Can a bad hire really cost £142,689?

WE ESTIMATE A BAD HIRE COSTS ON AVERAGE £142,689 IN THE BUILDING SERVICES SECTOR.

Many businesses and hiring managers have the belief that a failed hire has minimal cost outside of the recruitment fee and the salary you pay the individual whilst they are in the business. As a result, provided you negotiate hard on the recruitment fee (or don’t pay one at all) and act quickly to root out a bad egg, you can move on to the next hire and at some point you’ll get it right…or, what is more likely, get lucky at some stage.

I wonder how companies and hiring managers in our industry would react if they understood the real cost of a bad hire to their business. Lets face it, £142,689 is just the average. Which side of average are you?

Our Hire Success research conducted in late 2020 shows that 23% of hires don’t last a year and 47% don’t last two. I would consider under 1 year a catastrophe and under 2 years a failure. That being the case, 47% of the time you are experiencing a £142k hit to your business.

Our bad hire calculator will open your eyes.

So what are the costs? There are so many and not all will apply to every business, but have a think about:

• Salary
• Recruiter fee
• The time spent reviewing awful or irrelevant CV’s
• Time spent interviewing
• Salaries of internal recruiters
• Salaries of LinkedIn researchers
• LinkedIn recruiter accounts
• What your highly paid manager could be doing instead if you got it right?

These are the obvious ones that everyone thinks of, however they are not the biggies. What about:

• Reduced profitability because of inefficiencies in delivery
• Missing the revenue of repeat business opportunities
• Missing the return that a cumulative effect of good hires can have on profitability and future growth
• Loss of other key staff

For me, that second list is where the biggest cost comes from. Whatever your costs outlaid to get to the point of making a hire, they will be dwarfed by the costs of missed revenue and reduce profitability should it go wrong.

What if your new hire:

• Doesn’t deliver the work at all
• Misses deadlines
• Doesn’t Deliver it to a high standard?
• Has to re-engineer it later as its simply wrong and cant be built or you have to pay someone else to do it

What will be the impacts be on your business?

1. Reduced profit
2. You make a loss?
3. Your client goes elsewhere?
4. Your client brings a costs claim to your door
5. Team moral takes a dive
6. High performers are lost as they don’t want to be associated with you
7. Salaries have to be raised in order to attract people because your brand loses it reputation
8. You have to slash your fee’s to get work in the door because nobody trusts you
9. Or the biggy…your business goes under

There is no substitute for quality talent. It is what will define the success of your business without doubt.

Funnily enough, I’m sure there are plenty of people reading this who are sitting there agreeing with everything so far. How many of you though will still go on to:

• Back a failing direct sourcing model
• Fail to secure the best talent because you wont pay that extra £1-2k that lets them know you value them.
• Negotiate hard with an agent who has sent you a world class candidate

In essence, all you are doing is focusing on cost rather than the value a quality hire brings to your business and the profitability they create.

Lets take them one at a time:

1. Direct sourcing
   
   I don’t doubt the recruiting ability of internal resourcers; however, to attempt to stretch yourself across multiple disciplines and still unearth talent within the top 10% is a big, and in most cases unachievable, ask. Are you a recruitment business? No. So why try and be one? Focus on what you are good and naturally your business will reap the benefits.
   Every day I speak to internal recruiters who, no matter how good or how committed, don’t stand a chance. Why? Because there isn’t enough of them to do the job properly. Just yesterday I spoke to 1 of 2 internal recruiters for a multi national, multi industry global business. 1 of 2! Can you believe it?! At Greystone we currently have 4 consultants in my business who purely focus on unearthing high quality, passive Mechanical Engineers in the UK for the building services industry alone; and that is nowhere near enough. What chance have 2 internal recruiters got across every discipline in building services; but also 10 other industries such as Rail, Water, Highways, Structures, Architecture, Nuclear, Oil & Gas etc etc. It just isn’t feasible.
2. Salary
   
   Now I totally agree that you shouldn’t just chuck money around and controlling cost is important; but what’s £1-2k or even £5-10k when the alternative is to take the cheaper route and potentially cost yourself £124k because you hire poorly.
3. Recruiter Fees
   
   Playing hard ball on fees with a recruiter is common place. There is so many and “they all peddle the same talent”. Poor to average CV’s, duplicated submissions, spray and pray approach…where’s the value? I get it. The recruitment market has been in a downward spiral for years; driven by a recruiters desire to make quick money. They chase access to volume vacancies and to do this, they must cut  prices. Cutting prices means using unskilled sourcing teams which results in poor delivery. The client experiences low value and immediately wants to shave more off of any future fees and so the downward spiral continues.