Real cost of a Mis-hire

Qualified candidates are key to maintaining an efficient workforce, but finding them can be challenging.

Hiring managers have their tasks cut out for them when getting qualitative hires, and a common challenge they face is hiring someone who isn’t the best fit for the role. In other words, a ‘mis-hire.’ The real cost of a mis-hire is astonishing with unnecessary expenditure both in terms of time and resource.

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Outcomes of Mis-hiring

A 2012 study from the National Business Research Institute revealed that 66% of employers experienced negative effects of mis-hiring, which included low employee morale (37%), ineffective client relationships (18%), and a decrease in sales (10%).

For most organizations, the cost of a mis-hire is too high to measure. Approximately 74% of hiring decisions result in an underperforming employee, affecting the productivity and morale across the organization.

When calculating the actual costs of a mis-hire, organizations typically consider only the ‘salary’ of the individual. However, the costs go much beyond remuneration, including time and resources spent interviewing, developing, and training the new hire. The cost of letting go of qualified hires and what they could have achieved in the role is another consideration.

Fundamental Truth: ‘Salary’ is just the tip of the iceberg with regard to wrong hiring.

The real cost of a mis-hire includes everything that was lost or missed out on because you miscalculated the first time around, which can consist of revenue streams, customer relationships as well as opportunities for your team members themselves.

Case study – Scenarios a and b

Scenario a – the adverse effects of a Mis-hire

You’re a solar manufacturer selling technical products to large EPCs and Developers.

You think you’ve hired the perfect salesperson: A Vice President (VP) of Sales, who will be responsible for ten others on your team, each with $12 million annually in revenue targets combined ($120 million).

The VP’s salary? A whopping $170,000 with an additional $100,000 bonus at goal is not bad considering that this person costs you $20,000 in lost productivity, i.e., interview and other related expenses.

Fast forward to 6 months later, the VP has created a toxic working environment that has led to poor sales performance.

Only two are on target in the team, while two others, unable to bear the chaotic atmosphere, have quit! The remaining six are only hitting 50% of their targets, with $3 million in revenue instead of $6 million each.

With luck on your side, even if you manage to replace the mis-hire (VP) with a great one, get two new qualified hires (to replace the ones that quit) and miraculously reach end-of-the-year sales targets, there would still be a $15 million crunch for that year.

How is that? In all probability, it would take about two months to find the right VP, the two new hires, including the time and resources required for the new team to bring things up to speed at an additional cost of $20,000.

At a minimum, the actual cost is over $30 million!

Scenario b – now, let’s flip this situation and see what happens; a successful outcome!

You hired the best possible candidate to be your VP of Sales. You initially budgeted $170,000 in salary for this position but ultimately chose an exceptional hire at $200,000 with the same $100,000 bonus at goal.

Six months later, under the VP’s able stewardship, the top performers are hitting beyond their targets while the underperformers are not far behind.

The result? End-of-the-year sales at $120 million and bonus goal target achieved – a win-win!

Although you incur an additional cost of $50,000 to hire the best VP through a well-known recruitment firm, your Return on Investment (ROI) far outweighs the cost, the difference being $30,000,000!

Fundamental truth: It’s prudent to recognize the value of investing in quality hires with the confidence that you will exponentially reap its benefits in the long run!

Hiring the best talent is crucial for any organization as its growth and success largely depend on the people who work there.

Top 3 processes to follow for getting qualitative hires

Have a robust, structured, and candidate-centric hiring process.
Focus on attracting quality candidates and not just screening out misfits.
Avoid solely relying on job portals for your hiring needs, as that’s more likely to result in more mis-hires.

Best Practices

Use a mix of various methods, including job referrals, pre-employment tools that include psychometric assessments, practical, real-world take-home projects, and a full-fledged interview process to increase your chances of getting qualitative hires.

Looking for a robust pre-employment tool to recruit qualified candidates?

Frequently asked questions (FAQs)

Decreased productivity, increased turnover, damaged morale, and financial losses impact organizations due to mis-hiring.

Consider additional costs like training, onboarding, lost productivity, impact on team dynamics, and potential customer dissatisfaction.

Use thorough screening processes, conduct behavioral interviews, involve multiple team members in the hiring process, and provide realistic job previews.

Utilize social media, employee referrals, networking events, industry-specific forums, and engaging company career pages.

They provide insights into candidates’ personalities, cognitive abilities, and job-related skills, ensuring better alignment with the role and organization.