Huge cost of a bad hire

Walk-out: Hiring the wrong person can cost a lot

Choosing the wrong candidate and then watching that person walk out the door a few months later is not only frustrating, it’s expensive.

The head of consulting at recruitment firm Futurestep, Matt Dale, estimates that the cost of a manager on a $100,000 salary who leaves, dissatisfied after three months, is about $60,000. Dale says direct costs such as job advertisements, reference checking and salary account for about $35,000.

Indirect expenses such as the human resource manager’s time, technology set-up, generating contracts and induction costs firms about $25,000. Dale says the estimate is conservative and doesn’t account for lost revenue if the person was in a sales or commercial role. Nor does it include the cost of using a recruitment firm. “I believe a bigger figure is accurate as well,” Dale says.

Companies need to better understand the roles they are offering, including remuneration and benefits, before they begin the recruitment journey.

“Companies don’t take the time to understand and evaluate the job,” Dale says. “If you’re clear about the core value proposition at the outset of recruiting, you tend to attract the right candidates.”

Understanding the cost of a bad hire is important, too. Companies should take some time to model and analyse both the direct and indirect costs, Dale advises.

“Many organisations only think of the direct costs associated with employing staff such as advertising and agency fees,” Dale says. “What we’re saying is you spend much more by continuing with poor processes.”

Jessica Gardner

BRW

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