What Are The Real Costs of a Bad Hire?

Do you feel like you're ahead of the dollars and cents game when you decide "NOT" to use an executive recruiter's services in your recruiting and hiring plans? Maybe you figure why bring a third party into the situation and pay out a fee, but have you ever really taken a look at the costs involved when your "chosen hire" doesn't work out?

The numbers regarding costs of a bad hire vary, but here are some estimates from various sources. According to Recruiting Times, "It costs $7,000 to replace a salaried employee, $10,000 to replace a mid-level employee, and $40,000 to replace a senior executive."
The U.S. Department of Labor estimates that the average costs of a bad hire may "equal 30% of the first year's potential earnings."

According to a presentation titled, Recruitment and Selection, by the Society for Human Resource Management, "replacing supervisory, technical and management personnel can cost from 50 to several hundred percent of the person's salary."

A quick calculation using Automatic Data Processing's (ADP) "Bad Hire Costs Calculator" revealed these results based on an employee that earns an annual salary of $40,000 with no relocation costs:

"Total cost for a bad hire of an employee making $40,000 annually is $53,171.15"

The fact is that the costs of a bad hire will vary from company to company and situation to situation; however, there are "direct" costs that you can measure such as an employee's salary and benefits, and "indirect" costs that are difficult to measure such as loss of productivity, time lost from other managers or employees involved in the hiring process, and/or time spent training a bad hire.

So while you may look at paying out a fee to an executive search recruiter as an unnecessary expense, in the long run it could turn out to contribute to your company's profitability.

Professional executive recruiters can keep your company from wasting money on a "bad hire" by using their field expertise and access to "top performers" in your industry. More often than not, these "top performers" are already working and excelling in their current positions; however, an executive recruiter can help your company locate and attract them. Over time when they turn out to be "good hires"-this gives you a return on your investment through their productivity and performance.

Additionally, you reclaim all of the time typically spent in the recruiting and hiring process performing tasks such as: writing a job advertisement and placing the ad, receiving and reviewing resumes to find potential candidates, scheduling interviews, arranging a "second" round of interviews, performing background and reference checks, extending an offer...and if the candidate you hired doesn't work out, you start all over again-not to mention the costs lost from the "bad hire's" salary, benefits, training and orientation costs, your time spent in the interviews, and selecting the best candidates.
So while you think going it alone in the recruiting and hiring process saves you money...it may actually increase the probability for a revenue loss. Partnering with a professional executive recruitment firm increases your chances of not only getting a return on your investment, but increasing profits for your company in the long run through recruiting and hiring "top performers" that make a difference to your company's bottom line.