While a good hire can accelerate a company’s revenue, the cost of a bad hire is probably a lot more than you think. For one, there is the cost the company incurs when a position is kept open: about USD 98 per day, with an average 36–42 days to fill in the United States. Then there’s the three to eight months it takes new hires to acclimatize and become fully productive.
In fact, when it comes to sourcing, training, and dismissing an employee, estimates place the cost to the company at a minimum of 30% of the employee’s annual income, depending on role, seniority, industry, duration of vacancy since they were let go, etc. But we’re just scratching the surface! Let’s take a closer look at the far-reaching consequences of a bad hire.
What does this mean for the employee?
Being let go is traumatic, to say the least – even if an employee expects it. The loss of a job has been reported to be one of the top five most stressful situations that people face. They may experience shock, humiliation, depression, anger, anxiety, and fear about a financially uncertain future. In the midst of all the stress and turmoil, it can be hard for the person to remain calm and professional as they go about serving their notice period, potentially contributing to a strained environment.
What is the impact on the company?
Though the exact financial impact of a bad hire depends on several factors such as the industry, employee role and salary, and onboarding and training expenses, an estimate by the United States Department of Labor pegs the cost of a bad hire at up to 30% of the exiting employee’s first-year earnings. Certain human resources agencies even estimate that the total cost may go up to USD 240,000–850,000 per employee.
To make things worse, if a company becomes known for high employee churn as a result of bad hiring decisions, it ultimately takes a toll on its brand image. This further puts off potential candidates, making it harder for the company to recruit good talent.
How is the team affected?
Among the worst fallouts of a bad hire is the toll on staff morale and corporate culture. “A bad hire is not only a waste of everyone’s time, but it’s a bad look for your business as well. Turnover is never good for employee morale because it hurts camaraderie and community within your workplace,” says John Berry, CEO and Managing Partner, Berry Law.
When a bad hire does not perform well, it places an additional burden on the rest of the team – creating an environment of stress and conflict, in turn leading to high turnover. There is a saying that goes, “People don’t quit jobs, they quit poor company culture.” In 2023, this couldn’t hold more true – research indicates that companies that foster a strong, positive workplace culture can witness a potential 400% growth in revenue.
What about clients?
One of the major consequences of a bad hire is loss of productivity. If a hire falls short of the requirements of their role, the resulting dip in productivity gradually takes a toll on the performance of the entire team, and eventually, business results start suffering as well.
Another important point to note is that if bad hiring is a pattern evident in high attrition, clients view the company as less credible – and up to 80% of employee turnover is driven by bad hiring decisions, according to the Harvard Business Review. Ideally, businesses should aim for an employee turnover rate of 10%, but a majority witness a rate in the range of 12–20%, which means that they should take a closer look at their hiring and workplace practices.
“The cost of a bad hire can have long-lasting effects. Not only will a company incur costs in lost productivity or revenue, but it will also likely need to invest in time and training for this bad hire. Sometimes, the costs come with undoing all that was done by a mis-hire. This can take years, sometimes, especially if relationships with clients or stakeholders have been tampered with,” says Jarir Mallah, HR Specialist, Ling App.
Long story short, you’ll find that regardless of market conditions, re-evaluating the effectiveness of your hiring process is well worth your time – and can generate precious savings.
How to Avoid Bad Hires – Improve Your Hiring Process
Making better hiring decisions isn’t rocket science, but it does take a well thought out, candidate-centric hiring process. Here are the top three things you can do to get started.
- Write better job descriptions.
According to LinkedIn, 99% of job descriptions are excessively long and uninspiring. If you find that more often than not, you end up hiring the wrong people, it’s possible that your job description, despite everything you’re putting into it, is attracting the wrong applicants. If a job description is a candidate’s first impression of your company, it must not only be sharp and to the point, but also inclusive. Two-thirds (67%) of candidates regard workplace diversity as a key deciding factor when evaluating potential employers.
Also, make sure that the hiring manager for the role has approved the job description. They have a much better idea than recruiters about the kind of experience, skills, and personality that will be the best fit for the role. But as mentioned above, avoid lengthy descriptions – they’re horrible for candidate engagement, and cause more candidates to drop off before completing their applications. The idea is to stick to the must-haves, and to limit the nice-to-haves.
- Switch to automation tools.
Automating a large part of the hiring process has two major benefits – one, it eliminates human errors and bias, and two, it frees up recruiters to focus on the finer parts of the process, such as interviewing and nurturing candidates.
Recruitment workflow automation helps offload and speed up the more mundane administrative tasks, allowing teams to focus on more strategic processes. Automation tools that help with tasks such as intelligently posting job advertisements at the right time, place, and price based on candidate behavior, enable candidates to self-schedule interviews, and send out timely follow-up communication and reminders go a long way toward easing the burden on recruiters and helping them get more of their time back – helping them focus on the more “human” aspects of hiring, such as analyzing skill and cultural fit.
- Keep applicants moving quickly and efficiently through the hiring process.
While unpredictable, the average length of a hiring process is three to six weeks and consists of anything between one to two, or even four or more interviews, with only two to four candidates making it to the final round. However, great candidates are very likely to have other interviews, and are only available in the talent pool for as long as it takes another employer to snap them up. A hiring process that is too slow could result in you missing the best talent that you were lucky to find – forcing you to spend more time and money looking for alternatives.
To avoid this, make sure that your hiring process is as smooth and frictionless as possible, and that you regularly communicate with and update candidates about next steps and timelines to keep them engaged.
How effective is your hiring process?
Does it capture the right talent the first time around, or is it triggering a time and cost-intensive, long-term challenge for your business? Even if you’re not entirely sure, it might be time to sit down and run some numbers. If you find that you are experiencing high churn among your new hires, heed the red flag – take the time to rethink your hiring process, and consider improving and updating it.
One of the hardest part of the hiring process is deciding when and where to post job. Given the sheer volume of ads, It’s no longer possible – or practical – to do it manually. Get started on automating it by requesting a demo with us today. You’ll never look back.