How much is a bad hire really costing you?
We’ve all heard the shocking statistics that a bad hire costs hundreds, thousands and even tens of thousands of pounds to your business. But do you know the true costs?
A recent report by CV-Library found that a worrying 51.3% of UK companies don’t know their average cost per hire, meaning that they definitely don’t know the costs of a bad one. However, knowing how much an unsuccessful placement costs your business is essential for assessing your resourcing effectiveness and proving your Talent Acquisition Team is a profit-generator rather than a cost centre. So, what’s in a bad hire?
The actual costs of a bad hire
The actual costs of a bad hire are the costs directly incurred and subsequently lost following the departure of a new employee. These can include the obvious costs such as agency fees, advertisement costs, any salary or benefits paid, and the time invested in sourcing, interviewing and onboarding the new employee.
The bad news is that these costs will be incurred again when recommencing the recruitment process. The good news is that some of these costs can be minimised the second time around. For example, you won’t need to spend time writing an advertisement or briefing a resourcing partner, or you might be able to skip the sourcing and interview stage entirely by offering the position to your second choice candidate in your talent pool.
The consequential costs of a bad hire
What’s often overlooked when calculating the cost of a bad hire, are the consequential costs. These are costs incurred as a result of the damage caused by a new employee leaving and can include:
Financial – as well as the costs of resourcing and onboarding, performance management costs are often missed. These are costs around additional training including managers and HR time supporting the ‘bad hire’ and ultimately the cost of time spent in exiting a poor hire and rehiring another.
Engagement – existing employees experiencing low morale because of the disruption caused, the extra work incurred, the loss of time, or even the low morale of the bad hire themselves.
Turnover – low morale can result in high employee turnover, as employees feel disengaged with their work and inclined to “follow the crowd” as doom and gloom infiltrates the business and more employees leave.
Performance – as well as the lower levels of performance of the new hire, with open positions and low engagement, comes decreased performance from other employees. Existing employees either have too much to handle, no one to manage their workload or simply no will to go above and beyond. Oxford Economics reports it takes around 10-20 weeks to reach productivity when a good hire enters a new role in the same sector, and 20-40 for a new hire in a new sector. This level is never reached when we are dealing with a bad hire
So what does this all tell us about the cost of a bad hire? Well this varies greatly between roles and organisations, though the most robust studies show that between 25% – 200% of a salary will encompass all the direct and consequential costs. But it’s not all bad.
The change of a bad hire
Whatever figure you calculator returns, is a figure that’s lost to your business. But that doesn’t mean you can’t get change. Yes, a bad hire is a bad result, but it’s also an opportunity to improve things. Specifically, a bad hire should get you:
- Questioning why – why did your current resourcing processes result in an unsuitable candidate?
- Questioning how – how can you improve your recruitment effectiveness to access a higher-quality and sustainable pool of talent?
- Listening to your employees – asking your employees and hiring managers what should be improved, engaging them in the solution.
- Looking for someone better – using your ‘why’, ‘how’ and employees to transform your resourcing and find a better-suited candidate who can generate better business results.
If you’d like to know more about how Omni RMS can help you calculate the true cost of employee turnover and therefore reduce bad hires and turn that cost into profit, get in touch with our specialist team today.