Cost of a Bad Hire

Prarthana Agarwal
Startups
June 30, 2021

One of the most important components of a startup’s organizational culture is team cohesion. A team is made up of people with similar skills and interests. In order to create a highly successful team culture, organizations in general, and startups in particular, must hire competent employees. The average cost of a bad hiring decision can equal 30% of the individual’s first-year potential earnings. Many individuals desire to work in the same field, but finding a qualified candidate who is a good fit for the position and is culturally sensitive is challenging. 

A recent survey by Robert Half showed that one-third (36%) of 1,400 executives surveyed felt the top factor leading to a failed hire, aside from performance issues, is a poor skills match. It is one of the most severe problems that entrepreneurs experience in the digital age when looking for a suitable applicant, keep in mind that birds of a feather flock together. The second most common reason (30%) was unclear performance objectives. Certain skills are necessary not just for your business to survive, but also for it to grow. Knowing what skills you’ll require — and how to bring them on board — might mean the difference between your company prospering or failing.  

As your company grows, you may face another difficult personnel issue: recognizing that you hired the wrong people, or the right people for the wrong roles. 6% of employers said they experienced negative effects of bad hires in 2016. Of these employers, 37% said the bad hire negatively affected employee morale. Another 18% said the bad hire negatively impacted client relationships. And 10% said the bad hire caused a decrease in sales. These types of painful truths may arise when a company expands and its fractures become more evident. That is why it is important to make developing your hiring strategy a key priority right from the start. After you’ve determined what you’re looking for, plan essential hiring and think about how each job fits into your broader goals. 

A hiring error might cost you money in ways you didn’t expect. Let’s take a look at some of the drawbacks of hiring the wrong individual 

  • Loss of productivity:  if employees are lazy and unproductive you may fall behind on your goals. You may have project deadlines, but if your entire team isn’t on board and working together, you risk missing those deadlines and dealing with dissatisfied clients. 
  • Effects Company’s goodwill: Your customers will be dissatisfied if an employee is not performing a good job and being as productive as possible. One bad hire can lead to quite a few lost clients. Client loss has an influence on a company’s reputation and goodwill, and it’s conceivable that you won’t be able to attract new clients as a consequence. 
  • Low morale: As the adage goes, one bad apple ruins the bunch. Your company will be more productive and get things done if everyone on your team works together and is focused on the same missions, goals, and values. On the other hand, if one unproductive and uncommitted employee exists, they may drag down the entire company and have a negative impact on morale. 
  • Time-consuming: Many managers begin by encouraging their employees to be more productive and to become members of the team. However, if a bad hire exists it might result in lost time and worker turnover. The time you spend supervising bad employees could have been used for more important things. Time is money.   
  • Financial impact: It costs $7,000 to replace a salaried employee, $10,000 to replace a mid-level employee and $40,000 to replace a senior executive. Hiring costs may add up, whether it’s the money you wasted on that bad hiring or the additional money you’ll have to spend now to locate a replacement quickly. A recruiting manager’s time and effort spent interviewing replacements can result in revenue loss. 

Want to save time, money and hire the right candidates?  

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Signing off, 

Team Magic Factory