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The Cost of Bad Hires: How It Can Affect Your Bottom Line

Published: March 07, 2023 In: Recruitment Best Practices

As a hiring manager, you know that the right people can make or break your company’s success. Good hires can boost productivity, impact morale, and contribute to your company's success.

On the other hand, bad hires can be detrimental to your bottom line. Not only is it expensive to make a bad hire, but there’s also the potential for financial losses due to fraud or theft if an ill-suited candidate is hired. Studies show that the average cost of a bad hire is 30% of that employee’s annual salary.

In this blog post, we will explore how bad hires can affect your organization and what steps you can take to avoid such mistakes.

What is the Cost of a Bad Hire?

Loss of Top Employees

Studies have shown that more than 80% of employees' decisions to quit a job are caused due to other employees. This means that hiring the wrong people not only costs you money to replace them but also increases the risk of losing your top performers.

Negatively Impact Productivity

Bad hires can lower productivity in a number of ways. They may lack the skills or experience necessary to do their job effectively, slow down workflows by requiring extra supervision, or simply have a negative attitude that affects morale and inhibits progress.

Research has shown that bad hires can result in a 36% drop in productivity. Additionally, in a survey, 44% of CFOs affirmed that bad hires negatively impact the morale of other employees.

Damage Company’s Reputation

Hiring the wrong person can damage your company’s reputation. There is a chance that the bad hire lacks the skills required to handle customer requirements, and commit mistakes which can lead to negative reviews and fewer satisfied customers. About 89% of employers agree that bad hires typically lack soft skills.

Loss of Revenue

Bad hires can cost you money in terms of recruitment, training, and the resources used to replace them if necessary. Additionally, bad hires can result in fewer sales which contributes to a loss of revenue. In a survey, about 66% of employers who made a bad hire reported an average of $14,900 in losses.

How to Calculate the Cost of a Bad Hire?

It can be tough to calculate the cost of a bad hire since there are so many variables involved. Here are the things you will need to consider while figuring out your cost of bad hires:

Calculate Recruitment Cost: First, you need to estimate the cost of a bad hire by figuring out the cost spent in hiring underperforming employees. Take into account the time and resources spent on hiring them, including advertising, screening, interviewing, and onboarding.

Estimate Training & Compensation Cost: Next, calculate the cost of training and compensating for the bad hires. This should also include bonuses, stock options, or any other benefits offered to them.

Determine the Cost of Employee Turnover: As mentioned early, bad hires led to the loss of top performers, which increased the employee turnover rate. Calculate the cost of employee turnover by determining how many top employees exited the organization, and how much it costs to replace them.

Forecast Performance Losses: Calculate potential losses due to lower productivity, customer service issues, and customer attrition due to mistakes committed by the bad hire or their lack of skills.

Why do Companies End Up Hiring the Wrong Candidates?


Targeting the Wrong Places

There are lots of places to market your job openings, such as job boards, social media platforms, job fairs, etc. When hiring employees, recruiters can end up making bad hires due to targeting the wrong places for recruitment. This could be due to inadequate research on recruitment sources or just a lack of understanding about where to reach the right talent.

Job Postings that Lack Clarity

Companies should ensure that job descriptions are accurate and reflect the exact requirements for the role. If there is any ambiguity surrounding job roles or responsibilities, this can create confusion among potential candidates and lead to bad hires.

Additionally, if the description is not appealing enough, recruiters may end up losing good candidates who are looking for an opportunity with better prospects.

Ignoring the Attitude and Soft Skills

Employers often focus more on technical skills and experience and overlook other important factors such as attitude and soft skills. As mentioned earlier, the majority of the bad hires lack soft skills and have a negative attitude towards work, which can impact the morale of the team. Therefore, it is essential for companies to evaluate these qualities during the screening process as well.

Not Focusing on the Background Checks

There are times when employees may have misrepresented themselves or given false information. Studies suggest that 78% of candidates lie during the recruitment process, and 50% exaggerate their skills on the resume. Hence, before hiring, recruiters should always focus on conducting thorough background checks on the candidates. This will allow hiring managers to weed out any false claims and make sure they are hiring the right person for the job.

Relying on Gut Feelings

Sometimes recruiters tend to rely on gut feelings while selecting potential employees. Although recruiting is a subjective process, it should not be solely based on gut feelings, as there are many other factors that need to be taken into account. Relying too much on intuition could lead to bad hires and cause financial losses for the company.

Lack of Proper Interview Processes

Another major cause of bad hires is a lack of proper systems to measure the effectiveness of the interview processes. Without the right system in place, recruiters may lack an understanding of how well the candidates will perform after they are hired and the selection of the candidates will be based on guesswork.

Untrained Interviewers

Another reason why companies make bad hires is because of untrained interviewers. Asking the right question during the interview process is no less than an art. The lack of knowledge and experience in conducting interviews can negatively impact the quality of the interview process, which can lead to miss-hires.

