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Is a bad hire hurting your ROI?

Angela Leffler
Published October 27, 2016

roi-blog

ROI…aka return on investment.

This number can either shake you to your core or lead you to celebrate. Understanding the ROI in your business can mean the difference between success and failure. It’s easy for an organization to measure revenue and the hard costs associated with it. Yet, what happens when we take a look at the intangible costs affecting ROI; specifically those associated with turnover?

Each year, companies are losing thousands (if not millions) of dollars to turnover. A study by the Society of Human Resources Management (SHRM) indicated that

Let’s put that into perspective:

If you lost a hire making $65,000/year that means it could be costing you $325,000 !!! And that is on the conservative side. 

Assessing the impact of turnover comes down to more than just losing that employee. The cost of a bad hire can be broken down into direct and indirect costs.

You have your obvious costs associated with recruiting and training a new hire. You can project those costs. There are the interviews (and all the steps associated with the interview process), potential travel costs (if hiring for an off-site employee), training/onboarding etc. But then you have the hidden or indirect costs. Things like missed sales opportunities, strained relationships, a decrease in employee morale and company culture etc. It can take a new employee 1-2 years to reach the productivity level of an existing employee depending on the job. In an article published by Fast Company, they outline how the costs of a bad hire go beyond just their salaries. It can be broken down into varies ways in which it costs a company. 

  • 41% Lost in worker productivity
  • 40% Lost in time due to recruiting and training another worker
  • 37% Expense incurred due to recruiting and training another worker
  • 36% Lost due to negative impact on employee morale
  • 22% Lost due to negative impact on client solutions

So, how do you decrease this risk? How can you ensure that turnover is not affecting your ROI? It all comes down to hiring the right person for the job. Seems easier said than done.

Implementing things like a pre-employment assessment at the top of the hiring funnel will help ensure that you:

A) Filter through your vast amount of applicants and focus only on those who are a great match (save you time and money)

B) Increase your chance of hiring the right candidate (decrease turnover).

C) Decrease the risk of indirect costs.

Many times companies do not realize the true risk to ROI because the focus is on the direct costs that can be measured. It is these indirect costs that are putting your ROI at risk. It’s time to assess how to better manage this. Investing in your hiring process, in the beginning, will pay off in the end.

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