A Million-Dollar Mistake: The Cost of a Bad Hire
Can a bad hire really be a million dollar mistake? Yes, yes it can. Sloane Staffing is here to break down the cost of a bad hire and help you avoid making that mistake.
According to Jörgen Sundberg, CEO of Link Humans, the cost of a bad hire can be around $240,000. That’s almost a quarter of a million dollars. However, when it comes down to a sales or enterprise software companies, the cost of a bad hire can be a million dollar mistake.
A bad hire does not only majorly negatively impact your company’s finances, however. Poor performers can lower the bar and influence other employees’ bad habits. Maintaining your company’s culture is a talent all on its own, and a poor hiring decision can bring down the excitement and determination embedded in your company culture. The time, money, and resources it takes to rebuild after terminating a wrong company culture fit can take months if not a year to restore.
Let’s Break It Down
To make this as simple as possible, we’ll use an enterprise software sales hire as an example.
Recruitment cost and fees: Let’s say your new sales hire’s salary is $100,000. Recruitment costs and fees range anywhere from 25-30% of an annual salary, which equates to $30,000.
Time spent interviewing candidates: Perhaps 40 hours were spent on interview time with multiple candidates and interviewers. $100/hour x 40 = $4,000.
Training and onboarding: 2 weeks of training (to be conservative) at 80 hours x $100/hour (including the trainee and the trainer), equates to $8,000.
Salary and benefits: First 6 months of employment on top of 25% for benefits would equate to $50,000 + $12,500 = $62,500.
Unmet sales quota: Let’s say your sales hire has a quota of $1M/year. After 6 months, that's a $500k opportunity cost.
Client impact: If your sales hire is truly a bad apple, they could severely negatively impact your client relationships. Two accounts lost due to your wrong hire could, for example, cost your company $100,000 in deals.
Now we’re at $704,500 solely based on your wrong sales hire. However, we haven’t even calculated the cost of hiring a replacement. Add another $104,500 for total initial hiring costs and another $166,667 for 2 months of unmet quota until they ramp up to speed. We have now hit almost $1M at a total of $975,667.
What Do Red Flags Look Like?
Your new hire might be going through difficult personal matters or they might have been hit with something life-altering right around the time of their hire. Keep in mind that performance reviews and conversations regarding your employee’s performance are necessary before considering their termination. Every situation is different and we strongly recommend that you analyze wrong hires case-by-case. With that being said, red flags can often look like:
Your hire does not possess the skills they claimed to have during the interview process.
Hey, we all amp ourselves up during an interview. However, if your new hire does not have skills that are crucial to the job description, you most likely do not have the right fit.
Your employee does not take ownership of their mistakes or shortcomings, and instead blames others.
They are consistently late or absent.
Your employee does not have the right tech stack.
When it comes to MarTech employees especially, having the correct tech stack match can mean everything. If your new employee is unwilling to or simply cannot learn a new platform, it’s a red flag.
They have a different career background that doesn’t align with your company.
There’s nothing wrong with moving to a new career space. It can bring the advantage of a different mindset and fresh perspectives. However, if you have a sales hire that came from a large company where they were supported by BDR’s and now has to get down to the nitty gritty and do the work themselves, they might not be a good fit.
Your employee is not performing on a realistic amount of work you both agreed on.
They do not embrace company culture and chronically have a bad attitude.
Your hire receives repeat negative performance reviews.
Alright, I Have A Bad Hire On My Hands, What Do I Do Now?
Sloane Staffing specializes in B2B, GTM, MarTech hires to ensure that you never have to read this article again. Here’s what to do when you realize you have a wrong hire on your hands:
Identify The Problem
Evaluate and document your employee’s performance. In doing so, ask yourself if there is a problem in your hiring process, if you simply came across a bad apple, or both. More often than not, your hiring process is lacking will lead to the wrong hire. Another critical step is evaluating whether or not your company properly trained the employee at hand, and if there are any adjustments you can make in your training methods.
Start The Conversation ASAP
After identifying the problem, you will want to begin the conversation as soon as possible. You’ve already lost enough time, money, and resources, so work to ensure that you decrease opportunity cost as much as you can. Share your concerns with your employee and give them the chance to get back on the right track if possible. Early action yields better results.
Let Sloane Staffing Find You The Right Hire
If you’ve decided you have a bad hire and they are not the right fit for your company, you are going to want to make sure you do not make the same mistake twice.
Let Sloane Staffing find you the right hire. We are more than just a hiring agency – we are consultants. By positioning ourselves as your internal recruiter and leveraging our expansive network of candidates, we successfully source talented individuals who will fit both your company and culture needs.
