The Cost of Bad Hires: Understanding the Impact on Your Business
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The Cost of Bad Hires: Understanding the Impact on Your Business

In today’s fast-paced and highly competitive business environment, making the right hiring decisions is crucial for success, especially in high-growth sectors like the chilled food industry. Cutting corners and making poor hiring choices can have significant negative consequences that go beyond financial costs. Research from a survey conducted by Zippia indicated that 76% of surveyed senior managers admit to making a bad hire. This survey involved over 2,800 senior managers from companies across the U.S. with at least 20 employees. When considering the costs involved with a bad hire, it’s clear that it’s a mistake no one can afford to make, especially in a high-growth sector like the chilled food industry, where many new businesses are still being established. 

 

What do we mean by ‘bad hires’? 

Before diving into the impact of bad hires, it’s important to clarify what this term means. Bad hires refer to individuals who are not a good fit for their roles or the company due to lacking the necessary skills, not aligning with the company culture, or failing to meet performance expectations. 

  

Let’s look at the numbers: 

To truly understand the ramifications of bad hires, let’s examine the financial, productivity, and staff well-being aspects. 

  

The Financial Consequences: 

The average cost of hiring the wrong employee is $17,000, according to research by CareerBuilder. However, depending on the role and the company, this figure can go as high as $240,000, per 2021 research from the U.S. Department of Labor. 

Bad hires can be costly for businesses and cost a company 30% to 150% of the employee’s annual salary. This includes expenses associated with recruitment, onboarding, training, and potential severance packages. These financial losses can hinder progress in high-growth industries like the chilled food sector, where resources are vital for expansion and innovation. 

 

A bad hire can have a more significant impact than most people realise, there are various ways to calculate the cost of a bad hire, as shown by breezy.hr. 

 

  1. Time spent on hiring activities

Most firms can’t afford to spend days or weeks sourcing candidates, interviewing, and onboarding new team members, only to fire them one month later. 

To make more conscious decisions when hiring, let’s look at how much it costs to spend time on hiring activities.  

Take a look at who is involved in the hiring:

Imagine you have 1 departmental head, 2 members from HR, and 1 CEO involved in every hire that gets made. 

 Now, try to estimate how many hours each person spends on hiring-related tasks per week. For example, a member of your HR team might spend 30 hours of their week on recruitment and hiring activities. 

Now multiply that number by that individual’s hourly rate to arrive at the real-time cost. 

For example: 30 hours per week x $25 per hour = $750 per week 

 

Keep in mind, this only accounts for recruitment activities. Once you know how much time is lost on a bad hire, you can begin working towards a more efficient recruitment and hiring process. 

  

  

  1. Revenue per employee

The next number is big because the right hire can save you a lot of money in onboarding and retention costs.   

First, check your company’s year-end financial report (or SEC report if you’re publicly traded) for the revenue per employee average to calculate revenue per employee. Then, multiply that number by your average profit contribution to get an estimate of the profit margin per hire. 

Let’s say your revenue per employee is $200,000. With an average profit contribution of 40%, each employee brings in approximately $80,000 per year.  

$200,000 revenue per employee x .40 average profit contribution = $80,000 in profit 

For example, employees in the top 25% of the talent pool tend to bring in at least an extra 25% in profit. So where an average hire will bring you $80,000 in profit, a stellar hire will bring in a minimum of $130,000. 

 

  1. Recruitment marketing costs

Another way to determine the real cost of a bad hire is to examine your overall employer branding and recruitment marketing budget closely. 

Let’s say you spend an average of $300 monthly on advertising each open position through paid digital ads or even publication adverts.  

If you have 10 open positions per month, that’s a total of $3,000 on job ads alone. 

Job advertising (A) = $300 

Open positions (OP) = 10 

A x OP = $3,000  

 

  1. Employee turnover rates

Besides a financial impact, the impact of a bad hire on employee engagement and productivity is undeniable and significant. 

One way is to take a closer look at your employee turnover rates. 

  

Number of regrettable departures (ND) = number of employees x annual turnover percentage 

Average cost of those departures (C) = cost of hiring + cost of onboarding and training + cost of learning and development + cost of time with unfilled role. 

ND x C = Annual cost of turnover 

Let’s say you’re a 100-person company with a 10% annual turnover rate.  

ND = 10  

You spend $20,000 per person on hiring, $10,000 on each for onboarding, learning, and development, and lose $40,000 in average lost productivity due to the time it takes to refill a role. 

C = $70,000 

Your annual cost of turnover would be approximately $700,000 (ND x C). 

That’s a high number that no business wants to see washed down the drain. 

  

 

How does a bad hire impact productivity? 

Bad hires not only fail to meet performance expectations but can also disrupt the harmony and productivity of existing teams. When an ill-suited individual joins a team that has already bonded and shares common values and behaviors, the negative impact can be significant. 

If you’ve made a bad hire and the person isn’t able to do their job effectively it means wasted time in your organization. Over a period, this can have a real impact on results and the overall performance of the team as other team members are now expected to pick up the slack in trying to meet targets and deadlines. It may result in decreased efficiency, missed deadlines, strained relationships, and reduced overall output. 

