1. Business Ideas
  2. Business Plans
  3. Startup Basics
  4. Startup Funding
  5. Franchising
  6. Success Stories
  7. Entrepreneurs
  1. Sales & Marketing
  2. Finances
  3. Your Team
  4. Technology
  5. Social Media
  6. Security
  1. Get the Job
  2. Get Ahead
  3. Office Life
  4. Work-Life Balance
  5. Home Office
  1. Leadership
  2. Women in Business
  3. Managing
  4. Strategy
  5. Personal Growth
  1. HR Solutions
  2. Financial Solutions
  3. Marketing Solutions
  4. Security Solutions
  5. Retail Solutions
  6. SMB Solutions
Product and service reviews are conducted independently by our editorial team, but we sometimes make money when you click on links. Learn more.
Grow Your Business Your Team

Dollars and Sense: The Cost of a Bad Hire

Dollars and Sense: The Cost of a Bad Hire
Credit: Efetova Ana/Shutterstock

Hiring employees isn't cheap: On average, small business owners spend $1,872 to hire someone new, according to a study from the job search site Monster.

That amount includes all of the costs of recruiting, interviewing and selecting candidates, said Meredith Hanrahan, senior vice president of small business solutions at Monster.

It's critical for businesses to ensure each hire is a good fit, because hiring the wrong person is even more costly: More than 40 percent of the small businesses surveyed estimated that they wasted at least $1,000 on their most recent bad hire, the study found. This amount includes employment termination costs, such as severance, and the additional costs of hiring a replacement.

These costs have a larger impact on small businesses than on larger ones because they constitute a larger portion of small businesses' revenue, Hanrahan said. For example, if a small business that brings in $150,000 in revenue makes two wrong hires costing at least $2,872 each (the average cost of a bad hire plus the average cost of hiring someone new), those costs would represent 3.8 percent of its revenueIn contrast, for a Fortune 500 company that makes an average of $25 million in revenue per year, it would amount to approximately 0.02 percent.

"The smaller the business, the bigger financial impact losses can make," Hanrahan told Business News Daily.

Knowing how much is on the line is the reason more than half of small business owners say making a bad hire is a major risk to their company. Of those, 68 percent worry that bringing in the wrong person for a job will hurt their company's reputation, and 62 percent fear it will decrease productivity. [See Related Story: Welcome Aboard! How to Get New Hires Off to a Good Start]

Most small business owners know rather quickly if they've made a hiring mistake. Seventy percent of those surveyed realized within the first three weeks, and 30 percent knew after only a few days. Overall, more than 60 percent of the small business owners surveyed admitted to having made a bad hire.

"We've heard loud and clear that small business owners struggle to find the right person for the job and, as a result, have made the wrong hiring decision on more than one occasion," Hanrahan said.

In addition to being a financial burden, hiring the wrong person can have an emotional effect on small business owners. The research discovered that making a bad hire has made 73 percent of those surveyed feel frustrated and increased stress levels for 47 percent.

Bad hires can also have a negative impact on how a business is run. More than half of those surveyed said hiring the wrong person has resulted in product errors, and 24 percent said they've lost customers because of it.

The study was based on surveys of 639 small business owners in the U.S. who have between 1 and 50 full-time employees.

Chad  Brooks
Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.