Cost-to-Hire: Don’t Spend $100s to Earn Pennies

How often do you make bad hires? If you're like 95 percent of other organizations (of any size), you make bad hires every year. But do you know how much these hires are costing your organization? According to the Brandon Hall Group, the majority of organizations have a very limited grasp on true cost-to-hire metrics — especially for poor hires.

Traditional cost-to-hire calculations miss out on other costs associated with a new team member — it's almost like purchasing a used car and ignoring the future cost of gas, repairs and maintenance. With more than nine out of 10 companies admitting they make bad hires every year, it's naïve, to say the least, that management accepts "cost-to-hire" as an effective measurement of HR expenses.

Truth be told, the cost of a bad hire induces widespread collateral damage — like spending $100 bills to earn pennies. When you consider that a toxic employee has a negative impact on both coworkers and customers, the costs skyrocket. According to a recent Cornerstone report, bad hires make their teammates 54 percent more likely to quit and can cost organizations up to three times more in hiring fees. Instead of leading, managing and delivering excellent customer service, bad hires force managers into damage control.

The cost-to-hire is just one ingredient in a more complex formula that should be used when evaluating a poor hire. Additional variables include unemployment compensation, missed business opportunities, loss of team productivity, poor customer service, outplacement, weakened employer brand, litigation fees... just to name a few.

So, what can a company do to reduce the risk of a bad hire and mitigate financial and other collateral damage?

Only five percent of companies evaluate candidates during the sourcing and screening process. An effective screening process, including pre-hire assessments, can reduce the cost of a bad hire by 45 percent.

Solution: The key to mitigating the risk of a bad hire is to evaluate candidates early and often. Defining a success profile for effective candidates and performing pre-hire assessments make organizations 24 percent more likely to hire workers who exceed expectations.

A broken interview process is the easiest way for toxic employees to make the cut: Organizations that lack a standard interview process are five times as likely to make a bad hire.

Solution: Standardize your screening process; align interview questions with business objectives; and provide a checklist of questions no matter how experienced the interviewer. Interviewers — recruiters and hiring managers alike— must be trained to assess cultural fit, as well as technical or functional skills. They should be prepared to look for red flags, warning signs and other concerns. Most bad hires don't fail for a lack of skills, but due to bad attitude or poor cultural fit.

Organizations that invest in the candidate experience state their quality of hires improved over 70 percent. A poor candidate experience will spread like wildfire and that's not the type of publicity that helps you win the war for talent.

Solution: Build an online talent community for your company, and don't use the excuse that you're too small or too specialized to need a talent pipeline. Social media tools, like Facebook and Twitter, are a great option. Nearly 2 out 3 jobseekers say their employers do not use social media to promote job openings, while 79 percent of jobseekers use social media in their job search. Building an online community — especially on platforms job seekers are already actively using — is the best way to engage more talent.

While these three steps do require additional time and resources from your HR and management team, investing in the recruiting and hiring process upfront will help you avoid paying for the consequences of bad hires down the line.

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