The Cost Of A Bad Hire

Hiring can be one of the most important decisions a manager will make that impacts a business.  However, more often than not, an employee resigns, and they end up hiring under duress.  Instead of taking the time to use a process to find a great candidate, a manager will quickly hire someone without a thorough vetting process.

This significantly increases the possibility of a bad hire. The cost of a bad hire is not just the time it takes to make a great hire. It is the hiring cost plus other soft costs that a manager might not consider when they feel like they have limited time to make a hire. Often, what happens is they don’t do the math to consider the longer term impact of a hire that is not a good fit. These costs can be called measurable and immeasurable or hard and soft costs.

Studies have been conducted over the years that illustrate the measurable and immeasurable costs of hiring a person who does not fit the position, the manager or the company. According to a U.S. government study, the costs could range between 2 to 3 times the annual salary for the position. 

However, according to Bradford Smart, author of Topgrading: How Leading Companies Win by Hiring, Coaching, and Keeping the Best People, the cost of a bad hire may range from 14 to 28 times the annual salary per position.

Why the huge gap between studies? 

The answer: Opportunity Cost.

This is the one cost that is difficult to estimate. Opportunity cost is the cost you absorb while keeping a mediocre employee. Keeping mediocre talent prevents you from looking for someone better, which means you have the differential cost between an employee who is performing in a limited capacity versus one who has capacity. 

In fact, when someone does a good job, we often trick ourselves into believing that they are better than they are – we tell ourselves that the time, energy and resources it takes to find someone new will be worse. The truth is that every day you keep someone who is only good enough, you lose the results you would get from someone who will blow your mind and produce results that could change your organization.

When you think about the cost of a bad hire, it is mind-blowing!

So how do you avoid a costly bad hire?

You make sure you have a consistent hiring process in place that you use with every candidate.

A consistent hiring process reduces the amount of subjectiveness that normally occurs when you attempt to conduct the selection process without a standardized system or approach, and is key to determining if a possible candidate fits the company culture.

By taking each candidate through a similar process, you increase the likelihood of matching the best person to the position, the hiring manager, the company and the team, while also averting mediocrity, attrition and the cost of a bad hire.

T3 Talent can help you today