As a scale-up founder, it is pretty painful to realize that you have made a bad hiring decision.
Making a recruitment mistake means loosing loads of time and money on people who are not fit for the job or who don't match your company culture.
However, paying big headhunter fees or investing your own time - when you have a billion other things to do - in interview skills training, doesn't sound like an exciting alternative.
But how much does a bad hire really cost and are there any budget friendly alternatives to boost your hiring success?
Let's talk numbers.
To make a good estimate of your cost of mishire, we've broken down the cost into recruitment, salary, onboarding and indirect cost. And because we don't like drama that much, we've made a rather conservative estimate.
The recruitment cost is estimated at 1.875€.
This includes time invested in writing and posting the vacancy text, cold outreach, interviewing, referral fees, advertising, testing,… and is 3.750€ on average (source: SHRM Human capital benchmark survey).
But let’s say that you, as a scale-up, only spend half of that money (because you’re lean ;-)), so we take 1.875€ as a conservative estimate.
The salary cost of the new (mis)hire is estimated at 26.400€.
This is how we made our calculation... Let’s say your new hire earns 3.000€/month. As an employer this costs you about 4.400€/month. You pay this for a period of 6 months until termination. 4.400€ x 6 months = 26.400€.
Please note that we’re not even counting any costs of benefits like insurances, mobile phone, car,… so the actual salary cost will be higher if you offer additional benefits to your employees.
Our estimation of the onboarding cost is 7.300€.
Let’s say you spend 2 days a week onboarding and training the new hire for the first 4 weeks, then 1 day a week for the next 4 weeks and ½ day a week for the rest of the period. That makes 20 workdays, so basically a month salary from you or an experienced colleague. Estimated at a salary of 5.000€ + costs, we end up at 7.300€ for the cost of onboarding.
We estimate the indirect cost of one mishire at 4.425€.
This includes the opportunity cost, damaged reputation with clients, lost productivity and engagement of team members, sleepless nights for you as a founder,…
I admit we've tweaked this estimation to come to 40.000€ in total, but we’re pretty sure in reality the indirect costs will be much more than 4.425€. Your opportunity cost may even be 10x higher.
Total cost of a bad hire
When we add all those costs, we end up at a total cost of mishire of 40.000€.
And the pain of starting the recruitment process all over. Loosing time and momentum to scale your business, which may hurt even more than those lost euros.
Research shows over and over again that just following your gut when doing selection interviews makes you very vulnerable to hiring mistakes. And in reality most scale-up founders still rely on their gut feel for hiring.
However, there is an easy way to reduce the risk of mishires...
Successful recruitment is not hard
It’s not hard or expensive to reduce your risk of bad hires and to optimise your hiring decisions.
- You don’t need to follow a 2-day training in interview skills
- You don’t need to outsource your recruitment process
- You don’t need 2 hours to prepare for your interview
Research shows that following a structured interview script significantly reduces your risk of mishires.