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Employer brand

Measuring the True Cost of a "Wrong-Fit" Hire

Kirstie Kelly

calculator2.jpgEveryone knows that bad hires are bad for business, but what’s the measurable impact of onboarding a wrong-fit employee?

Making a bad hiring decision is a multifaceted problem: it’s demoralising, unproductive and leaves you with the unappealing choice of either spending resources on another candidate search or keeping an underperforming employee on staff. But when the pressure is on to fill an open position, we often don’t consider the negative ramifications of making the wrong decision — especially since calculating the actual cost of a wrong-fit hire has, historically speaking, been a difficult thing to do.

But let it be known: the costs are staggering. There’s a reason why Zappos CEO Tony Hsieh offers wrong-fit hires several thousand dollars to quit after the first week, according to Fast Company. Here’s what you need to know about the financial and cultural impact of hiring mistakes.

Watching the Bottom Line

For his part, Tony estimates that bad hires have cost his company “well over $100 million,” as Business Insider explains. That may seem a bit extraordinary, but such figures are more rule than exception. In the UK, 27% of companies report that each wrong-fit candidate costs them more than £50,000, according to CareerBuilder.

In fact, an expert analysis of over 30 case studies found that replacing a hire costs, on average, one-fifth of that worker’s annual salary. However, Inc. contributing editor John Brandon argues that when you account for everything, including the total cost of recruitment, severance fees and legal expenditures, these figures can jump well into the hundreds of thousands.

Unfortunately, if you’re a UK company, there’s a 62% chance you will have been affected by a bad hire in the past year, says CareerBuilder. And wrong-fit candidates aren’t just found in the lowest levels of an organisation – according to Gallup research, 82% of current managers do not have the right talent required for their roles, and ineffective managers account for 70% of productivity discrepancies between departments.

This means that more than eight times out of ten, incompetent managerial hires are having a direct and negative impact on your revenue stream.

Of course, the effects of bad recruitment extend beyond productivity and missed income opportunities (which are often never recouped). Separate CareerBuilder research found that nearly one-third of job seekers who had a negative candidate experience are disinclined to purchase that company's products, and 42% would never seek employment at that firm again.

Care must be taken not to burn bridges with these applicants. Not only does this hurt sales, but it also eliminates the opportunity to one day hire a talented candidate who simply isn’t the best fit at the moment.

What’s the Benefit of a Good Hire?

Now that we’ve explored the measurable negative impact of a bad hire, what about the positive impact of a good one? Boston Consulting Group found that, of all HR roles, recruiting has the largest demonstrated business impact: companies with the most-capable recruiting departments have 3.5x higher revenue growth and 2x higher profit margins.

Similarly, the Gallup study also found that, when it comes to hiring for management positions, companies that successfully onboard the most talented candidates realize 48% higher profits, are 22% more productive and see 33% higher employee engagement. Clearly, when HR teams are able to take an objective approach to hiring and make data-led decisions, they can guarantee that recruits are a perfect match for the role.

At the same time, it’s critical that companies broadcast their culture effectively and ensure a positive candidate experience during the application process – candidates will have formed an opinion of your company ethos and work culture before they ever step foot inside the office.

With the help of innovative new hiring technologies and software solutions, organisations can rest assured that each new recruit will be not only an ideal fit, but that they also have the necessary skills and experience for the job.

(Image credit: Pexels)

Kirstie Kelly

Kirstie is our resident expert in the field of recruitment and technology, having 23 years total experience in commercial business across a range of business sectors. As a result, she has been instrumental in ensuring the innovative technology provided at LaunchPad is relevant for our customers. Kirstie's passion is all about finding creative solutions to recruitment challenges. And no better way than with technology!