The Cost of a Bad Hire and How to Get it Right

Every hiring manager knows there is a cost to making a bad hire. There are indirect and direct costs – both very real and tangible – associated with bringing someone on your team who just doesn’t fit. But few in the CRE industry have ever stopped to calculate just what those costs are or put the thought into getting it right the first time.

Do you know what you stand to lose by bringing the wrong CRE professional onto your team? Some estimates range as high as $840,000 per bad hire. Have you thought through what it takes to make the right hire and avoid those costs?

Let’s break it down piece by piece to help you avoid the cost of a bad hire and invest in only the right talent for your team.

The Direct Cost of a Bad Hire

The direct cost of making a bad hire is pretty easy to calculate. How much are you paying them in salary, incentives, and benefits? Multiply this by the amount of time they worked ineffectively and unprofitably for you.

Do they have a $100,000 annual package? Did they manage to burden your organization for two years before getting cut? Then you’re out $200,000 in compensation you could have invested elsewhere. That’s $200,000 you could have applied to profitable channels and personnel that instead you wasted on someone who wasn’t a team player or couldn’t cut the muster.

It stings, doesn’t it?

The Indirect Cost of a Bad Hire

The indirect costs are bit trickier to establish, yet they’re very real costs that hurt your business. And they usually are far more substantial than the direct compensation costs.

  • Time: You’ve spent time interviewing, hiring, and training. And it was all for nothing. That’s time you will never get back.
  • Productivity: This is different from business to business, but it usually looks like reduced time to market, missed deadlines, misdirected efforts, extra training time, etc.
  • Employee Engagement: Studies show that the cost of a bad hire includes decreased employee morale and engagement. While difficult to quantify, engagement is crucial to team success. And a bad apple can zap it right away.
  • Opportunity: Great CRE companies are built on extraordinary people – personalities who make the difference and create and leverage opportunities. A bad hire means so many missed opportunities for growth, better insights, new perspectives, relationship connections, and more.

How to Make the Right Hire

So how do you get it right and avoid the cost of making a bad hire? What does it take to find that rockstar for your team who will be a net gain for your business for many years to come? Here are a few tips:

  • Hire for culture and attitude, not skills. Remember, skills can be taught. Find someone who has the right outlook and cultural fit for your organization.
  • Ask interview questions that actually work. Stay away from the cute questions that don’t really get to who this person is, how do they think, and are they in line with your values. What kind of animal they see themselves as is irrelevant.
  • Do your due diligence. Candidates always look best up front in the interview process. Call their references. Dig into their past achievements. Verify everything.
  • Don’t make snap decisions. Consider all the data. Don’t rush the process. If need be, partner with a qualified recruiter who specializes in your field. The savings you will incur making the right hire will more than offset their fee.

The cost of making a bad hire is crippling. Your business can’t afford a mistake this big. Invest in the future of your business with a foolproof hiring process.


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