What is the cost of a bad hire? Higher than you think…

Clearly, hiring decisions are not to be entered into lightly. Not only is it a time-consuming process that requires plenty of bandwidth and money, but the newest edition to your team can really leave its mark on your organization—in good ways and in bad.

A good hire can take your team to the next level, and the cost of a bad hire can be way more than you bargained for. 

The financial cost of a bad hire

The department of labor puts the average cost of a bad hire somewhere around 30% of that person’s first-year earnings, and basic math skills can make that loss easily quantifiable. The cost of a bad hire that earns $250,000 per year can run somewhere around $75,000—ouch. Now, while $75,000 sounds pretty steep, you may want to brace yourself for this next estimation.

According to Jörgen Sundberg, CEO of Link Humans, the cost of a bad hire is really humming somewhere closer to the tune of $840,000. Yes, you read that right. (This estimation is based on a second-level manager earning 62K/year, terminated after 2.5 years). 

The true cost of a bad hire

Sundberg’s estimation may seem astronomical, but it factors in far more than onboarding and recruitment expenses which are really only a fraction of the true cost to the organization.

The fact is there are myriad other ways the cost of a bad hire can play out across your organization. Here’s a closer look. 

Lower team morale

The unfortunate truth about bad hires is that they tend to have a disastrous effect on team dynamics. Success and productivity hinge on a team that works well together. A well-oiled machine is only possible when every team member is focused on one goal, one mission, and one deadline. One weak link, however, can decimate even the strongest team.

Moreover, a disruption to the team’s dynamics can lead to higher turnover as otherwise good employees set out to seek job satisfaction elsewhere. For those of you who like numbers, Harvard Business Review, estimates that 80% of employee turnover is due to bad hiring. 

Lost productivity

Bad attitudes and poor work ethics will always affect productivity. A bad hire will undoubtedly throttle the workflow leaving missed deadlines and slighted co-workers in their wake. 

Damaged client relationships

Client-facing bad hires can indelibly damage customer relations. Remember, too, good news travels fast, and bad news travels faster. So while the cost of a bad hire could come in the form of damaged relationships with existing clients, bad hires can cause an undesirable ripple effect that could affect your organization long after the ink is dry on their termination papers. 

Damaged reputation as an employer

Remember that with most bad hires, nothing is ever their fault. And when the story is recounted, chances are your “terrible” organization and your “poor” management were to blame. While you certainly have no control over what people say, the unfortunate truth (in this case) is that the internet exists, and anonymity tends to make everyone more vocal.

Bad hires may be emboldened to share their story with anyone and everyone who will listen—including review sites like Glassdoor, for example. See where I’m going with this? Ultimately, negative reviews will give others pause for thought, and qualified candidates may be less inclined to work for your organization down the line. 

Onboarding expenses

It takes a considerable amount of time and funds to get new employees up to speed. These expenses often include the cost of paid training hours, salaries paid to trainers, materials, and the like.

Most employers have no qualms with this type of initial investment because a new (and productive) employee is worth the expenditure in the long run. A bad hire, however, essentially turns that expenditure into a bad gamble. 

Red flags to watch out for during the hiring process

Unfortunately, there’s no crystal ball that can tell you whether your new hire will be “employee of the month” or a walking disaster. Hiring managers can do nothing more than rely on whatever credentials prospective employees provide, the processes their organization has in place for hiring, and their own expertise (read: gut instincts).  

There are a few red flags, however, that hiring managers can use during the hiring process to tell if there is trouble afoot: 

  • The candidate does not respond and communicate in a timely manner
  • He/She is hyperfocused on compensation and benefits, not what they bring to the table
  • Cancellations and excuses early in the hiring process
  • It’s clear that the candidate did not do their research about your company
  • The candidate knows very little about the job for which they are applying

Warning signs of a bad hire

Bad hires tend to show their hands early, and when you know the signs of a bad hire, you can address the issue and take action post haste. Not sure if the latest team member was a good call? Here are ten warning signs that you may have made a bad hire:

  • The employee makes the same mistakes over and over
  • High instances of lateness or absenteeism
  • Poor quality of work
  • Persistent negativity or criticism of the company
  • Frequent customer complaints
  • The employee fails to take ownership of his/her mistakes
  • Lower morale among team members
  • Missed deadlines 
  • Arrogance
  • Poor relations with other team members

Filling a vacancy is never an easy task, and most hiring managers just have to trust the process. However, from time to time, despite your best efforts, the process just doesn’t work. The person who brought their A-game to every part of the interview process simply isn’t the same person who shows up on day one—it happens.

And while vacancies can cost money, the cost of a bad hire is staggering. Far beyond the monetary cost, bad hires can have a disastrous effect on team dynamics, productivity, and customer relations.

Moreover, your organization can feel the fallout long after the problem has been resolved. Your best bet is to pay attention to any and all red flags during the hiring process and trust your gut.