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

By Adam Robinson,
August 19, 2016


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 be costly: The U.S. Department of Labor estimates that the average cost of a bad hiring decision can equal 30 percent of an individual’s first-year potential earnings.


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 turnover.


 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 a 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. 


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? Fine-tuning your hiring and onboarding process can save you valuable money and time in the future.


Don’t let the cost of a bad hire slow your business down. Click on the link below and see how Hireology can help save you money and time with a smarter hiring process. 


About the Author

Adam co-founded Hireology with the mission to help growing companies make better hiring decisions through data and better technology. Adam is passionate about entrepreneurship, donating time to a number of organizations that support the entrepreneurial cause. Adam completed his undergraduate study at the University of Illinois at Urbana-Champaign, and received his MBA from DePaul University in Chicago, IL.

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