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The Real Cost of a Bad Hire and How to Avoid It With Ease

The cost of a bad hire can be a lot more than you expected. Entrepreneurs and business owners around the world routinely get hit with the cost of a bad hire and don’t even realize it. We’re here to tell you straight out that making a bad hire can cost you a lot of money and time.

According to the US Department of Labor, the cost of a bad hire can reach up to 30 percent of their salary. That’s right — 30 percent of what they earned with you in their first year of work. If you’re a startup and / or you’re bootstrapping, that’s a big hit right there. But that’s not the end of the costs that you can expect to shoulder. The Undercover Recruiter reports that the cost of a bad hire can include $240,000 in expenses, which is made up of costs that are related to hiring, pay, and retention — including turnover costs. If that wasn’t close enough a reality to get your attention, here’s a scary average to consider. We know from CareerBuilder that for 74 percent of companies, the cost of a bad hire will be $14,900 per head on average.

“The cost of a bad hire is always extensive” — Arte Nathan, founder of Las Vegas human resources advisory service The Arte of Motivation (quote credit:  SHRM)

Now you’re fully aware of what you could be losing by not paying attention to the hiring process. And we can give you the good news! We have five major tips for you right here to help you to avoid the cost of a bad hire. You can start applying these five tips in your business right now. Our promise is that the more you take action in these areas, the less at risk you will be of taking a hit from a bad hire.

(1) Targeted Hiring

Always approach hiring from the perspective that you are looking for specific qualities in every candidate. This means having a well thought out list of key elements. These key elements must be present in every single hire you bring on board at your company. This standard acts like one plate on a risk protection shield for your business. 

The main idea here is that you will never compromise on these elements. If you do, you are creating a hole in your risk protection shield, and risk will get in. The more you compromise, the bigger the hole will get, and the more risk will get through. 

At Outsource School, we focus on three main non-negotiable qualities overall. These are Skill, Attitude, and Culture. 

Skill refers to the level of skill that each candidate must have in the area that you are hiring for. For example, if you are hiring for a graphic design role, the candidate you want must have hard skills in the use of design software like Adobe or Canva — depending on what you need done and have the budget for. 

Attitude refers to the candidate’s outlook and other soft skills or personality traits that they need to exhibit. For example, for any role, the candidate you are looking for needs to be reliable, have integrity, and communicate at a high level. 

Culture refers to your company culture, which you will need to outline in each role description you post online. During the interview stage, you must describe your company culture in more detail and get initial agreement on it before proceeding to make the hire. 

You must have a targeted approach to hiring like what is outlined above to be able to avoid the high risks that exist when hiring for any role. These risks are not specific to hiring virtually, although outsourcing can pose additional risks because you are sourcing from a much larger pool and dealing with a range of cultural nuances that you may not be familiar with. This can make it difficult to spot red flags, but the more effort you put into applying this and the following tips, the higher your chances will be of paying the cost of a bad hire.

(2) Onboard All Hires

Hold an onboarding meeting with every person you hire, immediately after you hire them. Make sure that you do this, even if you are just hiring one person. Don’t wait for more people to get hired before conducting this meeting. It will be tempting to gather more participants because you will be thinking about saving time. This is a mistake. You might save a little time, but you will again be putting holes in your risk protection shield. Onboarding is another plate on this shield, and it’s thickness — its strength — depends on how thorough your onboarding process is.

You need to have an extremely detailed onboarding process prepared before you hire anyone. This process is where you will lay out all the specifics of working with you. This onboarding process must be ready so that every new hire can go through it right after they get hired and before they start work. 

Proper onboarding includes complete documentation on your company culture, and you must confirm that each hire agrees with it. Note that part of the onboarding process is going through expectations and the consequences of falling outside of expected behaviors and work output, etc. As such, you need to make it clear that agreeing to all of the content under the expectations portion of the process includes agreement to willingly submit to any disciplinary action described as pertaining to violations in the area of work performance and culture. 

(3) Train with SOPs

On top of the whole onboarding process, you need to develop a training process. You will need to spend a bit more time on this because part of it is role-specific. But on the whole, you need to make sure that it is organized based on a plan with specific goals in mind. Again, a targeted process is essential to avoid paying the cost of a bad hire down the line. The cost of investing in proper training is far less than risking hiring the wrong person.

