Home October 2020 The cost of a bad hire

The cost of a bad hire

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The cost of a bad hire

Rikka Brandon

When you ask a CEO or sales manager about the cost of a bad sales hire, the first thing they’re likely to bring up is the actual cost of hiring— onboarding, training, benefits, etc. But the true cost of a bad sales hire will go far beyond these initial costs (according to HR Exchange Network, the U.S. Dept. of Labor estimates a bad hire can cost as much as 30% of an employee’s first-year earnings).

To really understand the costs, you must look at it a little differently:

Say you hire three sales reps—Adam, Bob, and Carl—at the same time.

Adam is a rock star in terms of sales, blowing every goal you set for him out of the water and routinely exceeding expectations. In his first 18 months with the company, he generates $1.5 million in revenue.

Bob is an average performer. He meets most goals but rarely exceeds any goals or expectations that are set for him. He generates $755,000 in revenue during his first 18 months.

Finally, we come to Carl. He turns out to be a “bad hire”—an under-performer who never seems to meet goals and falls far below the benchmarks set by Adam and Bob. Carl only generates $388,000 in his first 18 months.

There could be a number of reasons Carl is underperforming, but let’s assume that everything in the market is equal and that he is failing because he simply isn’t cut out to be a building product sales representative. He lacks motivation and the communication skills to be a success in the field. This is unfortunately a common occurrence; many people can talk the talk in the interviewing process, but then once they’re in the job, actually walking the walk seems to be a major issue.

The numbers speak for themselves. Your most recent “bad hire” has cost the company not only the initial hiring expenses, but also $367,000 in lost sales over that of Bob and a staggering $1.1 million in lost sales compared to Adam.

When you look at it this way it becomes quite clear that the real cost of a bad hire is far beyond those initial expenditures that apply to all new employees.

Think beyond the scarcity mindset

I realize that you’re not intentionally hiring under-performers. You’re working with what’s available, those who chose to apply. But when you hire someone who’s not ideal, you’re going to spend a lot of extra time and training getting them up to speed and, as described above, they’re going to take longer to start delivering ROI. This is a cost you’re silently agreeing to absorb when you opt to settle for scarcity.

Instead, spend that investment of time and money (and it will end up being a smaller investment overall) before you hire them. Put forth greater effort and tools up front to improve your pool of prospective candidates, thereby increasing your chances of hiring an Adam from the get-go instead of hiring a Bob who needs more work to mold him into what he needs to be. These efforts might include better networking, posting the job in more than one place, reworking your job ad, or perhaps engaging with a professional recruiter or staffing agency.

It’s a choice, for sure. If you lead with the scarcity mindset, recognize that you’re likely going to have to spend time and money down the road to make those lesser candidates work, or even leave a position unfilled and watch opportunities and revenue go to waste (a good salesperson generates anywhere from three to five times their compensation in revenue). Alternatively, if you try a little harder before you hire, you will likely save time and preserve profit in the long run.

I challenge you to think about the time, energy, and loss of productivity you’re going to experience by hiring someone you know is a long shot to succeed versus spending a bit more time or money to get someone who will have a lower learning curve and deliver better results.

Rikka Brandon, a recruiter in the LBM industry since 2001, is a building products recruiter with Building Gurus. Reach her at rikka@buildinggurus.com