What does it cost a company to hire the wrong person? You may have heard that the cost of a bad hire is astronomical. When a recruitment firm argues that the cost of an executive role can be as much as a million dollars, you may roll your eyes.
This isn’t hyperbole. Companies do lose thousands, sometimes millions, of dollars hiring bad candidates. With a hiring shortage, the desperation is running thick and hiring managers may be even more inclined to send an offer letter to the first person that looks in their direction.
Most companies don’t know the full cost of the turnover. If you make a bad hire, there is a ripple effect that can be prevented if the right resources are utilized.
One report from the CEO of Link humans put the average cost as high as $240,000 in expenses. This is for your typical role, but this cost increases when you bring on executive talent.
To truly calculate how much your company is losing you need to factor in several things:
- HR costs
- Recruitment (internal or outsourced)
- Job posting
- Candidate screening
- Background checks
- Compensation for time worked
- Training
- Software integration for role
- Corporate equipment and credentials
- Recruitment advertising fees and staff time
- Relocation and training fees for replacement hires
- Negative impact on team performance
- Negative impact on clients/customers
- Staff that quit as a result of the bad hire
- Outplacement services
- Severance packages
- Litigation fees
These costs rack up fast. It’s bad when it’s just one bad hire… but imagine messing up on multiple candidates. It’s not pretty.
Luckily there are a few things you can do to avoid these fees.
The first is to create a standardized interviewing process that is focused on two things: speed and efficiency. You want a hiring process that is fast enough that the best candidates don’t drop out but simultaneously eliminates those that aren’t qualified. Ahead of time, you should have a hiring timeline mapped out. Figure out who on your team NEEDS to interview the candidate. This process needs to be streamlined, so if there are unnecessary parts of your hiring process, you can eliminate them. Example: Assessment tests, HR interviews and fill-in-the-blank job applications. (That’s not to say that these tools aren’t useful for certain roles, but it’s better to eliminate what isn’t necessary.) Companies are five times more likely to make a bad hire than those that do have such a process. So be prepared.
Second, when you want to find the best, you need to partner with a recruitment firm. Sourcing, vetting and screening candidates are their specialties. This will take the heavy lifting off your team so you can solely focus on the interview. Your recruiter is your strategic advisor… which is important in an increasingly competitive market. They can give you the tools to refine your hiring strategy and they have access to a database of quality candidates. Don’t waste your time taking shots in the dark.
So, in conclusion, sometimes a bad hire is unavoidable and sometimes it’s not. Treat recruitment with the reverence a company-altering decision deserves, and your company will reap the rewards in the long term.