Cost to Hire versus Cost of a Bad Hire

Cost to Hire versus Cost of a Bad Hire



When I speak to members of HR, I hear a lot about costs associated with hiring.  Specifically, costs of ads, job boards or whatever resume database is hip at that time.

I don’t think I’ve ever had a conversation with a C-level executive about cost of hiring.  But I’ve had more than enough on the cost of a bad hire.  On the sleepless nights they’ve had cleaning up messes, on teams exhausted picking up slack and on positive work cultures poisoned with negativity.  On customers lost and revenue missed and the heartache of losing even more staff in the ensuing chaos.  I’ve had lots of those conversations.

Cheap hiring reminds me a lot of remodeling.  When I bought my first house, it was a fixer-upper.  We were going to do the work ourselves and save money!  Hooray!

That plan didn’t happen.  We bought supplies, put sweat and blood and even some tears into the project and made it a couple years.  Then it was time to sell.  What we had lovingly thought was “good enough” was nowhere near and in order to see that house at anything other than breakeven, we’d have to invest in professional grade work.  Our efforts were wasted.

Now, I am not saying HR’s efforts are wasted when they work hard to get a good deal on a recruiting resource.  But it’s easy to get myopic on the costs we incur right now and forget about the possible costs down the road.

I went to a business management conference where the keynote speaker said “It’s not the person you don’t hire that ruins your business.  It’s the person you fail to fire.”  I’ve never forgotten that line.

Firing people?  Weren’t we talking about cost to hire?  Yes, hiring and firing are two sides of the same coin.

When we are hiring, we need to get the most talent possible for the compensation we pay.  But sometimes instead that gets seen as we need to get the cheapest people possible.  And a mindset of attracting “cheap” people almost always drives up costs in terms of turnover, wear and tear on management and teams and organizational chaos.

When instead we want to get the best return on investment, then different opportunities open up.  I’ve seen executives hire technical sales representatives whose compensation was originally outside their flinch point in order to gain a big chunk of market share.   And I’ve also seen execs turn down a candidate who was a few thousand dollars more expensive than the other candidate but who would have brought in several millions of dollars in business.

It’s easiest to see this ROI in sales because their results are so quantifiable.  But managers who attract, develop and keep high performers are creating the same ROI, decreasing costs associated with lost productivity, turnover and mis-hires.

Cost to hire includes recruiting resources such as recruiting software, resume databases, job postings and recruiting staff.  Most folks add these up and divide by number of people hired to calculate your cost to hire.  But we miss the time spent interviewing, deliberating, training and the loss of productivity inherent in a new hire’s ramp-up.

What if instead of working to decrease the cost to hire, we focused on decreasing the cost of a bad hire?

That is more complex.  Because now we need to first gain really good hires and that means quantifying what makes really good hires.  The best organizations have a scorecard for each position, quantifying not just the tasks that must be completed but the skills, personality traits and values needed for that job to be done excellently.  Those scorecards are used in every interview, which systematize the process and take hiring decisions away from “gut feel”.

It also involves having uncomfortable conversations with low performers and disengaged employees now and not later, which is easier said than done.  However, waiting never makes the problem go away, but it may make an employee who could have been salvageable leave instead, on their terms and not yours.

Focusing on reducing the cost of a bad hire means increasing the return on investment of our employees.  It means coaching, succession planning and conflict resolution.  It pulls HR out from behind a desk and into a strategic role as the guardian of our more important, expensive and diversifying resource, which is our people.

And sometimes it means spending more up front to get the results we want.  That may mean giving your recruiting team more resources, investing in an employee referral program or even paying a recruiting fee.

But if we are going to spend money to hire if it is either a good hire or a bad one, let’s get that return on our investment.


By: Dixie Agostino, Founder of Switchgear Search & Recruiting