  

How does it affect well-being? 

The presence of a bad hire within a team can have adverse effects on staff well-being. It only takes one person with a negative attitude to influence the whole team. Employees may experience increased stress, frustration, and demotivation when working alongside an individual who doesn’t pull their weight or fails to contribute effectively. This can lead to a decline in team morale, engagement, and ultimately, employee retention rates. 

  

Understanding the impact on your team 

When a bad hire disrupts a cohesive and well-functioning team, the consequences can be far-reaching. Team dynamics can be compromised, leading to a breakdown in communication, collaboration, and trust. The negative impact on the team’s well-being can cause talented individuals to become disenchanted, leading to a potential loss of key talent. 

  

Take accountability – Precautions against bad hires 

To mitigate the risk of bad hires, organizations must prioritize effective hiring strategies. Partnering with experienced food manufacturing recruiters can ensure that the recruitment process is thorough, efficient, and focused on finding the right fit for the role and the team. By leveraging their expertise, businesses can identify candidates who align with the company’s values, exhibit potential for growth, and possess a positive attitude that supersedes mere experience. We all have our strengths and weaknesses and recruitment companies work with potential candidates on a daily basis. They’ve been trained to spot good hires and know who will fit into a company, so instead of taking that burden on yourself, leave it to the recruitment experts. 

  

The importance of hiring based on values 

Hiring based on values is of utmost importance as it aligns the individual’s beliefs, attitudes, and behaviors with the company’s culture and mission. While qualifications and experience are undoubtedly important, they do not guarantee a successful and long-term fit within the organization. Most hiring should be based on values 

  

  • Cultural Alignment: Values form the foundation of a company’s culture so hiring candidates whose values align with those of the organization ensures that they will easily integrate into the existing team and work environment. This promotes a cohesive and harmonious workplace culture where employees share common goals, ethics, and work ethics. 
  • Stronger Employee Engagement: When individuals are aligned with the values of the organization, they are more likely to feel a sense of purpose and connection to their work. Employees who are passionate about the organization’s values are more likely to go the extra mile, contribute positively, and remain committed to their roles. 
  • Improved Team Dynamics: Hiring based on values enhances team dynamics and collaboration. When individuals share similar values, they are more likely to work cohesively, communicate effectively, and support each other. This fosters a positive and inclusive work environment where diverse perspectives are respected, and teamwork is highly valued.  
  • Growth and Development Opportunities: Candidates who may not meet all the qualifications but possess the right values and attitudes often demonstrate a willingness to learn and grow. In some cases, attitude is far more superior skills and hiring individuals with potential rather than just experience allows for the development of a strong talent pipeline. These employees can be groomed and provided with growth opportunities, contributing to their personal and professional development while benefiting the organization. 

  

While skills and experience are important, prioritizing shared values and behaviors during the hiring process is crucial for long-term success. I always emphasize the significance of candidates who tick 7 out of 10 boxes rather than seeking perfection.   

 

How to deal with a bad hire? 

If a recent hire turns out to be a mismatch, it’s important to evaluate the situation carefully. Dealing with a bad hire can be challenging, but it’s important to address the situation promptly and effectively to minimize negative impacts on the team and the organization. While terminating employment might be an option, consider whether the individual may be better suited for a different position within the company.   

Take the time to objectively evaluate the performance and behavior of the employee to determine the extent of the issue. Try to identify specific areas where the employee is falling short or not meeting expectations then provide feedback to the employee to discuss their performance concerns. 

You need to clearly communicate the areas where they are not meeting expectations and provide specific examples. Offer constructive feedback and explain the impact their performance has on the team and the organization. 

If it turns out there might have been any gaps in the employee’s skills, knowledge, or training that may be contributing to their poor performance, offer appropriate support, such as additional training, mentorship, or coaching, to help them improve. 

Once the employee has received the appropriate training, keep a close eye on their progress and provide regular feedback and if they continue to underperform despite efforts to help them improve, consider whether there are other roles within the organization where their skills and strengths may be better utilized. It may be beneficial to explore options for reassignment or restructuring their responsibilities. 

Unfortunately, if all efforts to support and develop the employee fail, termination may be the final option. Before proceeding with termination, ensure that you have followed proper procedures, documented performance issues, and given the employee ample opportunities to improve. Consult with HR and legal professionals to ensure compliance with employment laws and regulations. 

Learn from the Experience: Reflect on the hiring and onboarding process that led to the bad hire. Identify any gaps or improvements that can be made to prevent similar situations in the future. Consider revisiting the job description, interview process, and assessment methods to better identify candidates who align with the organization’s values and requirements. 

  

In the rapidly growing chilled food sector, making wise hiring decisions is critical to the overall success and progress of businesses. Bad hires can have significant negative consequences, from financial costs to productivity loss and negative impacts on a team’s well-being that your company has invested in. Remember, hiring the right talent is an investment in the future growth and prosperity of your business. 

Reach out to experienced food manufacturing recruiters like The Sterling Choice to ensure you make the best hiring decisions for your chilled food business. Invest in finding candidates who align with your values, possess the potential for growth, and bring a positive attitude that drives success in your organization. 

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