Without training, interviewers may be unable to identify the right candidate. Additionally, unconscious biases of interviewers can also hamper the decision-making process and result in bad hires.

Poor Candidate Experience

Employers should also focus on providing candidates with an excellent experience during the recruitment process. A good candidate experience can help in attracting top talent.

Research has shown that employers that invest in candidate experience improve the quality of their new hires by 70 percent. Thus, companies not focusing on improving their recruitment experience can lose out on potential candidates.

How can Companies Avoid Hiring the Wrong Candidates?

Analyze Candidate Behavior

Organizations need to ensure that they are hiring the right people by analyzing the behavior of candidates during interviews. They should look for red flags such as a negative attitude, lack of passion and commitment towards work, and dishonesty. This can be done through a variety of techniques, such as personality assessments or with tools like Talview’s Behavioral Assessment.

Talview's Behavioral Insights give employers the opportunity to gain a much deeper understanding of a potential hire's behavior and attitude. It is an AI-powered tool that performs competency mapping on candidates and provides insights into their behavior which the interviewers would usually miss. The tool eliminates the need for an additional personality by analyzing the subtext of a candidate’s responses and ranking them based on their performance.

Focus on Establishing Relationships with the Candidates

Hiring should be more than identifying the right resumes. Recruiters should focus on developing relationships with the candidates throughout the recruitment process. This can be done by effectively communicating with all of the candidates. Provide regular updates and feedback, as well as respond promptly to queries or concerns raised by candidates.

In a survey, about 81% of candidates responded that recruiters who continuously communicate status updates improve the candidate experience. Hence, such practices can attract top talent and ultimately improve the quality of hires.

Measure the Validity of Every Interview

Mistakes in the interview process can impact the quality of hires. Companies should have a structured interview process with clear assessment criteria. They need to develop methods to measure the validity of each interview. However, there are a lot of moving parts involved in this process, and it is difficult to achieve without the right tools.

To assist organizations in this process, Talview has designed the Interview Insights solution. It is an AI-powered tool that measures the validity of each question asked by interviewers and provides real-time feedback to them so that they can take corrective actions. Talview's Interview Insights offers comprehensive reports on candidate performance as well as generates transcripts with search capabilities.

Monitor the Interviews for Biases

Interviewers should focus more on objectively evaluating each candidate’s skills and abilities. Moreover, recruiters need to ensure that they are conducting unbiased interviews by not asking inappropriate questions or making biased comments.

This is where again, Talview’s Interview Insights can be invaluable. It leverages machine learning and natural language processing and is built on proven psycholinguistic frameworks to monitor and flag biases during interviews. The insights gathered from the tool can be utilized to create training programs for interviewers to identify unconscious bias and avoid bad hires.

Strategies to Hire the Right Talent

Create an Employee Referral Program

Create an Employee Referral Program One of the best ways to hire top talent is through employee referral programs. Studies suggest that talent acquisition teams rank employee referrals as the most essential method to find good hires. Organizations can encourage their employees to refer qualified candidates for job openings. This helps in quickly finding high-quality candidates, as it reduces the time spent on screening them.

Furthermore, research has also shown that referred candidates are 4 times more likely to get hired than other candidates and have a higher retention rate. Hence, organizations should focus on creating an effective employee referral program that can help them find and hire the right talent.

Focus on Building Employer Brand

A strong employer brand is essential for successful recruitment and attracting top talent. This can be done by focusing on inclusive practices, promoting diversity and inclusivity at the workplace, and maintaining transparency with candidates throughout the hiring process.

Additionally, companies should also build a strong presence on various social media platforms, such as LinkedIn, Facebook, Twitter, etc., that can help them engage more effectively with potential candidates. About 47% of HR professionals believe that using social media is an effective way to promote their employer brand.

Leverage Cutting-Edge Technology

Technology has made it easier than ever before for companies to find and hire the right talent. Artificial intelligence and machine learning have enabled recruiters to make data-driven decisions to identify top candidates.

Talview offers a variety of tools and technologies like Interview Insights, Exam Engine, and Recruitment Chatbot that can be used for pre-employment assessments, candidate screening, interviews, and more. All these features help organizations save time on recruitment while also ensuring they are hiring the best fit for their company.


Bad hires not only cost you money but can also impact your organization’s productivity, morale, and reputation. Therefore, it is essential that organizations invest time and effort into finding the best fit for their team. Following strategies such as creating an employee referral program, building a strong employer brand, and leveraging cutting-edge technology can help them achieve this goal.

Talview’s suite of technologies provides recruiters with powerful tools to screen candidates quickly, and accurately assess their skills and competencies. Our tools ensure recruiters are making well-informed hiring decisions as well as saving time on recruitment.

Visit Talview to learn more about our AI-driven HR tech.

Tags: Recruitment Best Practices, HR Technology, Data-Driven Training, Hiring Bias

Written by: Team Talview

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