Why the Cost of a Bad Hire Is More Than You Probably Think

Hiring the right person isn’t a science. It’s an art.

Let’s face it:

  • No matter how much time you spend looking at a candidate’s resume (the average time is 5-7 seconds)
  • No matter how much you look through their social media (70% of recruiters check, according to a recent Careerbuilder survey)
  • No matter how long you interview them (the average is 3 hours over 2.5 interviews)

…there is simply no way to guarantee that you’re getting the best person for the job.

Getting it right is incredibly rewarding. Getting it wrong, however, is incredibly frustrating…and expensive. The cost of a bad hire is something that can be avoided, but first, it’s important to understand what is at stake.

The Cost of a Bad Hire

In a recent survey done by Robert Half International, they found that 75% of hiring managers have made a bad hire and 64% say the costs of those mistakes are higher now than they were just one year ago.

The damage done to your company because of a bad hire and the associated expense shows up in a variety of areas:

  • Time and money spent recruiting (over 30 hours and $1300 per candidate, according to a survey reported on by Recruiterbox)
  • Time and money spent training (around 46 hours and $1000 per employee, according to a 2018 survey from Training magazine)
  • Time and money wasted on lost productivity
  • Time and money lost to low morale
  • Time and money spent firing the person (Robert Half says it takes employers an average of 10 weeks to finally fire a bad hire.)
  • Time and money spent finding a replacement (Robert Half also says it takes another 6 weeks to hire the next person…that’s a total of 4 months of your company’s time wasted. Also, according to a report done by the Center for American Progress, the cost of turnover is anywhere from 16-20% of that position’s annual salary.)

How to Avoid a Bad Hire

Before the Hire

Avoiding the cost of a bad hire begins before the hiring process ever starts. Here are some tips to keep in mind.

  1. Ask yourself if you should even be hiring someone. Many times as business owners, we get ahead of ourselves and try to add employees when really all we need to do is make our current operations more efficient.
    1. Hire when you can afford it.
    2. Hire when you need the help.
    3. Hire when you’re losing money doing tasks someone else could do.

      (By the way, these last 3 tips are part of a free PDF we put together called “9 Simple Accounting Mistakes That Are Costing Your Business Money.” Bad hiring practices are just one common mistake. Click to get your copy and learn about the other 8, too.)
  2. Have a way to evaluate candidates to see if they’re a good fit. This goes beyond simply screening resumes and looking at their social media. Smart business owners have a strategy for making sure candidates are “right” for the job.

    A great tool we’ve discovered is the Working Genius Assessment created by Patrick Lencioni at The Table Group. Their research found that every employee falls into one of 6 core areas of working genius. Speaking on the importance of understanding how we’re wired for work, he says, “organizations and teams–even families–that don’t tap into the true genius of their members can’t come close to realizing their potential.”
  3. Hire slow. We get in trouble when we get in a hurry. In an article from the Harvard Business Review titled “Hire Slow, Fire Fast”, author Greg McKeown makes the case for having incredibly high standards and taking your time finding people who can meet them. He says, “Your criteria for selection should be so extreme many people would rather not work for you. You’re trying to attract the right select few, not the masses.”

After the Hire

Once a candidate is on board, you need a clear process for helping them become part of the team.

  1. Script their first day. Never simply point a new hire to their desk and leave them to wonder what to do next. Schedule their “Day 1” as part of the hiring process. Plan to be with them (or strategically hand them off to key employees). Make introductions, walk them through your mission statements and company culture, and treat them like a big deal…because they are. They’ll either be a big asset or a massive expense.
  2. Have a probation period.
    1. Most recruiting experts recommend 90 days to really know if a new hire is going to work out. Let them know upfront that they are also checking you out during that time. At the end of 90 days, you both agree that either one of you can walk away with no hurt feelings if it isn’t working out.
    2. Schedule regular check-ins during that time where you can see how they’re doing and they can ask you for help or clarification.
    3. Listen for concerns when you’re talking with them, and look for red flags. They’ll let you know if they aren’t the right person for the job after all.
  3. Deal with concerns early. If you’ve noticed something is wrong, the rest of your team has too. Failure to address potentially toxic situations introduced by the new hire will only damage the morale of your current team…which will hurt productivity and, ultimately, your bottom line. But addressing problems quickly and clearly can actually lead to a stronger and even more effective company culture.

When it’s Time to Fire

Have a plan, because sometimes it just doesn’t work out.

Act Quickly. Remember: “Hire slow, fire fast.” It’s not fair to you, your team, or the individual to drag the process out. Firing doesn’t have to be humiliating, but it does need to be clear. Whether at the end of the 90-day probationary period or anytime after, a good leader will be able to say “I don’t think this is a great fit for us or the right place for you. You are talented and have the potential to do well in a role like this, but this one just isn’t the right fit.” If you are able, you could even provide them with free career coaching as a way of helping them find the right job for them elsewhere.

To Avoid the Cost of a Bad Hire, Have a Trusted Business Partner.

CRS CPAs understands how tough it can be to hire good workers. Believe it or not…we do more than taxes.

Over the past 40 years, we’ve guided business owners with companies of all sizes through the process of hiring, onboarding, and parting ways with employees. Human resource management is just one of the many services we offer businesses to help them grow and maximize their team members’ contributions.

Learn more about the HR Support we can offer your company, then schedule a call with one of our well-hired experts.

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Apr 14, 2021