The Cost of a Bad Hire versus the Cost of not Hiring for a certain time period
As a recruiter I see plenty of times when slow or
inconsistent hiring processes lead to missed hiring opportunities so what is
that cost to the company? We see roles that never seem to get filled and just
get released time and again, sometimes in a slightly different job title but
essentially the same so how can we calculate the cost of that situation?
I have seen research that looks at the cost of hiring the
wrong person, so ultimately making a bad hiring decision that costs the
business. But I have not really seen anyone consider this figure in comparison
to the cost of not hiring for a given period of time. Has anyone considered that
the fear of hiring the wrong person will certainly lead you to not fill a
position for such a long time, that the company suffers lost revenue? Or that not
maximising the potential opportunities to find the right person, could lead to
extra pressure on existing staff and therefore lower morale, which comes at a
cost or could lead to a staff member leaving, therefore again increasing costs
in replacement and lower productivity.
So potentially the question could be ‘should not hiring be
a greater concern?’
In 2016 CareerBuilder asked a selection of HR professionals
which is more costly–a bad hire or an open position? 57% said a
bad hire was far more costly, and another 16% said bad hires were somewhat more
costly. Only 3% of respondents would call an open position more expensive than a
bad hire. Clearly we seem more focussed on the wrong hire but is this valid?
What’s the Better
There is no ‘better’ choice between a bad hire or waiting
months to hire the right person, as both are bad for business but maybe there is
a line when you have to say that the cost of not hiring is outweighed by the
cost of not hiring someone perfect?
If your talent acquisition strategy prioritizes quality of
hire over things like time to fill then an elevated cost of not hiring might be
acceptable but is this something that is discussed as part of your strategy?
Hiring managers will need to balance both the quantitative and qualitative costs
of each and consider their reasoning carefully. Maybe the costs get outweighed
at a certain time period so increased pressure ensures that the need for a
perfect hire is decreased as the cost of having no one gets outweighed?
Calculating the Cost
of Not Hiring
How can realistically and reliably measure the cost of not
hiring someone? Calculating the ‘opportunity’ cost your company has to pay, when
a position is left open for a given period, is not easy. Considering such
factors of other team members bearing the burden of that open vacancy, extending
the amount of time it takes them to complete their normal work.
The additional stress of a smaller team can add up over
time to reduce productivity and push back deadlines which could lead to
dissatisfaction from customers and customers might take their business
elsewhere. In addition, the employees you’re relying on to cover the open
position may build up resentment towards the company, or even start looking for
a new job.
These opportunity costs will always be very hard to
quantify, especially if not everyone at your business is considered
revenue-generating. But it will be helpful to at least estimate some of these
costs. Emily Smykal from Jibe suggests this method below to find the costs of
not filling an open position:
Start with Total Annual Revenue Generated per Employee =
Annual Company Revenue / Number of Revenue Generating Employees
Calculate Daily Revenue per Employee = Annual Revenue
Generated by Employee / 365 days (or total number of days per year spend
Determine Revenue Lost per Unfilled Job = Daily Revenue per
Employee X Average Days Positions Unfilled
Find Total Revenue Lost for All Open Jobs = Revenue Lost
per Unfilled Job X Number of Open Jobs
Be sure to set a time period over which you’ll calculate
this metric, and stay consistent. You can then set your own internal benchmarks
after several periods have passed.
Hard to answer the question? Certainly but worth
considering as part of your hiring strategy? Certainly