed out those that aren’t a good match without having to interview them.

Effectively onboard: A quality onboarding experience can make all the difference to keeping employees around. Glassdoor research found that companies with a strong onboarding process improve new hire retention by 82% and productivity by over 70%. That’s huge for your bottom line.

Remain competitive in your market: Offering competitive benefits, salary, and growth opportunities to your employees is an easy way to make sure you’re keeping the best team around. 

As we adjust to the effects of the pandemic and companies resume hiring, selecting the wrong person for an open position may happen out of sheer haste. Don’t let the cost of a bad hire slow your business down — see how Hireology can help save you money and time with a smarter hiring process by requesting a demo now.



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