Small businesses often survive on fine margins. Considering the fact that many new companies simply struggle to remain viable during their first few years of existence, it’s crucial that business leaders make smart financial decisions. Unfortunately, one of the most detrimental errors an executive can commit is also extremely common: hiring a bad employee. Let’s explore just how much a bad hire could cost a business, and consider how organizations can make smarter personnel decisions moving forward:
How Much Does it Cost to Make a Hire?
According to relevant data, it costs about $4000 to hire an employee, and a further $1200 to train them. So right off the bat, a new employee will cost their company over $5000 whether they turn out to be good, bad, or indifferent. Of course, it’s also worth noting that employees don’t work for free either. The median household income in the US is $56,516 per year. Add this salary to the costs associated with hiring and training an employee, and the bill to replace a bad hire is already in excess of $60,000.
Still, that figure is relatively conservative. Other studies estimate that a bad hire constitutes a total cost of $240,000 when other factors like hiring, compensation, and retention are considered.
Cost Beyond Cash
Of course, a bad hire will cost a company more than just money. Indeed, depending on how bad an employee proves to be, their mere presence could negatively affect employee morale, retention, customer service, public relations, and a business’s standing. In general, the smaller the company, the bigger the impact individual employees can have. It’s difficult to overstate just how damaging a poor hire can prove to a new company even beyond the actual “costs” the organization incurs.
Avoiding Toxic Hires
Naturally, every business should aim to only hire qualified, dedicated team members. Doing this is easier said than done, though. On a basic level, it’s crucial for business leaders to implement a thorough vetting process for all prospective hires. Remember, hiring an employee is about finding the right fit for an organization not simply bringing in the professional with the most experience or qualifications. What’s more, business leaders would do well to solicit advice and feedback from current team members when looking for a new hire. Lastly, it’s essential for companies to implement training sessions for new employees that promote useful skills like the Lominger competencies, for example. Doing this will ensure that every hire a company makes has all the tools to achieve success. And that, in turn, will save your company a lot of money in the long run.
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