Do you know the cost of a mis-hire?
Many companies have run into this situation before; they spend weeks or even months looking for the right candidate, setting up rounds of interviews, and sometimes even flying or boarding a group of candidates before making a hire. This whole process takes the attention of half a dozen people and hundreds of hours are spent (application sorting, scheduling, interviewing, doing reference checks, etc.). Then a few months or maybe years into the job, the company realizes that this person isn't the fit they were hoping for and they're back to square one. While it's obviously frustrating to have to re-hire for a position, what's even worse is the money that this (mis)-hire cost the company.
In work done by Dr. Bradford Smart, author of Topgrading, the estimated cost of a bad hire ranges from 5 to 27 times the amount of the person's actual salary. Using research from over 50 companies, he was able to summarize that the average cost of a mis-hire of a manager earning $100,000/year is $1.5 million. The average cost of a mis-hire for a sales representative earning the same $100,000/year is $560,000.
(Image from Dr. Bradford Smart's Avoid Costly Mis-Hires)
Costs included are:
- recruitment, search, and advertising fees
- outside testing, interviewing, background checks
- HR department time and administrative costs (for all candidates interviewed, not just the one hired)
- salary and bonuses multiplied by the number of years employed
- stock options, benefits, direct business expenses
- training costs
- severance fee (salary, benefits), lawyer fees
- outplacement counseling fees
- cost in lawsuits caused by person (EEOC, harassment, OSHA, etc.)
- administrative costs in separation
- loss of new business, ideas, and energy a great employee would have brought to the organization
- loss of production due to lower morale from other employees
- value of a key customer who was lost or driven away
- number of additional hours spent dealing with mis-hires weak points; patching things up with customers, re-doing or double checking work, increased workload due to mis-hire not being able to handle their own workload
This cost could also roll over even after the mis-hire moves onto their next opportunity; every position has an important role in the organization so there is a sense of urgency when it's time to get a replacement. However, if the hiring process is rushed another mis-hire could be made and the whole process could happen again. Great employees are essential to business and finding the right person can be a challenge, but in the long run it's better to be thorough and try to shake off the pressure of just hiring "a warm body."
If your company has a high priority opening that needs to be filled, reach out to us to learn how Talent Partners can help.