Start with a plan for what you want every new hire to accomplish while working with you. Then create the first part of the training process. This part must be designed to meet the goals that you have set through teaching new hires how things work at your company. Introduce them to the general system and flow. For example, go through the organizational diagram with them so they can see who’s who and what’s what. This first part of the training process will be repeated for every new hire, regardless of their individual roles. 

Note that it can be confusing to decide what should be included in the onboarding versus the training. A good general rule to follow here is that onboarding is about them being a good fit for the company. In other words, they either are or they aren’t, right from the start. Training is about what you can help them with for them to become more comfortable and productive as they work. First, this is as a member of a larger team — the whole company. Then, this is within their specific roles within a smaller team that they will be collaborating with more closely and for most of their work time. 

Once they are oriented in these general areas, you can dive into the details of their area of focus. Have standard operating procedures (SOPs) prepared for each department and role. Make sure that all these SOPs are in place. You can’t just hand out SOPs and expect them to be followed if other people who have been working in your business for a while are not routinely applying them. SOPs are guidelines, and any new hire will need support from existing hires to get into the right rhythm of work with your business. Remember that this rhythm is different for every company, so no amount of work experience on their part is going to make them fit in perfectly from the get-go.

(4) Give Constant Feedback

You need to make sure that you set aside enough time to monitor new hires very closely. At Outsource School, we generally give them more attention over the first two to four weeks after they start working. This does not include onboarding and training time, especially if you’re giving them only two weeks. This refers to keeping an eye on them as they are doing the actual tasks that you hired them to do.

As you monitor their performance, take a bunch of notes so that you have specific examples on hand at all times. Schedule regular meetings with them, ideally at least once a week. If anything major pops up, you can always call them to an emergency meeting to straighten things out. During these meetings, the goal is to provide that new hire with as much feedback as you can on their performance over the past week. This means giving them both positive reinforcement and advice for how they can do better in the areas that need improvement. You must not give in to any temptation to just go for the jugular to save time. They need a pat on the back to improve their performance as much as they need guidance on what to change. 

(5) Address Red Flags Immediately

As mentioned above, if you notice any major issues with a new hire, you must deal with it immediately. Reach out to them without delay and set up a meeting. Do not let them go on, business as usual, without addressing that issue. Doing so can only make the situation worse because they will not only continue to make that mistake, but the bad behavior can become a habit and also spread to others. At the very least, seeing someone on the team violating the culture or the expectations that everyone holds dear is a real mood and motivation killer. You want to avoid that, since it is indeed another cost of a bad hire.

During that meeting, call the hire’s attention to the rule or guideline that they violated. Ask them again if they understand it. If yes, ask them to confirm that they agree to it. If they have not yet gotten the hint and started to explain themselves, you can prompt them to tell their side of the story by mentioning that you noticed a certain behavior or mistake in their work — whatever it is. Then ask them to give their thoughts on the situation. 

Most of the time, it will be a misunderstanding that you can resolve quickly and peaceably. Once you are on the same page, they can get back to work and you can continue to observe them, with a particular focus on that issue. 

Sometimes, however, this conversation will reveal a bigger underlying issue. For example, that hire may have just said that they agree to everything out of desperation so that you would hire them. They were not being honest, and that is a big deal. That cannot be tolerated if you want to build a strong company, so you will most likely have to let that person go immediately and get a replacement.

Final Thoughts

Note that you don’t have to do all of this yourself. You may have a partner or managers that handle different areas. If you do, then we strongly advise that you divvy up the work involved in setting up for and applying these five tips. By sharing the load, you can all remain productive in your own areas of work as you prepare to strengthen your company’s human resources muscles. It also makes for a great opportunity to exercise your collaboration muscles, too! The core will grow stronger through this process, and that’s always a good thing.

 

 

Would you like to know how to be certain who your next hire should be? Or maybe you are having a hard time deciding what parts of your business can be outsourced with virtual assistants, right now. We can help you answer these questions, and help you to discover what new systems you should add to scale your business faster. Set up a free hiring consultation with us at Outsource School today – simply book here!

By Julia Valdez

Julia is a career freelancer and agency owner turned coach for those seeking abundance and victorious living. A professional teacher and decades-long lover of the art of words on paper and the stage, she loves sharing actionable advice on life-changing topics. When she’s not helping freelancers and other small business owners grow, you can find her sharing lots of laughs over little crazy things.

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