The Real Cost of a Bad Hire
We all know that hiring badly is costly. Search fees, relocation, lost compensation, severance, all add up. But those are just the tip of the iceberg. Try adding up how much of an impact a bad hire could really have. Brad Smart, the author of Topgrading, says a bad hire can cost you 14 times the person’s salary, when you factor in lost opportunities, mistakes, etc. We agree.
Let’s take a look at a $100 mil company that is targeting 10% growth. I hope you would agree that to achieve 10% growth in a flat economy requires better than average executives. Now suppose that your VP of Ops, or Quality, or Sales & Marketing, is just not cutting it. So that one bad apple causes your growth to be 8% instead of 10%. Not bad. No CEO will be fired for that. BUT, you just cost your company $2 million in revenue. Keep this bad performer, and next year it is $2.4 million.
Most CEOs take 18 months to get a poor person out and a new exec up to speed (see our previous blog The 18 Month Factor), so that 18 months at a $100 million company probably costs several million.
Something to think about with your next executive hire!