The Real Cost of a Bad Hire
Hiring is a headache. Not only is finding the right person time-consuming, it’s also expensive. The time and resources spent on trying to find the best team members for your organization extend further than just creating the job posting and making some phone calls. With a reported 12.6 million people seeking jobs in the United States, recruiting is an intensive process with many overlooked costs. So, what happens if you make a bad hire?
Let’s Talk Money
When hiring—and retaining—sales talent, you might say a bit more is at risk than other industries. Dr. Bradford Smart’s book Topgrading for Sales breaks down the cost of one poor sales hire as $563k. Since he wasn’t speaking specifically about medical sales reps, I decided to dig into the numbers with medical sales leaders. I conducted a survey with 60 sales leaders and asked them their opinion. Turns out, 63 percent agreed with his numbers, but another 12 percent said the total loss was more than $700k. [link to the survey slide] However, the more I showed my findings, the more medical sales leaders said they believe the total loss is closer to $1 million. No way! That’s crazy talk, right? To get a better understanding, let’s look at Real Cost added with Opportunity Cost.
Right out of the box, you are going to spend $100,000-plus of your hard-earned cash on hiring and training each new hire. That’s the cost right out of the company’s bank account for the sales rep before they even start selling. However, go ahead and add another $200,000 if your poor sales hire lasts just 6-12 months. More hard cash loss on salary, benefits, field expenses, new hire commission guarantees, health benefits, additional training costs to help poor hire, managers, HR, and legal time to work the poor hire out of the company.
But wait, there’s more?
Yep, one of the most overlooked and expensive costs is known as “opportunity cost.” It’s part of the invisible costs. The reason it’s hard to see is because the money never made it to the bank. Think about it, how much revenue did the company lose by hiring the “business prevention” sales rep? The easiest way to find out is ask your competitors how much revenue their sales rep sold in the poor hire’s territory. If you find out the competing sales rep just came back from their President’s Club trip, it’s safe to say your losses are reaching seven figures. Ouch!
There cannot be more costs, though, right? Hate to say it, but the company unemployment rates will mostly like go up, possible legal costs for severance or to avoid legal issues and—guess what—you are right back to pulling out another $100,000 for hiring and training the replacing the poor sales rep.
We can break the cost of a bad hire, or any hire, down like this:
Internal costs include things like interviews, training, learning curve time and other operational costs. External costs include things like advertising for the job post, agency fees, travel and accommodations for long-distance candidates, screening and testing, technology costs, phone/video costs and any facility costs during the hiring process. When you start to look at these items, the initial costs add up quickly—and that’s all before the new hire makes their first sales call.
After everything is said and done, a bad hire in medical sales could cost you five times the job salary in question, leaving those managers feeling drained, causing morale to suffer and resulting in productivity going down the drain—all of which cost you even more. It’s a complete bummer, and it takes a while to recover.
When a new sales rep doesn’t work out and leaves the company, that’s not the end of the story. You have an office full of other people who have lower team morale because of it. They now must pick up the slack until a new person is hired, resulting in reduced ability to comply with timelines, maintain standards and achieve goals.
Loss of Resources
On occasion, a chance to start over is fun. You can look to the future with hopefulness and positivity. But when you’re starting the tedious hiring process over again, it’s hard to smile. I talked a bit about the resources earlier, but I want to stress how much of an investment hiring a new employee truly can be. From sourcing to interviewing and negotiating—the whole process takes time. Then, when you find the one, a significant amount of time is spent in training, guidance and performance correction until they reach the team standard and show results.
But when it comes to terminating the employee, there’s no cost, right? WRONG. You now must think about severance costs, any additional compensation, potential legal fees, more paperwork and, of course, the cost of starting the process once again.
Damage to Your Brand
Something you never want to find out is that a bad hire did damage to your brand’s reputation. Maybe the reason you are parting ways with the sales rep is that they treated clients poorly or spread false information about your company or any related company. You now have to reverse that image as best as you can, which can lead to a higher marketing cost. It not only could significantly reduce sales and patronage, but this could also lead to the loss of opportunities and credibility in the market.
Bad hires typically put no effort into creating outgoing relationships with customers, which also leads to the potential loss of new clients and future revenue. On the flip side, when the salesperson leaves your company, you run the risk of them walking away with your clients. As a direct result of this, you could experience a dip in sales.
Loss of the Good Ones
A good employee helps pick up slack where needed to make sure you succeed overall. A good employee has the company’s best interest at heart. But a good employee could be pushed into quitting because of bad hires.
When a good employee is consistently making up for someone else’s shortcomings, it leads to resentment and burnout, forcing them to look elsewhere for better job opportunities. It’s important to pay attention to your team members, regardless of their performance to ensure you don’t lose a good one.
A bad hire isn’t always easy to spot, but it’s easier when you work with a top-notch recruiting firm that’s looking out for you. Our team at Relentless Recruiting is trained to look for those red flags hiding in a resume or tucked into a personality. Save yourself a significant amount of your hard-earned revenue by giving us a call for your next medical sales rep position. We want to show you what one Super Start rep can do for a company.