The Cost of a Bad Hire versus the Cost of not Hiring for a certain time period

As a recruiter I see plenty of times when slow or inconsistent hiring processes lead to missed hiring opportunities so what is that cost to the company? We see roles that never seem to get filled and just get released time and again, sometimes in a slightly different job title but essentially the same so how can we calculate the cost of that situation?

I have seen research that looks at the cost of hiring the wrong person, so ultimately making a bad hiring decision that costs the business. But I have not really seen anyone consider this figure in comparison to the cost of not hiring for a given period of time. Has anyone considered that the fear of hiring the wrong person will certainly lead you to not fill a position for such a long time, that the company suffers lost revenue? Or that not maximising the potential opportunities to find the right person, could lead to extra pressure on existing staff and therefore lower morale, which comes at a cost or could lead to a staff member leaving, therefore again increasing costs in replacement and lower productivity.

So potentially the question could be ‘should not hiring be a greater concern?’

In 2016 CareerBuilder asked a selection of HR professionals which is more costly–a bad hire or an open position? 57% said a bad hire was far more costly, and another 16% said bad hires were somewhat more costly. Only 3% of respondents would call an open position more expensive than a bad hire. Clearly we seem more focussed on the wrong hire but is this valid?

What’s the Better Choice?

There is no ‘better’ choice between a bad hire or waiting months to hire the right person, as both are bad for business but maybe there is a line when you have to say that the cost of not hiring is outweighed by the cost of not hiring someone perfect?

If your talent acquisition strategy prioritizes quality of hire over things like time to fill then an elevated cost of not hiring might be acceptable but is this something that is discussed as part of your strategy? Hiring managers will need to balance both the quantitative and qualitative costs of each and consider their reasoning carefully. Maybe the costs get outweighed at a certain time period so increased pressure ensures that the need for a perfect hire is decreased as the cost of having no one gets outweighed?

Calculating the Cost of Not Hiring

How can realistically and reliably measure the cost of not hiring someone? Calculating the ‘opportunity’ cost your company has to pay, when a position is left open for a given period, is not easy. Considering such factors of other team members bearing the burden of that open vacancy, extending the amount of time it takes them to complete their normal work.

The additional stress of a smaller team can add up over time to reduce productivity and push back deadlines which could lead to dissatisfaction from customers and customers might take their business elsewhere. In addition, the employees you’re relying on to cover the open position may build up resentment towards the company, or even start looking for a new job.

These opportunity costs will always be very hard to quantify, especially if not everyone at your business is considered revenue-generating. But it will be helpful to at least estimate some of these costs. Emily Smykal from Jibe suggests this method below to find the costs of not filling an open position:

Start with Total Annual Revenue Generated per Employee = Annual Company Revenue / Number of Revenue Generating Employees

Calculate Daily Revenue per Employee = Annual Revenue Generated by Employee / 365 days (or total number of days per year spend generating revenue)

Determine Revenue Lost per Unfilled Job = Daily Revenue per Employee X Average Days Positions Unfilled

Find Total Revenue Lost for All Open Jobs = Revenue Lost per Unfilled Job X Number of Open Jobs

Be sure to set a time period over which you’ll calculate this metric, and stay consistent. You can then set your own internal benchmarks after several periods have passed.

Hard to answer the question? Certainly but worth considering as part of your hiring strategy? Certainly