The True Cost of a Bad Hire

A full picture of your true hiring costs sets the baseline for winning top talent in today’s challenging and seemingly endless talent war. Data accuracy and the insight it provides help sustain your financial health and competitive market position.

You expect that good hires will soon begin generating revenue. Wrong hires, always unexpected and usually avoidable, can cost you in untold ways. They are especially damaging when you don’t understand what to look for when calculating the totality of your costs and their ripple effects.

Hiring the wrong person for the job, whether it’s a lack of appropriate skills or a culture misfit, leads to high turnover and low morale. It creates a negative feedback loop where you are continually hiring for the same positions.

What meets the eye reflects only a small part of your recruiting costs. Hard costs like advertising, onboarding, and training are easy to see and understand. More difficult to measure are soft costs like lost productivity from hiring managers’ time away from their day jobs, burnout and lower morale from employees making up for vacant positions, and quiet quitting. These are the things that can ripple through your organization and negatively impact every aspect of your business—including recruiting.

Defining and making quality hires

The right hires have the skills and culture fit to continually add value to your business. They are passionate, committed, optimistic, eager to learn, and care about the wellbeing of team-mates, customers, and the overall success of your organization.

It is more likely that you will make quality hires when you:

• Create detailed, compelling job descriptions
• Consistently follow proven hiring processes
• Use automation tools such as AI where appropriate
• Standardize interviews and debrief
• Rigorously assess and check references
• Communicate effectively
• Offer fair compensation

Defining and avoiding wrong hires

Wrong hires may lack necessary skills or the desire to acquire them, have a bad attitude, or not fit into your culture. Whatever the reason, the consequences of your decision are extensive. Wrong hires have a negative impact on their teams which can lower morale throughout the organization, cause productivity losses, reduce retention, and add the cost of finding a replacement, which was probably not in your budget. (Gallup estimates, conservatively, that the cost of replacing an individual employee ranges from one-half to two times the employee’s annual salary. 

Frequent wrong hires are inevitably a sign that your hiring process is broken. The first step in avoiding them is understanding your recruiting process. How effective is it? Do you attract good candidates right away and win them? What are your new-hire turnover rates? If you don’t know, it’s time to understand how well your recruiting process is working for you, and wrong hires are part of the equation. Calculating your true hiring costs should be a major consideration in your evaluation and future plans.

These are some of the major culprits causing wrong hires:

Hiring too quickly to fill vacancies. Jobseekers have had the upper hand for several years. This leaves employers with open positions, which are a major factor in burnout and reduced productivity. Response to the vacancy pressure has often been to speed up the hiring process simply to get bodies into empty seats. Speed greatly increases the risk of making the wrong hire.

Purple squirrels. This concept is the opposite of hiring too quickly. Purple squirrels refer to the pursuit of mythical candidates who have a perfect mix of the desired skills and attributes for a job. It results in leaving positions open until this too-good-to-be-true candidate walks in the door.

A lack of data. HR needs to understand every aspect of the hiring process, including average times to hire, average time with your organization, what characteristics are most likely to predict candidate success or failure in your organization, the strengths and weaknesses in your hiring processes, and all factors related to recruitment costs.

Inconsistent interview strategy and processes. Inconsistency is a leading factor in making wrong hires. All interviewers should use the same checklist of questions and apply the same protocols for who interviews candidates for each position.

Failure to assess. Evaluation should be integrated appropriately throughout your hiring process, beginning with pre-hire assessments for skills and capabilities as well as culture and value fit. A rigorous check of references should follow.

A simple tool to calculate the costs of a wrong hire

The far-reaching costs of a wrong hire are difficult to measure and fully grasp. TalenTrust is introducing its Cost of a Bad Hire Calculator this month to help you understand the full financial impacts of your hiring processes and decisions. It’s available on our website at no cost.

This easy-to-use tool helps you calculate the hard math costs of a wrong hire as well as the costs you can’t easily put into dollars. These are the factors that accelerate your total costs as they ripple through your organization.

In 2023, TalenTrust introduced its Cost of Vacancy Calculator. We hope you’ll take advantage of both tools to get a fuller picture of your true recruiting costs. The information will guide you in making better decisions about your people, processes, and business.