Bad Recruiting? It Can Cost Your Company a Whole Lot of Money

Many recruiting leaders have a hard time getting their function fully funded. One of the primary reasons why is because we don’t quantify in dollars the positive business impacts of great recruiting and the negative impacts of weak recruiting.

The Boston Consulting Group found that recruiting ranked No. 1 among 22 different HR functions as having the highest impact on revenue and profit margins.

Without quantification, senior executives don’t see the millions of dollars of lost corporate revenue resulting from an underfunded recruiting function.

The one exception to this lack of quantification is in the sports world, where the increased revenue as a result of recruiting a top talent like LeBron James to the Cleveland Cavaliers has been calculated to be in the hundreds of millions of dollars.

In the corporate world we frequently talk about the need for a great candidate experience, but few recruiting functions calculate the dollar amount of the losses that occur when disillusioned candidates tell their friends to stop doing business with your firm.

Start determining your business impact by working with your CFO’s office to first identify and then to quantify in dollars the revenue impacts of both great and weak recruiting.

Bad recruiting’s negative business impact

When really bad recruiting occurs, what are the negative business impacts to the firm? They are highlighted below.

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  1. Reduced product sales from a bad candidate experience — By providing a bad candidate experience, you frustrate and anger candidates. And a significant portion of those disillusioned candidates strikes back by no longer buying your retail product. And as a result of that disillusionment, not only do you lose the increased product sales from the 23 percent of candidates who, if the experience were to be positive, “would be more likely to purchase products or services from the company.” You also lose product sales from the 9 percent of their friends/colleagues “that they will urge not to buy your products.” As a result, it makes sense to find out if those who you are interviewing are current customers of your firm and then to make sure that you are responsive to them if they are not hired.
  2. Reduced revenue from hiring below-average performers in revenue impact jobs — Hiring below-average performers in the all-important sales and revenue-generating jobs will result in a measurable and significant reduction in revenue. But there will be negative revenue impacts in many other revenue-impact jobs like product development and customer service as a result of the underperformance of below-average hires in these functions. This is because bad hiring will result in less innovation in your products and poor customer service after the sale.
  3. Lower productivity from hiring below-average performers in all jobs — A weak employer brand will by itself result in lower-quality hires (i.e. reduced on-the-job performance) in all jobs that you fill. We know that because data from the Corporate Executive Board shows that having a strong employer brand can “increase your quality of hire by 9 percent.” And if also you have a weak recruiting process that routinely hires below average performers, for every job that you fill with an underperformer, the firm will obviously get lower productivity from that new employee. You can calculate the cost of hiring a single underperformer by using your average revenue per employee number. For example, if bottom-performing hires produce 10 percent below the average, you multiply that 10 percent by the average revenue per employee (at Sears, for example, the revenue per employee is $140,000 and at Apple it is $2.4 million) and that gives you an estimate of the cost of hiring a single below-average performer. In this case is a negative $14,000 per year for each weak new hire at Sears and a whopping $240,000 at Apple. If you also estimate the average cost of the job errors, accidents, and negative customer impacts, you can get a more accurate dollar number of the negative business impacts of a weak-performing hire.
  4. A bad candidate experience may reduce the power of your product brand — At many firms; the employer brand is difficult to separate from the product brand. For example Google and Apple rank one and two on both product brand and employer brand. And that interconnection means that if you damage your employer brand, your product brand will also suffer. So if you damage your employer brand as a result of the bad candidate experience or questionable hiring practices, that can also hurt your product brand and the sales that it generates. The interrelationship between these two brands becomes greater every day with the growth of social media sites like Glassdoor. It is amazingly easy for potential applicants and customers to find out about a negative candidate or employee experiences, and then to use that information to change their job search and product purchasing. Politically, realize that any function that even indirectly damages the product brand (which the firm has spent millions to develop) will be guaranteed a rough time and a lower budget in any corporation.
  5. The significant added costs related to replacing mis-hires — Bad hires often prematurely quit or they need to be released. Beyond the obvious recruiting replacement costs, calculate the costs resulting from hiring managers having to spend additional time on recruiting, rather than the regular job. But the largest revenue cost results from having no productivity in that job during each day that the position is vacant. If the vacant position is a revenue-generating job, that revenue may be lost forever. And for any position, a vacancy means that your current employees will be unnecessarily stressed because they need to work harder to fill in. And to make matters worse, if recruiting has an unnecessarily long average time to fill, the costs of those excess position vacancy days will increase dramatically but for no valid reason.
  6. A bad candidate experience will reduce future job applications — As we have already seen, having a bad candidate experience disillusions candidates. And as a result of that disillusionment, you will lose out on the opportunity to make a future hire out of the 42 percent of candidates, according to a CareerBuilder survey, who have now decided to never again seek employment at your firm. You will also lose the referrals from the 22 percent of candidates who will now tell friends and colleagues not to apply at your firm. You are also likely not to get job applications from any individuals who read the negative reviews on social media posted by your disillusioned candidates or employees.

Final thoughts

If you’re tired of being underfunded, there is only one truly effective solution in recruiting. And that is working with the CFO to make a strong business case that demonstrates the differential in impact between the positive business impacts in dollars as a result of great recruiting and the negative dollar impacts resulting from an underfunded weak recruiting function.

In almost every organization, once executives realize the huge difference in business impact in product sales, lower employee productivity, and in lower-quality applicants recruiting, those executives are more than willing to provide whatever funding is needed in order to minimize those negative business impacts.

Dr. John Sullivan

Dr. John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high-business impact; strategic Talent Management solutions. He’s a prolific author with over 900 articles and 10 books covering all areas of talent management. He has written over a dozen white papers, conducted over 50 webinars, dozens of workshops, and he has been featured in over 35 videos. He is an engaging corporate speaker who has excited audiences at over 300 corporations/ organizations in 30 countries on all six continents. His ideas have appeared in every major business source including the Wall Street Journal, Fortune, BusinessWeek, Fast Company, CFO, Inc., NY Times, SmartMoney, USA Today, HBR, and the Financial Times. In addition, he writes for the WSJ Experts column. He has been interviewed on CNN and the CBS and ABC nightly news, NPR, as well many local TV and radio outlets. Fast Company called him the "Michael Jordan of Hiring," Staffing.org called him “the father of HR metrics,” and SHRM called him “One of the industry's most respected strategists." He was selected among HR’s “Top 10 Leading Thinkers” and he was ranked No. 8 among the top 25 online influencers in talent management. He served as the Chief Talent Officer of Agilent Technologies, the HP spinoff with 43,000 employees, and he was the CEO of the Business Development Center, a minority business consulting firm in Bakersfield, California. He is currently a Professor of Management at San Francisco State (1982 – present). His articles can be found all over the Internet and on his popular website www.drjohnsullivan.com and on www.ERE.Net. He lives in Pacifica, California.