The True Costs of a Bad Hire

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Businesses often vastly underestimate the impact of a hiring mistake.

If you were to hire someone who, after the first few weeks, turns out not to have been a wise choice, you may think all you’ve lost is what you’ve paid them so far. Hell, even the recruiter might return their fee if the bad apple was let go within a certain time frame. Surely it can simply be put down to a business expense, no?

No. This report from the REC shows that a midlevel manager with a base salary of £42,000 can end up costing your business a grand total of £132,000 if the wrong choice is made. How could this be possible? Well, it all comes down to the indirect costs that come along not only with the person themselves, but how they affect the business as a whole.

First, let’s talk time. The old cliché is that Time Is Money, but as clichés go it rings pretty true. There’s the time spent finding them, interviewing them, onboarding them, training them, plus however long you actually managed to tolerate them.

In that time, there was money not being made due to your bad hire’s ineffectiveness. This known as an Opportunity Cost. It’s not just them, either. If you’ve ever been in an environment with even one bad influence, you’ll know that you can’t help it affecting your own work. The general productivity of the team has taken a hit, and this is not something that is magically repaired once that bad influence leaves. It requires rebuilding. All the while, revenue generation is lower than it could have been if the right person had been hired. This could affect your hiring manager psychologically, too: Are they bad at their job? Do they need more training?

A bad hire can end up costing you 3.3x their base salary. That means if you hire someone at £100,000 and they don’t work out, they could cost you £330,000. That’s enough to buy two 3-bed houses in Stoke-on-Trent!

If your bad hire was in a customer- or client-facing position, there’s also the matter of reputation. Their incompetency or attitude may affect your customers’ or clients’ opinions of your business as a whole, and this is something that is incredibly difficult to rebuild. There’s also the risk that, due to their bad attitude, they tell anyone that will give them an ear what a terrible employer you are because you had the audacity to fire them.

Your bad hire doesn’t exist in a vacuum. During their brief time in your business, they may have upset one of your top performers. Now, this could either be something major, or just the straw that broke the camel’s back. If that key player decides they’ve had enough and leaves the business, you’ve not only gained a bad hire but lost a good one. The costs of this are wildly variable, but never cheap.

In some situations, this departure could cause a domino effect, and you might see your other top performers packing up and moving on. It may seem tenuous, but it’s all too common for one person to cause another to leave, and for that to signal to others that the ship is sinking.

After all of this, there are still the costs of hiring someone new, and the risk that the next person will be no better. This is why it is crucial that businesses have a watertight recruitment strategy that ensures they won’t fall into those traps. In the end, the costs of a bad hire are less to do with what they fail to create, and more to do with what they actively destroy.

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