I am sure that you’ve heard the phrase “cost of a bad hire” before. You may have even used it yourself. But have you ever taken the time to actually quantify that cost? Be careful…the true number may scare you.
Here are a few statistics about just how large a financial blow a failed hire can cause:
- In a study of 444 North American companies, 42% reported the cost of a bad hire to be two times the employee’s annual salary, 26% reported a wrongful hire to be three times the employee’s annual salary, and 11% reported the cost to be as much as five times the employee’s annual salary. Only 15% of the companies declared the cost of a bad hire to be equal the annual salary (still, a significant amount of money).
- The Bureau of Labor Statistics estimated employee turnover costs in 2009 to be $300 Billion.
- A new hire requires an investment in advertising, interviewing, relocating (when applicable), training, salary, time and technology. A bad hire means all of that investment is wasted. Worse yet, you are back where you started…but with less money.
So how do you avoid this money- and morale-draining pit? Quite simply, invest in your selection process. An up front risk analysis of each candidate is the only way to keep you from paying the “bad hire gods” down the road. Partner with a company that specializes in predicting performance (particularly over the long term), reliably assessing candidates (with special attention to measuring conative talents) and easily tying into your existing hiring practices. If you are not already convinced, just look at the numbers. The candidate evaluation programs that we offer are often a mere 5% — at the very high end — of the position’s salary. That is chump change when compared to the reported cost of a bad hire, which averages 200-300% of salary. So the choice is yours: pay a little now and get a successful employee over the long-term OR pay a whole lot later and gain nothing but regret. It’s a no brainer!