Hiring is one of the most important decisions a manager or senior executive is tasked with. Who you choose to add to your team has a significant impact on overall productivity and morale. It’s no secret that making a bad hire can have a negative effect on your business, but do you know the real cost? Often, when people look into this they only consider salary; the reality is that there’s a lot more to factor in - time conducting interviews, lost revenue from non-performance, expenses, commission payments, bonus payments, the list is almost endless.
The U.S. Department of Labor estimates that the average cost of a bad hire is around 30% of their first-year potential earnings. However, salary isn’t the only expenditure you need to factor in.
The time expended for interview coordination, preparation, reviews, phone calls, and/or video interviewing needs to be accounted for. If you have a multi-step interview process, your management team has likely spent several hours (if not days) going through applications, carrying out interviews, and deliberating over whom to take on. This all takes each individual away from their day-to-day tasks and has the potential to negatively impact productivity across the team. Reduced productivity means reduced sales, which means less money coming in.
Another cost to consider is onboarding. If you have an in-house training team, their time has a cost as they have exerted time and effort on training someone who is no longer with the company. If you have an outside training provider, it’s easier to quantify costs as you have an invoice to refer to. Perhaps you have an informal training approach, preferring to have another team member mentor the new hire. While this can be an excellent way to integrate the new hire into the team, it takes the mentor away from their normal activities, which, in turn, reduces their productivity. When the new hire doesn’t work out, you’re left with a sales team that hasn’t been performing at their best. It can take time for them to rebuild, affecting your bottom line.
As we’ve touched on above, a bad hire can result in a 34% drop in productivity. The reason? By the time you decide to part ways, it has likely been many months since they performed at the standard you expected, if at all! Not only does this mean they aren’t being productive, but it also impacts the wider team. When one team member isn’t performing, the rest of the team has to pick up the slack, so overall morale drops. When people aren’t happy, they don’t perform, it’s as simple as that.
Trust in leadership
It’s normal for people to take time to find their footing in a new organization; however, if it takes too long this can impact the perception of leadership. The longer you keep a bad hire in position, the worse the impact on the rest of the team-high in leadership’s ability to steer them in the right direction and act in their best interest. When you lose the trust of high performers, they’re less likely to continue performing well. This resentment can quickly spread throughout the rest of the team until you find yourself in a position where every decision is questioned.
Negativity is a common issue with a bad hire. If they don’t have the right attitude this can impact not only the team but the wider company. Imagine you work in customer service and the sales team has a negative attitude toward clients so aren’t delivering the service they should be - you’re going to be fielding more calls with unhappy customers which then makes you stressed. If the customer service team is stressed, they’re more likely to be taking time off sick, which can impact the HR team. So you see, one bad hire can make all the difference.
In a world where 64% of candidates research a company online before applying, it’s crucial to have a good reputation. If a bad hire impacts other team members you run the risk of the right people leaving. When people who have been with you a long time leave news can spread quickly, especially if they move to a competitor. Not only does this mean you risk losing other team members but also clients. If clients feel they are constantly being introduced to a new account manager, they are unlikely to stay clients for long.
A bad hire can impact almost every aspect of your business, negatively impacting your bottom line. Sales Recruiters has developed a calculator that may help you determine the financial cost of a bad hire. In addition, our recruitment services can help you find people who are a better fit for your organization.