The True Cost of a Bad Hire

The True Cost of a Bad Hire

Defining a great hire is fairly straightforward.

A professional with the right experience and skillsets, an understanding of a business’ pain points and objectives (and how to achieve them), and who can prioritise company turnover and team strength in equal measure. In short, someone who demonstrates their value.

Defining a so-called ‘bad’ hire isn’t as simple. Most businesses will agree that a professional who leaves before marking their first year with a company (without some other reason) is an incompatible or even ‘bad’ hire.

But what signs should you take note of before reaching that point – and how much could it really impact your business?

Here’s a breakdown of precisely what a bad hire could cost your company, and how to secure the best candidates to prevent it in the first instance.

The financial costs

To state the obvious, hiring a candidate that’s ill-fitted to a role or company can have real financial implications and cause unnecessary damage to a business’ bottom line.

The hard figures depend on a range of factors, such as the seniority of the role in question (and therefore the remuneration package). How long the hire spends with a business, and what might occur “under their watch”. The ways their presence could impact clients and the workforce, and so on.

Let’s discuss a practical example:

Using a standard recruitment agency, you hire a new Senior Manager for your Paris HQ at a base salary rate of €60,000. The agency’s fees are 20% of the candidate’s first annual salary: €12,000.

The new candidate may then need 6-8 weeks of onboarding, making them largely ‘unprofitable’ until month three after spending €5,000+ on their salary – and that’s without accounting for employer contributions like pensions, state insurance and so on.

Onboarding fees could look like €4-5,000 or more after the cost of equipment, system setup, relevant training courses, travel expenses to meet clients, etc.

If your candidate stays for 11 months, combining these costs with the costs of remuneration (salary, benefits and pension), and you may reach an investment of €100,000+ in a single year. Importantly, that figure doesn’t include the time and resources senior leaders spend on reviewing applications, shortlisting, interviewing, decision-making and negotiating. Time that could be used on business and client development.

This level of investment is well worth the while for any scaling business. An ideal candidate can increase your client revenue, boost development opportunities, have a positive effect across the wider workforce, and ultimately support your business success.

But if these figures teach us anything, it’s that acquiring and retaining exemplary talent is imperative to not only a business’ growth, but its financial sustainability.

The hidden costs

Less simple to calculate – but equally as vital – is the potential effects a bad hire could have on your company culture and values. A good culture is inclusive yet established; some new hires will naturally be better suited than others. And when there’s incompatibility, it shows.

It’s easy to see the impact of an individual who creates a toxic work environment. Team morale drops, department revenue declines, more and more of the workforce express dissatisfaction, there’s an increase in sick days; you could even see higher staff turnover as a result of a poor leader or team member.

But it’s important not to ignore nuanced signs in your culture that could point to a bad hire. Unpredictable or vastly different team communications from before your new hire joined, a steady decline in productivity, team members arriving later or leaving earlier than usual: these could all be symptoms of something deeper.

Culture is predominantly influenced by the individuals working in and representing a company, and the more senior the hire, the more likely they are to influence company culture from the top down. And it isn’t only your wider workforce to consider.

If your new hire is incompatible with your company culture, it could have ramifications on your clients and directly or indirectly cause risk to revenue. Lack of client communication skills can splinter even the strongest of relationships, cause your business to miss valuable upselling opportunities, or put client projects in jeopardy due to ineffective leadership.

I’ll leave you to do the maths on that one, but suffice to say, it can cost your business heavily.

Securing the best candidate

It may seem like a bleak picture in front of us, but the good news is that there are ways to prevent a bad hire and secure the very best candidates for your business needs.

Here are 5 questions to start with:

1. What’s the pain point behind the role? This is one of the first questions any seasoned talent manager or recruiter should ask, nd will provide key insights to your talent needs. Defining the challenge you need solved will source the right quality candidates to help achieve it.

2. Do you need to recruit, or will promoting internally or restructuring solve the need? Sometimes the solution is simpler (and more cost effective) than simply adding another cook in the kitchen. Identify potential candidates internally, and scrutinise your organisational structure to ensure you’re making the right decision for the right reason.

3. Are all business leaders aligned on the role? Defining key criteria, non-negotiables and nice-to-haves is imperative. Ensure your stakeholders are in agreement on these (and why) otherwise the hire may cost you before you’ve even started the search…

4. Does the job description reflect the business’ pain points, objectives and needs? A strong job description doesn’t just attract great talent from a broader pool, it ensures you’re not attracting the wrong candidates.

5. Who are we working with to secure quality talent? Internal (Talent Managers) or external (Headhunters), it’s always beneficial to filter your candidates through the distant eye of an expert. Specialists will see things many business leaders won’t, and are equipped to combat risk of bias when selecting CVs or leading interviews. It’s also worthwhile including your team in the process. After all, they’ll be working with your new hire.

Final thoughts

Hiring a professional who isn’t meeting expectations can have a huge cost burden on your business. Depending on the region you’re hiring in, the role and other factors, your business could be investing anything between €40,000 and €200,000. A steep investment, particularly if your candidate turns out to be a bad hire.

Having said that, when you’ve found a great hire, you could see incredible potential and ROI for your business. The right talent can mobilise teams, bring fresh, innovative thought to projects, build client relations, and help scale any company in ways you may not have imagined.

A well-aligned leadership team in tune with wider business and team needs can drastically reduce the chances of attracting and acquiring incompatible talent.

Outside support can also work wonders. A great recruitment consultant will not only understand your needs, wants, and key market, but provide you with reliable advice on all manners relating to talent attraction and interviewing. Worth its weight in gold – or at least €€€.

Author: Nils Gerardin, Principal Consultant