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The Cost Of A Bad Hire

Hiring the wrong sales leader or salesperson can seriously hinder your business in more than one way. Why aren't more companies taking the necessary steps to make sure their new person is right for their company?

Financial Cost 

When it comes to the cost associated with a bad hire, people often jump to financial loss. The United States Department of Labor states "the cost of a bad hire at up to 30% of the employee's wages for the first year." For example, if you take an employee with an annual income of $100,000, the organization's cost loss can be $30,000.

CareerBuilder states, "74 percent of companies who made a poor hire lost an average of $14,900 per poor hire." This might not seem like a lot, but for a smaller business, it can seriously hurt them.

But the cost of a bad hire isn't always tied to merely financial loss.

Productivity Costs

When a bad hire cannot do their job effectively, you're losing productivity. Not just for that role, but for the lost hours you spend training and onboarding that person.

A study by Robert Half International states, "34% of CFOs agreed that bad hires cost them productivity. Moreover, they said that managers spend 17% of their time, or almost a day a week, supervising poorly performing employees." That's a lot of time wasted that could be used to strengthen your company.

It's hard to estimate exactly how many lost hours of productivity will result, but the more senior the hire, the bigger the reach they will have, and the greater loss to the company.

When your productivity is low that can lead to poor company culture and low morale.

Company Culture Cost 

You can't afford to make mistakes when hiring people. When you hire someone who is not a good fit, your team and your company culture will often suffer. Peter Drucker's famous quote, "Culture eats strategy for breakfast," holds in hiring as well.

Someone who doesn't fit your desired culture simply won't work out long-term, no matter how hard you try.  Someone who doesn't get your company's culture isn't going to prioritize the company's values, which can lead to conflict among peers and leadership, and ultimately lead to low morale.

When your company culture and morale are down, it's not just your team that suffers.

Lost Customers

If an employee is not doing a good job and being as productive as possible, your customers may be unsatisfied. Even if that salesperson gets their work in on time, customers may end up leaving if it is not of good quality. According to Small Biz Trends, "66 percent of consumers who switched brands did so because of poor service." That is a lot of business to lose because of poor quality work from a bad hire.

What Causes A Bad Hire?

It's clear the cost of a bad hire can weigh heavily on an organization in many ways, yet it continues to occur.

Several things cause a bad hire to happen, one of which is not putting in the time and effort required. According to a CareerBuilder survey, "43% of hiring managers admitted to making bad hires as a result of insufficient, or even non-existent background checks." This means leaders are often hiring solely on resumes and cover letters.

Another way a bad hire slips through is pressure to fill the position quickly. According to the National Business Research Institute found that "43 percent of companies surveyed believe their poor hiring decisions were caused by the need to fill the job quickly."

One last obstacle preventing companies from hiring top talent is the lack of evolution within their hiring process itself. Things that worked years ago or even pre-COVID might not work now.

Preventing a Bad Hire

Now you know the cost of a bad hire and how it happens, so how can you prevent it?

There are similarities relating to hiring a sales leader and salespeople. Different skillsets associated with hiring salespeople (hunters and farmers, selling to big accounts vs. small accounts, inside vs. outside, selling direct vs. through resellers or distributors). There are also various types of sales leaders.

What Are You Looking For

What does your company need? Do you need a leader who will focus on developing your team? Or do you need a salesperson who will hunt down new business for you? Dig into the specifics and ask questions based on them. Clearly define the job and requirements. Define the selection process and tools.

Make Sure You Are Aligned

If you are using a staffing agency, recruiter or your internal team, make sure you are aligned on what you are looking for. Agree on expectations. Decide timing and stop signs (to hire and to cut bait). Make sure you understand you may need to upgrade.

Define Your Company Culture

Now you'll want to look at your company culture – all are different. Look at your sales culture and determine a few questions to ask based on your sales organization. Ask questions relating to:

  • High accountability?
  • Independence?
  • Healthy competition?
  • Continual learning and development?
  • Agile mindset?

Looking at your sales culture and your company culture will ensure your new hire will be a good fit.

The Results

Bad hires can cost more than just money. They can cost you productivity and staffing fees. It can cause your company culture and morale to become toxic, and worst of all, it can result in lost customers. To prevent a bad hire from causing such chaos, clearly define the role and required skills that a person should have in order to be successful in the role. Align with your team on expectations and stop signs. Lastly, make sure you know your company culture and ask relevant questions.

About Gary Braun

Gary is a founder and co-owner of Pivotal Advisors. He has worked for 20+ years as a salesperson and sales leader. Gary has been a guest speaker for many groups such as Vistage, Allied Executives, CEO Roundtable, Sales Management Association, and more. If you want to find out more about Gary check out his profile here.
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