Excitement arises as you close a new account and hire additional staff to meet the account’s needs; all to be risked by one bad hire. We all have that one person – that hire we coached out the door or terminated well past their expiration date.
The fiscal impact of a bad hire is often viewed as a hard cost of lost productivity, both from a position vacancy and recruitment efforts for replacement. Most companies will agree that, prior to the bad hire’s exit, there was a lack of productivity and low levels of engagement, and decisions were made with a lack of skill.
What companies sometimes fail to realize is that the cost of a bad hire goes beyond financials. Have you considered the bad hire’s internal and external relationships? Their misguided work? What about the resources needed to train and onboard a new hire?
In addition to hiring bad apples, companies have faced an alarmingly increased voluntary turnover rate over the last decade that suggests business owners need to forecast a budget for such eventualities. Studies show that companies spend the equivalent of six to nine months of an employee’s salary to locate and train their replacement.
As you sit there calculating the fiscal cost of your last bad hire, here are some other factors to consider.
As a manager or sales leader, you are constantly navigating the fine line between accountability and motivation. Disengagement stemming from a bad hire can diminish the effort you have put forth for the entire team. Your all-star reps might view this as a lack of leadership on your part, while under-performing members of your team see it as an attack on their former peer.
Your clients have enough to deal with in their daily routine; they shouldn’t have to worry about building new relationships with resources they utilized within your organization. Overlooking low-visibility roles, such as accounts payable clerks, can result in a lack of client responsiveness and accuracy for higher-visibility roles.
In today’s Digital Era, we can write reviews on absolutely everything. As a business owner, protecting your brand should be at the top of your priority list. Think about it. You’re unlikely to eat at a restaurant that has less than three stars from your go-to review app. Similarly, clients and potential new hires will have the same perception if they discover unfavorable commentary online.
Replacing an entry-level employee can cost you between 30 percent and 50 percent of their annual salary. If you’re replacing higher-level employees, those with specialized skill sets, you could spend as much as 400 percent of their annual salary. These estimates include costs associated with reduced productivity, missed opportunities, and other turnover factors.
I would argue that the cost of entry-level turnover exceeds 50 percent of the employee’s annual salary if you are a small or mid-sized company that’s been in business less than five years. These are the years in which processes are still being designed, relationships are being built, and multi-tasking is critical in every role.
Regardless of what stage a company’s in, the costs associated with a bad hire can add up quickly and cause significant impact.
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