The Real Cost of a Bad Hire – 9 Ways Your Business Loses Money
Recent research reveals that a mid-level manager earning £42,000 can cost an organisation over £132,000 due to the cumulative costs of a bad hire and staff turnover. This figure is staggering, isn’t it?
While the exact cost can vary depending on factors such as the level of the position, the industry, and specific circumstances, it’s clear that poor hiring decisions can lead to significant financial waste.
In this post, we’ll explore nine ways your business loses money when the hiring process goes wrong, and why partnering your businesses with HR consultants can be a cost-effective investment. With our expertise, we can help you avoid costly mistakes, ensuring you hire the right talent from the start, saving you time, money, and the stress of managing a poor fit.
Hiring managers listen up… let’s get straight into it.
We work with you to find the best talent for your business.
1. Recruitment and Onboarding Costs
Recruitment is a significant investment, with UK SMEs spending an average of £125,347 annually on recruitment costs, including advertising, interviewing, and agency fees. If a new employee turns out to be the wrong person, these substantial expenses are wasted, forcing you to restart the entire recruiting process again. The time and resources you’ve invested are lost, highlighting the critical importance of getting it right the first time. Partnering with HR experts can help you make informed hiring decisions, ultimately saving you time, money, and the stress of managing a bad hire.
2. Lost Productivity
Lost productivity is one of the most immediate and costly consequences of a bad hire. When an employee underperforms, it’s not just their work that suffers; the entire team feels the impact. For example, if a new manager struggles to lead effectively, their other team members may experience confusion, missed deadlines, and decreased morale. Similarly, if a customer-facing role is filled by someone who lacks the necessary skills, it can result in errors, complaints, and wasted time. These disruptions force others to pick up the slack, diverting their focus from their own tasks and dragging down overall productivity.
3. Training Costs
You might spend weeks, if not months, on onboarding, mentoring, and providing the necessary tools and knowledge for them to succeed. This includes everything from formal training sessions and online courses to the time your team spends guiding the new hire. If the employee doesn’t stay long or fails to improve their performance, all that investment is lost.
It’s not just about the cost of the training itself, but also the opportunity cost of the time spent, which could have been better used elsewhere in your business.
4. Managerial Time
When you make a bad hire, it’s not just the employee who suffers—your managers do too. They can end up spending a disproportionate amount of time addressing performance issues, time that could be far better spent on more productive tasks or supporting high-performing team members. Instead of focusing on driving the business forward, they’re bogged down with troubleshooting and coaching a struggling employee.
A manager dealing with a bad hire might find themselves asking:
- How can I help this employee improve?
- What additional training do they need?
- Should I reassign their tasks to others?
- When should we consider termination?
- Does the new employee fit our company culture?
This extra burden on management can quickly drain valuable resources and energy.
5. Disruption to Team Morale
According to Talogy:
“A bad hire can lower organisational morale. Hires who are not a good fit with other personalities in the organisation lead to tension and strain within a team. That tension ultimately affects existing employees’ attitudes toward their jobs, other co-workers, or the company itself.”
When one team member isn’t pulling their weight, it can create frustration and resentment among colleagues who have to pick up the slack. This can lead to decreased motivation, as high-performing team members feel their efforts are undermined by less effective new employees. Over time, the negativity can spread, potentially causing valued team members to seek opportunities elsewhere. The knock-on effect of negative attitude from one bad hire can, therefore, ripple throughout the team, impacting overall performance and even leading to the costly loss of other talented employees.
6. Customer and Client Impact
Imagine a fast food company that hires a new branch manager, who initially appears to have the right experience. However, it soon becomes clear that they struggle with managing the team and maintaining customer service standards. Orders start getting mixed up frequently, leading to long wait times and frustrated customers. The once-quick service slows down, and regular customers begin to take their business elsewhere.
Staff morale drops as they feel unsupported, resulting in higher employee turnover. Within six months, the branch’s sales have significantly declined, and the brand’s reputation in the local community has taken a hit—all because of one bad hire.
7. Severance and Legal Costs
Terminating a bad hire often comes with its own set of costs, particularly when severance and legal fees are involved. In the UK, even if an employee has only been with the company for a short period, you may be required to offer a severance package, which can include notice pay, holiday pay, and any contractual entitlements.
If the termination is contested, legal fees can quickly escalate, especially if the case goes to an employment tribunal. For example, defending a claim of unfair dismissal could cost a business thousands in legal fees, not to mention the time and stress involved.
8. Recruitment Costs for a Replacement
When a bad hire needs to be replaced, your business faces a second round of recruitment costs from recruitment agencies for a replacement employee. These include expenses for advertising the position, conducting interviews, and onboarding a new candidate. Additionally, you’ll incur training costs all over again, taking up valuable time and resources. Each of these steps adds up, straining your budget and diverting attention from more productive activities. This cycle of rehiring not only impacts your bottom line but also disrupts your team’s stability and momentum. By getting it right the first time, you can avoid these repeated costs and keep your business moving forward smoothly.
9. Reputation Damage
Blackfield Associates notes the reputation damage that can take place all because of a bad hire:
“Hiring and having to subsequently let go of a bad hire greatly increases your chances of them writing a scathing review, which can have long-term consequences for your company’s reputation.”
Word of mouth spreads quickly, and in today’s digital age, negative reviews or experiences can reach a wide audience almost instantly. This can make it harder for companies to attract top talent and new business opportunities. Protecting your reputation by making informed, strategic hiring decisions is essential for long-term success and growth.
Read our blog about handling a disgruntled ex-employee.
Preventing the High Costs of a Bad Hire
Implementing a thorough and effective recruitment process is essential if employers are to minimise the risks and costs associated with bad hires. This includes comprehensive background checks, reference checks, and skills assessments.
And if you need expert help, our recruitment team at The HR Consultants offers competitive services at just 15% of the salary with no upfront commitment. Feel free to get in touch for a no-obligation chat.
Frequently Asked Questions
Here are some frequently asked questions about why a bad hire can be so costly.
What are some best practices for preventing a bad hire?
To prevent a bad hire, follow these best practices:
- Implement a structured interview process to evaluate candidates fairly and consistently.
- Conduct thorough reference checks to gain insights into the candidate’s past performance and work ethic.
- Use skills assessments tailored to the role to ensure the candidate has the necessary abilities to succeed.
By following these steps, you can reduce the risk of a bad hire and secure talent that fits your team and supports your company’s long-term success.
How can a company recover from the effects of a bad hire?
Recovering from the effects of a bad hire requires swift and thoughtful action. Start by addressing the issue promptly—whether that means offering additional support and training or making the difficult decision to part ways. Reallocate resources to ensure the team remains productive and focused during the transition.
It’s also crucial to refocus on team morale; acknowledge the challenges, provide reassurance, and reinforce a positive workplace culture. By taking these steps, you can mitigate the impact of a bad hire, restore team confidence, your business reputation, and get your business back on track with minimal disruption.
What should I do if I suspect a recent hire isn’t the right fit?
If you suspect a recent hire isn’t the right fit, it’s important to act quickly. Start by providing clear, constructive feedback to the employee, outlining the areas where they need to improve. Offer support, such as additional training or mentoring, to help them get on track. Monitor their progress closely and set realistic timelines for improvement.
If you see no significant change, it may be necessary to consider termination before the situation escalates and further costs accumulate. Addressing the issue promptly can save your business time and resources while ensuring the team remains strong and focused.