Money Matters: The Real Cost of a Bad Hire

Did you know the cost of recruiting, hiring and onboarding a new employee can be as much as $240,000? Most of us don’t realize the amount of resources wasted by the turnover of one single employee. And it happens more than we think: nearly three in four employers (74%) say they’ve hired the wrong person for a position. 

We’ve talked about how you can make the best of bad hires and make good ones, but let’s talk about the math involved. 

Crunching the Numbers

Hiring a bad employee will always remain an issue alongside employee turnover. Other times, it’s inevitable: an unexpected situation happens in someone’s life or they have to move to a different town or country. Regardless, it’s expensive and there are numerous variables to consider:

There are clear “price tags” on certain factors such as the employee’s compensation package, recruitment, onboarding and training costs to hire a replacement, and lost revenue. But there are other more implicit costs such as opportunity costs because you failed to hire a better candidate, the negative impact of bad hires on team performance and morale, and the value of disruption of work processes. 

Maybe the position heavily emphasized group work but the hire was a poor communicator or wasn’t good at teamwork. In this case, situations like that don’t go unnoticed by the team. It can make them not want to work with the hire, lowering productivity more than only one underperforming employee would. Finding a good hire to make up for it all isn’t easy nor cheap either. According to a SHRM study, the average cost-per-hire is $4,129, and it takes 42 days to fill a position. 

Bring Out Your Calculator

Because there are so many variables, the best way to figure out the potential cost of a bad hire is by calculating it yourself.

  1. Multiply the hours that all the hiring team spent reviewing resumes, conducting interviews, and other related work, by their hourly pay. 
  2. Add the cost of advertising for the position.
  3. Add the cost-per-hire of the different software tools you’re using. 
  4. Add the sum to the cost of lost productivity. 
  5. Add the monthly compensation package of the bad hire, multiplied by the number of months they’ve spent at the company. 
  6. Add the cost of the days spent on onboarding and training.

And there it is. Bear in mind this only covers the basic costs and there might be other expenses to consider. If you’re looking for a ballpark estimate, 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.

Don’t Pay for Bad Hires

Most cases of a bad hire can be avoided by well-trained professionals, equipped with the right recruitment tools. A CareerBuilder survey shows some interesting statistics about what made employers make the wrong hiring decisions: 33% of the employers who recruited a bad employee say they knew they didn’t have all the right skills, but they thought they could learn quickly. 30% wanted to fill the role quickly, and 29% were focused on the candidate’s skills, overlooking their attitude. This can all be avoided.

There’s a lot of pressure, but don’t let the cost of a bad hire slow your growth and business. Be thorough with your candidates just as you want them to be with their work. You can use an array of tools and tests to evaluate your candidates. Taking the time to develop a process that is dedicated to looking for people with the skills you need and have the desire to work for you will help you save time and money in the long run.