The true cost of bad hires might shock you15th September 2021
Everywhere I go at the moment I see signs proudly announcing, “We’re hiring.”
My immediate thought?
That’s great… but are you hiring the right people?
You’ve heard the old adage about your staff making or breaking you... It’s absolutely true.
Any company – or rather, any successful company – is only worth the sum of its parts.
And those ‘parts’ are your employees.
Having the right people in place directly impacts your bottom line - which makes recruitment a financial issue.
Conversely, recruiting the wrong people impacts your bottom line as well...
...Not just because the wrong people in the job can hurt your growth.
It’s even more basic than that!
When you make a hiring mistake, the cost of recruiting this person, onboarding them, then getting rid of them and then starting the whole process again can be far higher than you imagine.
In fact, it can seriously dent your profits.
Let’s do a little exercise.
Take a moment and think about the last member of staff you recruited. What did that new team member cost you?
Here’s the reality...
- You paid their salary - likely tens of thousands of pounds. If they’re unsuitable but were in place for 6 months, that’s quite a lot of money down the drain.
- You’ve also paid them benefits on top of their base salary - likely several thousand more.
- Don’t forget employment costs like National Insurance and pension! Add another few thousand on top.
- A recruitment agency or search firm. This can cost around 20 - 30% of the new hire’s final salary – so easily several thousand pounds.
PLUS you’ve spent on...
- Managing the recruitment process yourself through job sites and social media? It can still cost around £200-£400 and a lot of time. Got an HR person handling this for you? They’re not free - you’re paying them!
- Onboarding and training - The average UK company spends more than £1,000 bringing each new employee up to speed - I've seen figures suggesting this could be up to £10,000. The cost in terms of other team members' time is huge.
- You may also have to provide them with costly new equipment, especially (but not only) if they’re working from home. Add that new laptop or office chair to the bill...
- Lost productivity. Even if you’ve recruited a star, research shows it takes around 8 weeks for someone junior to achieve full productivity, and 16 weeks for someone in a more complex, senior job.
During that substantial period of time, you are probably losing money on them.
According to an American study by Mellon Financial Corp, the learning curve of new hires cost companies between 1% and 2.5% of their total revenue each year. There’s no reason to think it’s any different here.
Ouch. Hiring is seriously expensive.
Now imagine that you got it wrong... And 6 months down the line, you had to do it all again!
Now, you might be able to afford to make one mistake (depending on the size of your company).
But if you’re turning over a couple of million pounds a year, you absolutely cannot afford to recruit twice for more than one position.
And right now, the labour market is very volatile.
As I’ve mentioned in my last emails, there are staff shortages in many industries. Good employees are being poached. Salaries in many sectors are rising. People are finally switching jobs after staying put during COVID.
And if you’re affected by all this, you have to make hiring decisions relatively quickly - because people are being snapped up.
It’s a recipe for some extremely expensive mistakes.
So how do you get recruitment right - first time?
First, review your hiring process and make sure that it’s rock solid, so that candidates are quickly but accurately vetted. Don’t leave this until you have to hire someone new. Get it done now, in advance.
I have my own ideas on how to optimise your recruitment process which I’m going to share with you next week - because like I said, recruiting well is a financial issue.
Next, look at your company culture to make sure you’re retaining your best people. A small annual salary increase is likely still going to be cheaper than recruiting someone new.
Finally, look at your numbers closely. Make sure that you’ve taken into account the true cost of recruitment and that you’ve budgeted for it, in case of any surprise departures.
You need to be able to afford to hire good people comfortably...
...and that means forward-looking financial planning.
That’s where we can help - because it’s part of the work we do with our clients, when we manage their company’s finances.
Just hit ‘reply’ to this email or call us on 01279 647 447 to get in touch today. I’ll get right back to you.