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Jan 15, 2019

How Much Will a Bad Hire Cost You?

Bad hires come onto the scene and can wreak havoc on a company’s structure, team morale, and budget, leaving the remaining leadership to scrape together the pieces. It’s no mystery that a bad hire can be costly for a company of any size, which is why it is important the leadership team understands the full extent to which a bad hire can damage a company.

This article breaks down the effects of bringing the wrong person in to fill a position, how to calculate the costs after the fact and alternatives that can lower the risk of bad recruitment decisions.

Consequences of Hiring the Wrong Person for the Job

It is not always apparent at first glance what the consequences of hiring the wrong person for a job are. Initially, a business owner might believe that a bad hire only hits a company’s wallet, but the cost of hiring a bad fit goes much further than a monetary loss. The cost of a bad hire can be split into three major areas, some less obvious than others:

Monetary Loss

A monetary loss is inevitable. The recruitment fees associated with bringing on new employees can be costly and the need to pay them all over again for a replacement hire only adds to the hit. There are a number of monetary related losses that accrue over time due to a bad hire. You’ll understand this more in the “Calculating the Cost of a Bad Hire” section below.

Company Culture Hit

Bringing a person into a leadership role that is a terrible fit for the company’s culture can leave the company feeling the tremors of their presence long after they’ve left.

There is a possibility that when the team morale takes a hit, valuable employees may decide to move on to other opportunities. This will leave the company looking to replace not only the bad hire but the employees that left because of them.

Beyond this is the possibility that a company’s brand image could be tarnished due to the bad hire. If clients become agitated due to the employee’s incompetencies or behavior, a company could lose valuable clientele that may not return even after the bad hire is terminated.

Lost Time

This mainly refers to the time that employees in charge of recruitment spent on hiring efforts and time spent by the bad hire on projects that are abandoned halfway through upon their termination. You can never recuperate lost time.

While a company can nurture its brand image back to health over time and make up for monetary losses, time is not something that can be returned.

Calculating the Cost of a Bad Hire

A bad hire causes a ripple effect through an organization resulting in extensive costs that may be difficult to completely calculate. The US Department of Labor shared that the cost of a bad hire was in the range of 30 percent of the employee’s first year of earnings, however, this will fluctuate depending upon the level of the employee. Executive positions will claim a higher percentage of costs than an entry-level position.

According to EBI, new hire training costs alone will cost an average of $984 per employee and before that, there are the recruitment advertising costs to consider, which can average about $293 for each hire.

While these are just a few of the major areas to take into account when calculating the cost of a bad hire, there is a myriad of other costs that can range depending on the company and the situation. The bottom line is that while the monetary losses are evident, the consequences of a bad hire can stretch much further than recruitment and training fees.

A few overall variables that should be considered when calculating the cost of a bad hire are:

  • Fees associated with recruitment
  • Lowered team performance and morale
  • Payroll of hiring managers
  • Relocation and training costs to bring on a replacement
  • Negatively effective brand image
  • Displaced and incomplete projects
  • Lost clients in some cases
  • Outplacement services
  • Litigation fees

How Often Do Hiring Managers Bring on A Bad Fit?

74 percent of employers admit to hiring the wrong person for a job according to a survey conducted by CareerBuilder. That is nearly three-fourths of employers. This staggering statistic gives a good reason for employers to be wary of the hiring process and to proceed with caution.

Hiring the wrong person is a costly mistake to make and one that cannot be undone with a back arrow or a refreshed screen.

Internal recruitment efforts can result in bringing an employee on to the team that does not work well for the company culture and needs. Considering the cost and time commitment of doing all recruitment internally, it is exponentially more painful when that employee turns out to be a bad fit.

With all things considered, employers are left to wonder how they can secure a foolproof hiring process that doesn’t result in wasted money and a blow to company culture.

How to Use a Search Firm to Guarantee a Good Hire and Sometimes Even Save Your Company Money

It’s worthwhile to consider outsourcing recruitment of a key hire to a professional recruitment firm in an effort to secure a better fit for your company with the help of hiring experts. This can help you get a better fit, while also reducing the likelihood that you will have to pay the costs associated with a bad hiring decision.

Check out our ‘Executive Search Firm Checklist’ to help answer your questions and point you in the right direction. You may also get in contact with us today to begin your journey to hiring the right c-level employee.

 

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