Cost of a Bad Hire: It's More than You Think
Amid the Great Resignation, recruiting and retention costs are on the rise as competition heats up for high-performing workers. And while many organizations are eager to snap up promising professionals, making hasty hiring decisions can lead to serious losses.
Bad hires can negatively impact your workplace culture, drag down the entire team’s productivity and performance, and harm your reputation with clients and future applicants.
Modernizing recruitment and hiring processes is crucial for businesses that want to attract top performers and avoid the exorbitant costs that follow bad hires.
This article paints a complete picture of the harmful impact of a bad hire. And the true cost may surprise you.
Statistics on Hiring the Wrong Person
Bad hires come with a host of issues that can impact your organization's bottom line, productivity, and more. On average, bad hires bring:
- 37% higher absenteeism rates
- 18% less productivity than good hires
- 15% less profit than good hires
According to U.S Department of Labor estimates, these performance deficits cause bad hires to cost their employers between 30 and 34% of their salary.
That means if you make a bad hire at an entry-level, $50,000 position, your organization could end up losing $15-17,000.
Enterprises may be able to weather frequent losses in that range. But for small and medium businesses, the cost of bad entry-level hires can snowball and quickly lead to shutting their doors.
Applying this formula to management and executive-level hires pushes the cost of a bad hire into dangerous waters for even the largest companies.
Assuming an average of $80,000 for managers and $150,000 for new executives, a bad hire in a leadership role could cost your organization as much as $50,000.
What's the Actual Cost of Hiring the Wrong Employee?
Absenteeism, weak performance, and poor productivity aren’t the only ways bad hires can hurt your business. They can also tarnish your reputation, toxify your company culture, and drag down teammates and supervisors.
Let’s look at the main ways bad hires can harm your organization that you might not have considered.
Five Ways Bad Hires Hurt Your Company (and One Problem that Sticks Around Once They’re Gone)
1. Client Churn
Lackluster performance, bad communication skills, and the poor attitude that typically comes along with a bad hire can be a nightmare for client retention.
Clients expect top-tier customer service now more than ever. In fact, they want customer-centered experiences so much they’re willing to pay through the nose to get them.
86% of surveyed consumers reported they would spend 25% more for good customer service, and customers that have a positive buying experience spend 140% more than customers who have negative experiences.
You simply can’t count on bad hires to provide the level of service clients expect. This problem makes them a severe liability to long-term growth and profitable client LTVs.
2. Damage Employer Reputation
Bad hires’ negative impact on your company culture can harm the value of your job offers to future applicants.
Sites like Glassdoor, Indeed and Google Business reviews allow bad hires to leave damaging, one-sided reviews. Unfortunately, organizations facing this fallout of a bad hire, in this case, have little recourse.
With the employment market so competitive right now, companies that hope to recruit or retain high-performing talent in their industry can’t afford to take reputation damage as an employer.
3. Damage Company Culture
Bad hires create friction. And friction can quickly derail even the best of workplace cultures.
Companies with positive work environments benefit from enhanced teamwork, higher morale, improved efficiency and productivity, and higher retention rates.
But toxic employees can sour interpersonal relationships and disrupt established workflows, resulting in a complete inversion of positive company culture benefits.
Here is how working with toxic team members has been found to affect the other employees:
- Spending less time at work
- 38% of workers intentionally decrease the quality of their work
- 25% of workers dealing with a toxic coworker have taken frustrations out on a customer
- 12% of employees looking for a new position blame a toxic coworker
4. Management Productivity Loss
Bad hires' impact doesn’t stop at their immediate teammates. They also damage productivity at the management level, requiring 17% more supervision than their peers.
This drain on management productivity creates a ripple effect in your organization. Bad hires pull company leadership away from their routine responsibilities and reduce their time to spend supporting profitable and hard-working employees.
5. Raise Costs of Recruiting
Hiring and benefits costs hit a 16-year high in the final months of 2021, making a revolving door of bad hires more costly than ever before.
Filling an open position costs organizations between $15 and 50,000, depending on the seniority of the role in question. These costs can quickly add up for growing companies after a few bad hires and harm their ability to grow.
6. Training Costs and New Hire Ramp Time
Ultimately, termination is the only way to get back on track after onboarding a bad candidate that costs your company money, harms your reputation and drives away clients and coworkers with toxic behavior.
Unfortunately, that carries additional expenses as well. After successfully recruiting a replacement worker for your bad hire, you’ll need to start training them from scratch.
Sales organizations spend an average of six months and upwards of $20,000 training new hires. So a quick turnover from a bad candidate can lead to some heavy losses.
Reduce Bad Hires and Save Money with PerceptionPredict
Organizations that want to avoid unnecessary setbacks in 2022 must invest in modern hiring practices that empower them to spot the best (and the worst) candidates in their applicant pool.
Our predictive analytics-powered hiring tools create next-gen candidate profiles that forecast key performance indicators like performance, productivity, hiring ROI and length of tenure.
To learn more about how our unique hiring software can help your organization dodge bad hires, book a demo with one of our experts.