The True Cost Of A Bad Hire - And What You Can Do About It
Updated: Jan 13
The cost of hiring a bad sales rep is not always about the money. It can be time, productivity, and morale. A bad sales hire impacts everyone in a company when they are hired. If you want to avoid bad sales hires, consider the following steps to help you identify them before it is too late!
Why and how you should calculate your hiring costs
Before we cover the steps required to help avoid a bad hire, let's talk about why it is important to calculate the cost of any hire, not just sales hires. Recruiting and retaining the best employees often comes with costs. These include recruiter salaries, advertising for candidates, and interview travel expenses. In total, recruitment accounts for 15% of human resources spending, according to the Society for Human Resource Management.
It is one of the most important metrics that hiring professionals can track, with 41% of companies reporting they calculate it regularly.
Calculating the cost per hire is a great way to plan and budget. You can allocate your resources accordingly by considering how much it takes for your business to create an effective recruitment process. Without this information, it will be hard to allocate budgets simply by guessing what might work. Instead of blindly guessing, calculate the amount you’re spending
Importantly, the purpose of measuring cost per hire isn’t always about proving how cheaply you can make a hire. The cost of making a hire will rise and fall; it’s contingent on recruiting priorities and the positions you’re looking to fill.
The success of a recruitment process cannot be measured exclusively by the cost per hire. Rather, cost per hire should be used alongside comparable data to ensure organizational benchmarks are met in all areas of the recruitment funnel (i.e., identification and sourcing potential candidates to recruiting and hiring top talent).
How to calculate costs associated with hiring sales reps
The formula goes as follows:
Add up all the money you spend on hiring, both the internal and external costs. Now, divide the total by the number of hires you have made over a specific time frame, such as a year, a quarter, or even a specific hiring initiative.
Okay, we know that you’re now wondering; how do I know my hiring costs? So let‘s break this formula down:
Internal recruitment inefficiencies include all of the time, money, and resources dedicated to talent acquisition. This will usually fluctuate but will most likely include:
In-house talent acquisition salaries
In-house system costs – hardware and recruiting software
Salary costs of time spent by hiring managers
Interview costs (amount of hours multiplied by the hourly salary of interviewer)
Any training or staff development costs for your recruiting team
Other fixed costs such as employee bonuses for referrals
It is also worth remembering that internal costs can include resource allocation to other teams in the same company.
External costs include any expenditure on external vendors or individuals over the course of recruiting. These external vendors or individuals usually come in contact with the company during the recruitment process. For example, companies hire recruiters to find applicants for a job opening and screening interviewers who will sift through resumes before asking questions and conducting interviews.
Typical external costs include:
External agency fees (e.g., recruiting agency)
Job board postings
Aptitude test providers
Candidate vetting (e.g., drug testing/background checks)
Employer branding activities (e.g., career fairs)
Software subscriptions – Applicant Tracking Systems (ATS), candidate relationship management systems (CRM), or candidate screening and pre-employment testing tools
Be sure not to include any costs spent on the candidate once they become an employee, such as onboarding or training.
If you include the cost of lost productivity, the average cost per hire is between 0.5 and 3 times an employee's starting salary.
How to prevent bad hires from happening
There are a lot of aspects to the employee selection process which make it complete and effective. Lacking any one component can affect other areas, and that could influence the whole process. It's important to understand each step of the process, as it becomes very complex. The parts are as follows, almost always in this order:
Organizations begin recruiting by identifying possible candidates. This may vary between organizations, but as a general rule, social media is a great way to make your organization visible and give potential employees a sense of the culture. Tapping into your existing team members is also a great source of potential candidates. After all, friends and colleagues won't recommend their own company if they themselves aren't happy working there and believe in the company's mission, vision, and values.
Next is reviewing applicants' resumes. Scanning potential candidates to find ones that seem to best fit your organization's needs based on their resume qualities. The process usually includes checking a handful of boxes such as years of working experience, similar sales experiences, geographic region, and so on.
After looking through resumes, the next step is to screen those individuals who are shortlisted. Some organizations conduct this screening as a pre-interview where the basic information and first impressions are gathered. This time, it's up to the hiring manager to decide if the applicant is worth interviewing formally. A video conference is optimal for sales positions to assess their comfort and ability to connect with strangers quickly.
After a preliminary screening, the next step in the recruiting process is an interview. This conversation can typically be done over the phone or video conference but may require a face-to-face meeting if logistics are difficult. Depending on the sales role within the company, you may choose to have this individual meet with members of all the departments they will be interacting with to ensure culture fit and assess the ability to collaborate across multiple functional groups to get deals done.
The selection process starts with a review of interview notes and feedback from others in the department. After reviewing all possibilities, a decision is made to hire or deny the applicant. It is important to note here that having a consistent process for evaluating candidates is critical. You want to make sure all parties were taking notes on the same job-fit and sales qualifications. This way, the evaluation is consistent and more objective rather than overly subjective.
Finally, the testing portion of the interview process screens the potential candidates for personality, soft skills, job fit, and compatibility using sales-specific candidate assessments. This step rounds out the interview in that much more information is obtained, which can be received from a time-limited interview.
The selection of employees for hire is one of the most important tasks for any organization. Not only must new sales reps be able to fulfill their roles, but they also impact both company morale and overall compatibility.
To learn more about structuring a productive sales interview, get a copy of our ebook, 3 Essential Resources for Interviewing Sales Candidates. You’ll get an outline for the perfect interview, a list of questions to ask (and ones to avoid), and a candidate evaluation form to ensure you and your team have a unified scoring method for candidates.