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Making a bad hire can be an expensive mistake for any business. While the direct costs of recruitment and onboarding a new employee are clear, the hidden costs of a bad hire can often exceed the upfront expenses. Understanding these hidden costs and taking steps to avoid bad hires in the first place, is key for companies looking to build an effective and productive team.
The Direct Costs of Recruitment and Onboarding
When recruiting for a new position, businesses incur a range of direct costs. These include:
- Advertising and promotion of the role
- Screening and shortlisting applicants
- Interviewing and assessment
- Reference and background checks
- Making an offer and negotiating terms
- Administrative tasks around onboarding
While these costs vary by role and industry, one estimate puts the average direct cost of a new senior manager hire at around £3,000. This covers the entire process from advertising through to the first three months of employment.
The Hidden Costs of a Bad Hire
Once a poor performer is in a role, indirect costs can quickly multiply. Hidden costs of a bad hire include:
Lost Productivity
- A disengaged or incompetent employee is unlikely to be productive. Their lack of contribution drags down the performance of the whole team.
Management Time
- Significant management time may be required for training, reviewing poor work, and trying to improve the performance of the bad hire.
Team Morale
- Poor performers can damage team morale, as colleagues need to pick up the slack. Motivation and engagement may drop across the team.
Customer Dissatisfaction
- For customer-facing roles especially, a bad hire can directly lead to poorer customer experiences and satisfaction. This damages the company’s reputation.
Turnover Rates
- There is a higher likelihood of good employees leaving, if they are frustrated with having to “carry” an underperforming team member.
Recruitment and Replacement Costs
- If the bad hire leaves or is terminated, the entire recruitment process has to start again. All costs are effectively doubled.
Estimates suggest the total cost of a bad hire can reach 30% of the employee’s potential first-year earnings. For a £40,000 role, that equates to £12,000 in indirect costs, on top of the direct recruitment spend.
How to Avoid a Bad Hire
The most effective way to avoid expensive bad hires is to improve recruitment and selection processes. Steps businesses can take include:
- Using Specialist Recruiters – For key roles like HR, finance and IT, consider using a recruitment firm like Allen Associates. Specialist recruiters have extensive networks and deep expertise, enabling them to find the best candidates.
- In-Depth Screening – Go beyond a CV and interview. Assess skills and abilities directly relevant to the role through exercises, tests, simulations and reference checks.
- Cultural Fit – Look beyond technical skills, and test for alignment with company values and communication style. A bad culture fit can undermine any employee.
- A Structured Interview Approach – Develop a consistent scoring system for interviews, with input from all key stakeholders. Score candidates against clear criteria.
- Slow Down – Be prepared to restart a recruitment process if the right hire is not found. Rushing to fill the role with a bad fit is a false economy.
Taking these steps requires an investment of management time. But this modest upfront investment pays dividends by avoiding a detrimental bad hire that could cost the company enormously in lost productivity, turnover and reputational damage. Investing in recruitment is truly an investment in the long-term health of any organisation.
David Prior
David Prior is the editor of Today News, responsible for the overall editorial strategy. He is an NCTJ-qualified journalist with over 20 years’ experience, and is also editor of the award-winning hyperlocal news title Altrincham Today. His LinkedIn profile is here.
