Business leaders with growing teams have so many challenges. One you’ve no doubt felt the pain of, is when you have a bad hire in your team. It can mess with the energy, morale and productivity of the entire team.

If you’re like us, bad hires have slipped through the cracks and into the ranks on more occasions over the years than you would care to admit. So here’s the big question: What is the true cost of a bad hire?

Sure there are the headaches for you that come with each bad hire, but right now we’re going to see that it’s a higher dollar cost than you may think! But stick with us and I’ll show you what you need to know so that you never make a bad hire again.

Let’s look at one of the more costly bad hires we’ve made at Sponge so we can know the true cost of a bad hire. Then you can see how you can calculate yours, if you dare!

Our story of a bad hire

We had won a massive web project and needed another expert developer to join our team. It was urgent and there was pressure to bring someone onboard who could hit the ground running with our team.

Good candidates were very hard to find so when we found this one, while it didn’t feel quite right, we really, really wanted her to work out.

Thinking back about it now I reflect on this sage advice: Never date someone based on who you want them to become. Same goes for hiring people!

This hire soon became very painful, to her managers and to her teammates, who had to pick up the slack.

So what did this bad hire actually cost?

A quick Google search and you’ll find the average cost of a bad hire is up to 30% of the employee’s first-year earnings. With her salary set at $120K, that works out to be $36K. That seems like a lot for a bad hire, right?

Let’s break down what we calculated it to really cost.

Recruitment costs

We didn’t have an internal recruitment team, so we engaged experts that incurred costs. These included a recruit team, job adverts, and candidate profiling. It also includes the time our team spent interviewing candidates. This cost rounded out to $19K

This is actually reasonable as we’ve learned permanent placement fees range from 16 to 25% of the salary package.

Trial period wages

For the 3 month trial period, while not a total loss, it was a loss. We were hopeful. There was definitely a bit of sunk cost fallacy happening. That trial period cost $30K.

I personally felt bad that it took so long to realise how bad a hire it was. When we researched it, staffing firm Robert Half showed us it’s more common than we thought. “It takes companies an average of 10 weeks to realise their new recruit isn’t perfect for the role, and another six weeks to find a replacement.”

Intensive management

We found this underperforming hire required intensive management for that 3 month period. It was stressful, time consuming and distracting for our management team. We’ve calculated it to be 15% of management salary for that 3 month period. For us this equated to $12K.

Productivity drop for the team

The last item we’re adding is the productivity drop for her direct team, because three people had to pick up the slack due to her. To determine this we have calculated 15% of direct team salary for that period, adding $12K, bringing us to a grand total of $73,000!

I would much prefer it to have cost only $36K!

Note: For lower salary roles the cost goes down for the trial wage period and recruitment costs, but the 3rd and 4th components remain the same if it is the same team and management impacted. For instance a $60K salary role would be a total loss of $56,000 in this team.

But wait, there’s more to consider.

While these costs are significant, they don’t even count the costs of the team wide morale decrease that comes from situations like this. This is a serious problem as it can cause great team members to leave.

It also doesn’t include the lost opportunity costs because of the unnecessary burden on the team, and the negative impact on client relationships due to a less than awesome experience.

I don’t want to think about how much we have wasted in total in over two decades of Sponge!

How about you? Has this formula shown you that bad hires have cost you more than you think?

What does bad hiring have to do with branding?

You’re probably wondering why a branding agency is talking about bad hires?

Simple: Bad hires mess with your culture. And your culture is your brand, it is how you show up in the world. It is what drives everyone’s experience with your brand. So bad hires are bad for your brand.

Culture is so important. It is what guides all the behaviours, actions and decisions of your team. For an awesome brand today, Culture and Impact are fused as the nucleus of the brand, with all your brand storytelling radiating that goodness outwards through everything.

How do you avoid making bad hires?

Through blood, sweat and tears, and many thousands of dollars invested, we solved our problem. We developed a framework for culture that has all but vanquished bad hires for us, and for our clients who we’ve helped implement.

Step 1 is Articulate

In this step we help you refine or define your culture code. This is all about getting crystal clear on who you are as a brand. Because if you are fuzzy about who you are, no one can be clear!

Step 2 is Unite

In this step we teach you how to embrace your entire team in the journey so that everyone is invested in it. This is essential in bringing your culture to life.

Step 3 is Protect

We show you how to protect your culture code, fiercely! This includes our method to ensure you are hiring and firing for culture fit. Because what you are willing to tolerate becomes the standard.

The results you can expect.

Through the steps in our culture framework and their respective processes, we are able to attract and retain awesome aligned talent, and repel potential bad hires.

But as you are getting the sense by now, good culture is much more than avoiding bad hires.
And you are right! Because when you get your culture right, your people will feel a deep sense of trust and connection.

This type of culture unleashes your team’s creative and discretionary energy, which sends productivity through the roof. Not only does that mean more profits, but it feels awesome for your whole team. And of course, there are less headaches for you!

The happy side effects of clarity

Our client Tom Harrison had a team of 25 when he engaged us. His business was a third generation real estate business that was started by his Grandfather. He had recently taken over the reins, inheriting the team and culture.

The culture code was generic at best, with no clear or relevant context for decisions to be made. So there was every reason why there were a number of people in the team who were creating headaches for the other team members.

Using our framework they were able to get clear on their culture and how to ensure alignment. In a matter of weeks of using our ritualising process, the 5 misaligned people self selected out. Awkward firing conversations were not even required! This existing group even included the other partner owner.

Since then the team has doubled in size to multiple offices. And has a ridiculous, palpable energy that is awesome to witness. They attract superstars who are aligned with the culture, and they’ve rocketed to the top of the ladder in their industry.

Want to stop bad hires and start all the goodness flowing?

We love helping good businesses get their culture right. Our branding agency specialises in helping businesses around the world rebrand or refresh with purpose.

Our proprietary brand foundation frameworks of Culture, Impact and Storytelling are critical to your brand succeeding today. Alone they are transformative for your business and give you the edge needed today.

We have a range of ways to help you with this foundation work, wherever you are in the world. Book in a complimentary brand strategy session to discuss your brand today.