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What is the Real Cost of A Bad Hire?

September 8, 2022

By Tom Jackson, courtesy of SBAM Approved Partner ASE

With three out of four hiring managers saying they have made a bad hire, coupled with 40% of the workforce seeking new opportunities, the current scenario of finding replacements for your company’s attrition is the perfect set-up for a tidal wave of potential bad hires.

The average cost of hiring the wrong employee is $17,000, according to 2016 research by CareerBuilder. However, depending on the role and the company, this figure can go as high as $240,000, per 2021 research performed by the U.S. Department of Labor.

That’s a big spread, but you can figure out the potential cost of a bad hire by calculating it yourself. To make a sample calculation you need to:

  1. Multiply the hours that all hiring team members have spent reviewing resumes, conducting interviews, and doing work connected to the job position, by their hourly pay. 
  2. Add the cost of advertising for the position.
  3. Add the cost-per-hire for the different software tools you’re using. 
  4. Add the sum to the cost of lost productivity. This might be a bit more difficult to assess, but if you look at your KPIs, you should be able to estimate. 
  5. Add the monthly compensation package of the bad hire, multiplied by the number of months they’ve spent at the company. 
  6. Add onboarding and training costs.
  7. Add costs to cover the position until filled.

And there you have it. Keep in mind this only covers the basic cost of a bad hire. There might be other expenses to consider. These expenses would come in the form of consequences such as loss of productivity, lower team moral, deterioration of relationships with clients and partners, and negative impact on the company brand and culture – all of which can lower revenues and the value of your company’s goodwill.

The good news is that bad hires can be avoided. To avoid making a bad hire, look at your hiring and onboarding process to determine if you are committing the necessary time and resources to the process. Make sure your interview process is structured. Drive out bias in your process. Use objective assessment tools to evaluate talent. Create a coherent hiring strategy. Match your candidates to your company culture, and finally, provide a structured onboarding for new hires.

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