These Statistics Will Make You Rethink the Importance of Your Team
“People are our biggest asset” comes with a corollary.
It seems like just about every company has a line somewhere on their website’s “About” page on how people are truly their biggest asset.
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At this point, it’s almost a cliche. It’s something companies say because it makes them seem like “the good guys” while being vague enough to avoid any kind of actual commitment.
But hold up — if dig a little deeper, this statement holds more truth than it may seem. Like, a whole lot more.
Just how much are we dealing with here? Well, I’ll let the numbers do the talking.
“It’s probably cost us well over $100 million.”
That there is Tony Hsieh speaking, CEO of shoe e-commerce giant Zappos. He delivered that zinger in an interview with Inc. Magazine – and if it seems like a bit of an exaggeration, well, you need to think about it more.
As Hsieh outlines in the interview, a bad hire doesn’t just cost lost productivity or a hefty salary. You need to add up the cost of all of your bad hire’s mistakes: between lost daily productivity, lost revenue in potential sales, impact on employee morale, strained relationships with clients and between employees, the cost of onboarding the employee, and the often messy (and expensive) process of firing the employee, it’s easy to see how costs can balloon so quickly.
And that’s just the tip of the iceberg. If that number is still a shocker, consider this:
Onboarding a New Employee Costs $240,000
I know, that’s a lot of sticker shock — but according to recruiter Jörgen Sandberg, that’s a pretty reasonable estimate for a mature company.
This number is probably smaller for a startup, but again, what you have to consider is all the hidden costs you’re not thinking about.
Hiring doesn’t just mean you have to pay someone’s salary — you also have to think about the cost of finding the candidate in the first place, the cost of training them, and the lost productivity while finding and training the employee. When you start to crunch the numbers, it becomes clear how expensive the hiring process really is.
Bad Hires Cost 30% of Their First Year Earnings
That number comes to us from the US Bureau of Labor Statistics — so at a minimum, if you want to know how much a bad hire will cost you, take their salary and divide it by three.
A big organization can probably handle this kind of cost — but if you’re still running a lean startup working to generate user growth and traction, this could easily be a mortal wound to your company.
35% of CFOs Say a Bad Hire Firebombs Employee Morale
And just in case you aren’t tired of this parade of suffering, we still have the non-monetary costs to think about.
A global study of CFOs found that 35% of respondents said morale is “greatly affected” (negatively, mind you) by a bad hire.
If an employee doesn’t gel with your organization, they create friction on a daily basis — and it often falls to your other (good) employees to do damage control. This is draining, and slapping your best people with someone else’s baggage does a number on their enthusiasm for the workplace.
Seriously, People Are Your Biggest Asset
When you look at the numbers, the importance of your employees really starts to take center stage. It turns out that all those mindless platitudes on corporate websites were right all along: people are your biggest asset, and if you don’t hire the right people, it’s going to cost you a lot of money.
So next time you’re looking to bring on a new employee or fill the spot Chad left when he jumped to that hot new startup, think very carefully about your decision. Making the right one has a huge upside — but getting it wrong may be more costly than you think.
If you want to dive deeper into what it takes to develop and launch a product or a business, the team at Rootstrap has created a set of e-courses to help you do just that.
Oh, and also:
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