According to the Breezy HR Hiring Challenges Report 2024, over 40% of employer respondents experience challenges managing poor performers. Also, approximately 39% of employer respondents have difficulty uncovering and addressing performance issues.
A consistently underperforming employee forces your other team members to pick up the slack. Taking on additional tasks impacts workflows. Therefore, your employees have less time to complete their duties and responsibilities. As a result, they are likely to experience burnout.
The Real Cost of a Bad Hire
The real cost of a bad hire includes:
- Toxic work environment
- Lost productivity
- Low employee morale
- Decreased employee retention rates
- Missed revenue opportunities
- Greater hiring, onboarding, and training costs
- Reduced bottom line
Methods to Calculate the Cost of a Bad Hire
You can choose among these methods to calculate the cost of a bad hire:
Time spent on hiring activities
You spend significant time sourcing, interviewing, and onboarding employees. Therefore, you can use the following formula to determine how much money is lost due to a bad hire:
- Identify the members of your hiring team. For instance, your team might include a department head, 2 HR professionals, and the CEO.
- Evaluate how many hours each week each professional spends on hiring-related tasks. For instance, an HR professional might spend 30 hours weekly on hiring activities.
- Multiply the number of hours spent each week on hiring-related tasks by the professional’s hourly rate. For instance, the HR professional might spend 30 hours weekly on hiring activities and earn $30 per hour. $30 x 30 = $900 lost on a bad hire
Revenue per employee
The cost of a bad hire significantly increases your hiring, onboarding, training, and retention costs. Therefore, you can use the following formula to determine your revenue per employee and decreased profit contribution of a bad hire:
- Check your company’s year-end financial report or SEC report for the revenue per employee.
- Multiply the revenue per employee by the average profit contribution to estimate the profit margin per hire.
- For example, say your revenue per employee is $250,000 and your average profit contribution is 50%. $250,000 x .5 = $125,000 estimated profit per hire.
Compare the profit contribution of a low performer with that of a high performer to see the cost of a bad hire:
- For example, an employee in the top 30% of the candidate pool should bring in an additional 30% or more in profit.
- If an average hire generates $125,000 in profit, a top hire should bring in at least $162,500. ($125,000 x .3) + $125,000 = $162,500
- Conversely, a below-average hire might bring in $87,500 or less. $125,000 – ($125,000 x .3) = $87,500
- The difference between a top performer and a poor performer could be $75,000. $162,500 – $87,500 = $75,000
Partner with a Staffing Firm
Working with a local staffing firm that specializes in your industry minimizes the cost of a bad hire:
- The staffing agency spends time and money on sourcing, interviewing, screening, and testing candidates.
- You meet with a recruiter to discuss your hiring needs, culture, and other relevant details.
- The recruiter sends you a few qualified candidates to interview.
- You extend a job offer and negotiate with the recruiter on the candidate’s behalf.
- The recruiter assists with onboarding and regularly follows up to ensure complete satisfaction.
- You can request a replacement at no cost if the candidate does not work out.
Would You Like to Avoid Bad Hires?
Partner with HireCall to help save on hiring costs. Contact us to learn more today.
