The real cost of hiring the wrong person

This article was first published in the May 2021 issue of Australian Printer, authored by The Unforgettable Agency’s Meqa Smith

In small business, there never seems to be as much money as you’d like for everything you want to do. 

So, you often look for the free software, budget graphic design, no-frills biscuits and of course you DIY recruitment because recruiters are expensive and it isn’t as though hiring someone is rocket science, right? 

Well, no. The steps in the process are simple. 

Almost anyone can technically ‘do recruitment’, but much like in the print industry where a client could use his own printer he bought from Officeworks to print his flyers and get his 15-year-old daughter to sit and fold them for him, the result is going to be significantly different when you hire a professional versus doing it yourself. 

Still, one may think it seems like a lot of money to spend when you could DIY. If you hire the wrong person, you’ll have to start again but you’re saving around $10,000, so you’ll still be better off, won’t you?

Again, the answer to that is unfortunately most of the time no, you won’t.

Recruiting and recruiting effectively are two completely different things. So, it’s more than likely going to be the case that you will hire a less than ideal candidate for the role, even if they’re not such a bad fit that they leave or need to be let go during probation.

Why does that matter so much? Because a new person joining your team changes the whole dynamic of the team as well as needing significant time and energy from you and likely many of your other team members, and their work has an impact on your customers and suppliers.

The costs fall broadly into three categories.

  1. Recruitment costs

A study from The Australian, quoted in Business Review Australia, revealed a bad hire can cost a business up to 2.5 times the salary of the employee. It encompasses the following costs:

  • Time and money to recruit
  • Time and money to onboard and train
  • Salary and entitlements while employed
  • Costs to rehire (and all the above fees over again)
  • Impact on team productivity (see below)
  • Potential legal fees
  • Morale and clients

The National Business Research Institute reported that37 per cent of companies who reported ‘bad hires’ claimed it negatively affected employee morale and over 18 per cent claimed it had a negative impact on client relations. Details of the findings include:

  • Time spent training the new person and not being able to focus on their own work
  • Negative attitude, gossip or distraction
  • Impact of watching an ineffective person given chance after chance because of the ‘sunk cost bias’ of having hired them and trying to overcome a bad fit
  • Bad service being given to clients
  • Lack of motivation leading to missed opportunities
  • Decreased productivity when the bad hire needs to be replaced and there’s nobody in the role for a period of time (as well as extra stress on the other team members)
  • Disengagement 

Even an employee who is ‘fine’ and isn’t a ‘bad’ hire costs you money because as Gallup has shown, a disengaged employee costs on average $3,400 per $10,000 (34 per cent) of salary in lost productivity for various reasons. 

The average salary in Australia right now is $79,352 (according to the ABS), so let’s use the figures above for some estimates of the cost of a bad hire.

  1. 2.5 x salary = $198,380
  2. Is impossible to calculate specifically using these figures but just imagine one key client relationship being derailed, two great employees becoming disengaged and it’s clear that this isn’t a small number or a significant opportunity for improved productivity or a profitable partnership having been overlooked due to having the wrong person in the role.
  3. 3.4 per cent of salary = $26,976.68 

Even though there’s no one universal formula to calculate the real cost of hiring the wrong person, using any of these measures it’s very clear that the cost of engaging a professional to help you with creating a hiring plan that’s right for your business and the specific role you need to fill is way lower than the cost of DIY and getting it wrong.

Most recruiters don’t offer this bespoke level of service to suit your budget, the role and your business, but there are specialist suppliers like me who do. 

Whether or not you choose to use a specialist to help you, approach the process of finding the right person for the position with the attitude that it’s worth investing the time to make the right hiring decision rather than rushing through it just to ‘get someone’ on board.  

Comment below to have your say on this story.

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