The True Cost of Poor Hiring Decisions and How to Avoid Making Them

Recruiting top talent is a priority for growing businesses, but the hiring process is complex. Occasionally the wrong person is hired for a job, a misstep that can be costly on many levels.
An incompetent employee might be arriving late, calling in sick or wasting valuable work time, always looking for shortcuts. They might even be rude to other team members or customers. Once business owners recognize these telltale signs, their next thought is typically: how much is this bad hire costing the company?
The true cost of a poor hire can be difficult to measure, mostly because there are so many direct and indirect factors to consider. Let’s dig into the details.

The Direct Costs of a Bad Hire

The cost of a bad hire varies depending on the industry, location and job position. Senior-level positions or those requiring very specialized knowledge usually involve a steeper cost, especially when those opportunities are in larger cities. However, industries with high turnover (such as retail, customer service, construction and hospitality) also pay a price.
According to economic studies, roughly one-fifth of workers voluntarily leave their job each year, and an additional one-sixth are fired or let go involuntarily. To replace these people with better-suited employees, companies can expect to pay between 16-21% of an employee’s annual salary. At an average cost per hire of $4,129, that’s a lot of lost revenue! When considering the monetary consequences of a bad hire, remember all the price tags associated with each step of recruiting a new employee—everything from advertising, interviewing and screening.

Costs of Advertising Job Positions

Some job boards can be costly, but just as advertising your business will help it achieve more visibility, advertising open job opportunities is important. It increases the likelihood of the right fit seeing the opening and applying, so it is often a necessary investment.

Costs of Interviewing Candidates

Interviewing candidates can be time-consuming, so be sure to factor in the salary of the hiring person (or team) and how much time they’re spending on recruitment. According to the Society of Human Resource Management, it takes roughly 42 days to fill a job position. Arranging in-person meeting times are complicated by schedule conflicts, distance and time zone differences. This sometimes means sky-high travel costs, one of the most expensive parts of the hiring process!

Costs of Screening Applicants

Since time is money, screening applicants is another cost for companies. However, conducting criminal background checks and reference checks to verify claims on a resume (education, previous employers, etc.) is crucial to reduce the likelihood of making another hiring mistake. What do other people have to say about those you’ve interviewed? Listen and learn.

Costs of Training Replacements

Once you’ve finally hired a replacement, the direct costs of a bad hire shift to onboarding the new employee. This might include helping cover relocation costs. It will involve extensive training to get the replacement up to speed on the company and the ins and outs of the job, which usually involves the time of several individuals. New employees cost more than they are earning for the company; it can take weeks for new hires to reach full productivity.

The Indirect Costs of a Bad Hire

If all the direct costs associated with a bad hire haven’t caused you to reevaluate your recruitment strategy, the indirect costs should help sway you. Aside from the obvious financial consequences, a bad hiring decision also “costs” businesses time, productivity and morale. These things are very difficult—if not impossible—to reclaim.

Costs of Low Productivity

Lost productivity is rarely isolated to the incompetent employee. It spreads to other employees who wonder why they’re working so hard while that individual is getting away with doing so little. Managers end up spending extra time mitigating conflicts and disciplining employees rather than focusing their attention on more productive, profitable aspects of their job. Once time is wasted, no amount of money can get it back!

Costs of Low Morale

There’s no denying that a bad hire brings down morale. Bad employees negatively affect the rest of the team, often resulting in a domino effect. They might influence the opinions of other people at work, causing them to consider finding a job elsewhere. Even after a bad hire is dismissed, good employees usually resent having to take on more work, even if this is a temporary measure. High turnover makes people wonder what’s wrong with their place of work.

Costs of Bad Publicity

If a disgruntled employee chooses to publicly rant about your company, they make you out to be a bad employer, and that may persuade other (more competent people) not to apply for open positions in the future. Worse yet, bad hires may even cost you valued clients, either through poor customer service during their employment, or by defamation afterward. This jeopardizes your brand’s reputation and your revenue potential.

Hire the Right Employees with the Right Technology

So, what’s the return on investment (ROI) of a hiring decision? That is, what’s the meaning of ROI in recruitment? How can you increase the likelihood of hiring someone who’s worth their salt?

Thankfully, with help from the right technology, bad hires can be avoided. Technology like Njoyn and VidCruiter helps hiring managers reduce the cost of poor recruitment and selection by simplifying and streamlining the hiring process. Contact us today to schedule a demo.

This article is courtesy of our partner, VidCruiter. To learn how our integration speeds up your hiring process, click here.