The Costs Of Getting Recruitment Wrong
Hiring. It’s one of the most difficult processes in business and yet it's one that’s commonly overlooked. Many businesses use a box-ticking process to assess candidates, only to find they’re not the right individual six months later. But what is the financial cost of getting it wrong?
A 2020 survey of hiring managers and HR experts from the ten largest economies found that over 50% of managers had made bad recruitment decisions. This number was 62% in the UK, which suggests there’s an ongoing issue with recruitment processes. These processes are causing huge financial consequences, and for small to medium companies, these can be the difference between growth or complete collapse.
In the UK, the estimated price of a bad hire is around £115,000 when you consider wages, cost of recruitment, and the cost of a replacement. If a small business gets this wrong a few times, they’ll quickly run into cash flow issues and other financial problems.
Getting recruitment wrong also has an impact on other areas of the business, which eventually come back to damage its financial success.
One of the biggest problems is the damage a bad hire does to morale. Several studies have found that when a bad hire is made, the overall morale of teams can decrease dramatically. This can cause friction between team members and disrupt current schedules, lasting for months even after the new hire has left the business. Morale can take a long time to rebuild, and can also be seen by clients. If morale issues aren’t sorted quickly, clients may eventually move their business elsewhere, significantly damaging revenue.
Another problem is disengagement. If a poor hire is struggling with their job, or doesn’t align with the company culture, they’re likely to be disengaged. In a similar way to poor morale, disengagement can spread amongst teams. If one individual is always disengaged, others may ask why they should be putting in all the work. This can negatively impact overall results and further damage team morale.
Both morale and disengagement have an impact on productivity. If one team member isn’t pulling their weight, a whole project can fall apart. Let’s say you’re in the process of creating a marketing campaign for a black Friday sale. Your design and copy teams have all done an excellent job. However, the new video designer isn’t nearly as productive. They’ve missed the deadline and now the planned launch day has been pushed back, missing black Friday altogether. Although there was only one person who wasn’t productive, the whole team's performance has taken a hit, and sales will be down as a result.
Another negative impact of a bad hire is the increased risk of burnout. When a team member isn’t as productive, someone else usually needs to step up. This can dramatically increase their workload, and over long periods of time, increase their stress levels. Stress can lead to medical leave and, in some cases, even resignations. Now the business has lost a productive employee and needs to pay even more to find a replacement.
In the long run, a consistent chain of bad hires can damage a company's reputation. Poor recruitment policies lead to higher turnover, which can create a negative reputation around a business. Once that reputation is in place, finding higher quality candidates can become difficult, as nobody wants to work at a business where they could be fired six months later.
A bad reputation can also cause current employees to seek work elsewhere, as they may not feel valued where they’re working. If we base the financial cost of this on the £115,000 average it costs for a new employee, finding five will cost a business over half a million pounds. For most small to medium businesses, this could mean bankruptcy.
So how can you get recruitment right the first time?
1. Check All References In Detail
References are invaluable for preventing mistakes. They provide you with insights into how a candidate performs, their attitude to work, and how well they collaborate with others, all before they’re part of your team. By talking to someone a candidate has worked with in the past, you can clarify any thoughts you had during the interview process and gain new insights to ensure they’ll be a good fit.
2. Get More Than One Perspective
If you’re hiring a new employee for a specific section of the business, ask the manager to take part in the recruitment process. Let them get involved with interviews to see who they naturally bond with. This is a great way to prevent friction after you’ve hired a new team member and also allows you to get the perspective of a team member the new employee will be working with.
3. Offer A Test Run
If you think you’ve found the right candidate but are not 100% sure, then offering a 30-day working trial may be a good way to test the water. During these thirty days, both employer and candidate can determine if it's a good fit before signing for anything long-term. Although this can be somewhat inconvenient, it dramatically decreases the financial consequences of hiring a full time employee only to find they’re not a good fit.
4. Set Clear Expectations
A Gallup poll conducted in October found that out of 1,000 employees, only 50% actually understood what was expected of them. If teams are already struggling to understand expectations, then it's going to be almost impossible for new employees to.
When hiring, be very clear in your expectations. Discuss the role and responsibilities in-depth with potential candidates, using numerical expectations where possible to prevent any misunderstandings. If expectations aren’t met in the first few weeks following a hire, you have grounds to end the contract.
Getting It Wrong Impacts Much More Than Just Your Finances
Overall, getting a hire wrong can have huge financial consequences on a business. As well as costing upwards of six figures, a bad hire can dramatically impact the efficiency of your current teams, decreasing morale and productivity, whilst increasing disengagement and burnout.
This can ultimately damage the reputation of your business, which can make it difficult to find quality candidates and retain your best employees. Within months, all of these issues will have financial consequences, decreasing revenue and overall workplace performance.
By implementing more vigorous recruitment policies, you can help reduce the risk of getting the recruitment process wrong, thus the chances of finding your business in financial trouble due to recruitment.