Sometimes the person that looks like the perfect employee on the resume and during the interview ends up being the worst person for the job. This can happen to every employer. In this post, let’s take a look at the cost of a bad hire and how it affects your business.
When it happens, the employer can either choose to ‘polish’ the person they have and invest a lot in their training or look for an entirely new person for the position. Either way, it’s a bad thing when this happens. You aren’t just losing valuable time, but you are also losing a significant amount of money. This is bad for a company in many ways and, if it happens often, it can destroy your business altogether.
In this article, you’ll learn how much this can cost you and how it will affect your business. But first, let’s get to some actionable data and learn how you can avoid it before it happens.
Also read: What is your work style? | How to answer work style questions like a pro
Did you know that you can avoid this?
Sometimes it is not the choice of an employee that’s the problem, either. It often happens that you cannot get the best from your team because you haven’t offered them the conditions to work at their best. Perhaps you don’t have the right equipment or the right CRM tools that help them organize their work.
This is your starting point.
Once you are certain that you are offering your team all they need to get the job done – and do it well, you are one step closer to employee retention.
However, picking the right people for the job is not an easy task, either.
Very often, the reason behind a wrong choice of an employee doesn’t lie in their false resume information or wrong representation. It lies in the employer. It is the job of the hiring manager to evaluate, check, and determine the candidate’s worth during the hiring process. It’s also their job to make this process comfortable and as effective as possible.
To help you save the cost of bad hires and optimize your company’s profits, we’ll offer you some practical solutions and advice. It all starts with the cost-per-hire formula.
The cost per hire formula explained
Recruitee, a trending hiring software, has created a guide for the cost per hire formula, accompanied by their free calculator to see what your company spends on this. This metric is one of the most important ones for your business since it equals the sum of your recruiting costs divided by the total number of hires.
Basically, this will tell you how much you are spending on hiring and rehiring people, and show you what you can save with the right hiring system. There are many variables to consider here, including the following:
- Employee compensation package. This is the amount of money you are obliged to pay an employee when replacing them.
- Opportunity costs. Ranging from minor to extreme, the loss of opportunities because you failed to hire a good candidate can make a big impact.
- Recruitment and training costs. You’ll need to find someone else, and do it fast. This costs thousands of dollars and takes a long time. According to a Henfield study, hiring a replacement takes an average of 42 days and costs around $4,129.
- Onboarding costs. Onboarding and training a new person after you did the same with the wrong person is only adding to that list of costs.
- Disruption of work processes, incorrectly handled projects, and negative impact on team morale and performance.
- Lost customers because of poor performance. If your bad hire was dealing with customers and failed you with their work, this probably weakened your brand and made you lose some prospective customers. Choosing the right team can significantly boost customer happiness, but just one wrong person can kill the reputation of your service.
If you take the right approach toward this, you can eliminate or at least minimize the number of bad hires. You can do this with the help of Recruitee that helps you build a winning team, automate the hiring process, and evaluate all candidates more effectively.
Checking all those resumes is time-consuming and often results in missing important information. Automating it based on your required features and with the help of collaborative hiring software can maximize your success when hiring qualified candidates.
Also read: How to build a fail proof performance rating system?
The costs and consequences of a bad hire
Recruiting, hiring, and onboarding a new person for a position at your company can cost as much as $240,000 for some companies. Imagine spending this amount twice – or thrice – because you didn’t pick the right person the first time.
Many recruiters don’t realize how much they are wasting by the turnover of employees. Yes, it can happen that you hire the wrong person, but if this happens too often, just imagine the costs that will come out of it!
Nowadays, nearly 3 in 4 employers are affected by a bad hire. This is a business hazard, but it is also something that you can work to improve. Think of it this way – if you realize that a person has the wrong set of skills and no potential to do the job as you want them to, you are already late. Your job as a recruiter is to find a person that you can onboard and train to work well as your company demands.
Now let’s take a look at the consequences of a bad hire.
If you want to make more accurate calculations and find ways to reduce employee turnover, you need to know how this can affect your business. Here is how bad hires impact your company.
1. Low productivity and team morale
Your team won’t like working with a person that can’t or won’t complete their tasks. If your new hire is bad at their job or unwilling to do it well, if they don’t perform well under pressure or are snappy, they can destroy the productivity of the entire team.
A bad hire will almost always impact the work of others. One of the biggest consequences of a bad hire is the increase in anxiety and stress in the workplace. If people in your team all know how to do their work, they won’t be pulled back by someone less competent or stressed out because of their poor performance.
According to London self-storage “…25% of employees are taking days off or quitting their job because they want to avoid conflict. “
So, a bad employee won’t just hurt you with their bad work. They will also ruin team morale and productivity and can result in a higher employee turnover. Surely, you can’t find an entire team that complements each other and finds everyone to be nice to work with. However, even a single bad hire with a bad personality can poison your company’s culture.
Also read: How to Boost Productivity at Work? | Proven ways to increase productivity
2. Customers and clients may leave
Bad hires affect your relationships with partners and customers, too. You can only have a good customer support team if everyone you hired that communicates with your customers does their job well. One bad experience can ruin your brand, and customers won’t like buying from your company if your bad hire offends them, treats them poorly, or does their job badly.
Dissatisfied partners and customers are highly likely to write bad feedback about their experience with your company, which can only make this a bigger problem. One bad employee can cause you to lose many people, not just the ones that they worked with directly.
3. Loss of profits
No matter how you look at it and what you account for it, bad hires always cost money. Sometimes they cost tremendous amounts. If you gather the resources spent to find, hire and train the person, that’s just a small part of what you’re losing.
You’ll be losing customers and other employees, which adds more to the costs. You can lose money on poor manufacturing due to that person’s mistakes. If you keep the bad hire on your payroll, your business can suffer even more.
Truth is, bad hires cost companies a fortune. That’s probably the number one reason why you should work hard to avoid this.
Also read: People Analytics and HR Analytics 101 | Metrics, best practices, software & tools
4. Bad brand image
Rocky Vuong, CEO of Sidepost, says “…brand image is a unique blend of functional and emotional characteristics that consumers perceive as added value, unique experiences, and fulfillment of promises.” Hence, why the reputation of a business is of grand importance for its survival and success in the market. This doesn’t happen overnight. Most businesses work hard for years to establish a good brand image. “
One or a few bad hires can destroy that image and push you backward. You’ll have to work even harder to establish your brand’s image, and it can take forever to fix the mistakes they made.
This is why it is important to find someone competent, and a person aligned with your business goals and needs.
The cost of hiring the wrong person can be very high for a business. It’s not just about the financial costs, either. It’s about the loss of time and the lost brand reputation, or the loss of qualified team members that didn’t want to work with a bad hire.
It’s about time that businesses acknowledge just how important this is, and work harder to find the right people for the positions they are offering.
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