The Hidden Costs of Bad Hires

??A bad hire doesn’t just drain your resources—it can devastate your bottom line.

No business owner wants that! You don't want that!

Research from the Harvard Business Review suggests that as much as 80% of employee turnover is due to bad hiring decisions. The financial cost of a bad hire can be staggering, with CareerBuilder estimating that companies in the U.S. lose an average of $14,900 on every bad hire. For higher-level positions, this figure can rise significantly, sometimes to several times the employee’s annual salary.

However, the indirect costs of a bad hire are often even more substantial, though less immediately visible. Let’s break down some of these hidden costs:

1. Decreased Productivity: When a new hire fails to meet expectations, overall team productivity can suffer. According to the Society for Human Resource Management (SHRM), it can take up to 8 months for a new employee to reach full productivity. If the hire is ultimately unsuccessful, the lost productivity can cost the company tens of thousands of dollars. For instance, if a position’s average salary is $60,000 per year, the productivity loss could amount to $25,000-$50,000 over several months.

2. Increased Training and Onboarding Costs: The time and resources spent on training and onboarding a new employee are substantial. When a hire doesn’t work out, these costs are sunk with no return. A study by Training Magazine found that U.S. companies spent an average of $1,286 per employee on training in 2023. For specialized roles, this figure can be much higher, sometimes exceeding $5,000 or more.

3. Lowered Employee Morale: A bad hire can disrupt team dynamics, leading to frustration and decreased morale among other employees. According to a study by Gallup, disengaged employees cost companies an estimated 34% of their annual salary. For example, if the average salary is $60,000, the cost of disengagement per employee could be around $20,400 per year. If this disengagement spreads to multiple team members, the financial impact could be even more significant.

4. Higher Turnover and Recruitment Costs: The ripple effect of a bad hire often leads to higher turnover among other team members. The cost to replace an employee can range from 50% to 200% of their annual salary, depending on the level of the position, as noted by SHRM. For a mid-level manager earning $80,000, the turnover cost could be as high as $160,000.

5. Reputation Damage: A bad hire in a customer-facing role can result in poor customer experiences, potentially leading to lost business. A study by the White House Office of Consumer Affairs suggests that a dissatisfied customer will tell between 9-15 people about their experience, which can damage your brand’s reputation. This reputational damage, while harder to quantify, can result in lost revenue, diminished customer trust, and the potential need for increased marketing spend to counteract the negative perceptions.

When all these factors are considered, the total cost of a bad hire can easily exceed $240,000, especially in higher-level or specialized roles. I repeat, $240,000! This figure underscores the importance of making informed, data-driven hiring decisions.

As a CFO I want to avoid unnecessary direct or indirect costs and I am sure you and your business do too.

Our psychometric assessment tool is designed to minimize these risks by offering a comprehensive evaluation of candidates’ personalities, cognitive abilities, and potential fit within your team. This data-driven approach ensures that you make informed hiring decisions, reducing the likelihood of costly mistakes.

Contact me to discuss the tool we utilize and how effective it could be in your business.