What is the potential cost of a bad hire?

In a business world where every last cent counts, hiring the wrong candidate can prove to be more than a costly mistake.

There are few things more disheartening to a business owner than finding out that an employee they've invested so much time and money in turns out to be a failure. With the need to start the recruitment process again and find a replacement, it can be a difficult cost to recoup.

Studies over the years vary on the exact cost of hiring the wrong person, but what can't be denied is that it can be an astronomical expense. According to a survey by The Australian, a bad hire can cost a business 2.5 times the employee's salary.

Therefore, if you hire the wrong person for a role that pays $50,000, you will likely need to cough up around $125,000. Additionally, the survey noted that the multiplier seems to increase for higher-level positions.

Other sources provide more moderate estimates, with Workforce claiming that the cost is around 1.5 times the full compensation for the worker, including benefits. This figure is for white collar workers – for blue collar workers, the ratio is closer to 1:1.

Of course, the financial costs are just the tip of the iceberg. The real implications of a wrong hire run much deeper and can linger well after the employee has left.

Companies over the years have reported sharp drops in productivity and morale in their remaining workers even after a bad recruit leaves. Just because their tenure is short doesn't mean they don't have the opportunity to cause damage either, as a poor hire in a customer-facing role has the potential to tarnish your company's image.

On the flip side, research conducted by Hogan Assessments suggest that good management can impact productivity in the same way as adding additional staff. They found that compared to managers whose management skills were rated to be in the 25th percentile, those rated to be in the 75th percentile were associated with a 77 per cent increase in capital and 44 per cent increase in labour inputs.

Don't be part of the statistic – sharpen up your recruitment strategies today to make the right investments.