What a bad hire costs and how to calculate it for your company

In meetings with companies, the conversation about a bad hire almost never starts with the word “cost”. It starts with “it didn't work out”, with “we had to start all over again” or with an awkward silence when we ask what happened to the previous person in the role. From the other side of the table, we see the same thing again and again: the company knows it was expensive, but not how expensive. And what isn't measured isn't fixed. This guide won't give you a magic number. It will give you a method to calculate it with your own data.

Why we don't give you a figure

Plenty of figures circulate about what a hiring mistake costs. Almost none of them apply to your company. Getting an administrative role wrong doesn't cost the same as getting a sales director wrong, and a small SME isn't a group with several sites. That's why we'd rather you did the maths yourself. It will take you an afternoon and you'll have a number that is genuinely yours, one you can defend in front of your leadership team.

Before you start, a useful definition: we talk about a bad hire when the person leaves the company earlier than expected, or when they stay but don't deliver what the role needs. The second case is usually the most expensive and the least visible, because it takes time to recognise.

The four layers of cost

To calculate it, split the cost into four layers. Some are easy to add up; others call for a reasonable estimate. That's fine: what matters is that the estimate is yours and you can explain it.

1. Direct cost of the hire

This is what you spent to bring that person in. Gather:

• Job ads, job portals and search tools.
• Consultancy fees, if any.
• Internal hours spent on the process: reviewing CVs, interviewing, coordinating diaries. Multiply each person's hours by their hourly cost.
• Tests, assessments and travel.

2. Cost of the person while they were there

Add up gross salary, employer social security contributions and benefits for the time they were with you. Add training and onboarding: the hours of the team who trained them, courses, equipment and licences. The point isn't to say all that money was lost. It's to know how much you invested in someone who never paid that investment back.

3. Cost of the exit

If the relationship ended, there may be costs linked to terminating the contract. Every case is different and depends on the type of contract, the reason and length of service, so here we can only give you general guidance: ask your employment adviser or lawyer for the figure, as they are the ones who can calculate it rigorously. Also add the management and HR hours spent handling the exit.

4. Opportunity cost and hidden cost

This is the biggest layer and the one almost nobody measures. It includes:

• Lost productivity: the difference between what the role should have delivered and what it did deliver.
• Vacancy time: the months with nobody, or nobody effective, in the position, before and after the mistake.
• Impact on the team: colleagues' extra hours covering gaps, burnout, departures that came sooner.
• Impact on clients: delayed projects, sales opportunities that didn't close, complaints.
• Management time: the hours you and other managers spent supervising, correcting and deciding.

How to estimate what isn't on an invoice

The fourth layer is daunting because it doesn't show up in the accounts. Three simple ways to estimate it:

1. By the role's objectives. If the role had measurable objectives (sales, deliveries, projects), compare what was planned with what was achieved over the period. The difference, translated into margin, is an approximation of the opportunity cost.
2. By hours absorbed. Ask managers to estimate how many hours a week the team spent covering or correcting that person's work. Multiply by the number of weeks and by the hourly cost.
3. By time unfilled. Estimate the value of a month with the role well filled and multiply it by the months it wasn't.

Use prudent estimates. If you're torn between two values, choose the lower one. A conservative number you can defend is more convincing than an inflated one nobody believes.

A template for doing the maths

Open a spreadsheet with these rows and fill each one in with your data:

1. Direct cost of the recruitment process.
2. Salary, contributions and benefits during their time with you.
3. Training, onboarding and equipment.
4. Cost of the exit, using your adviser's figure.
5. Management and HR hours spent on the problem.
6. Lost productivity or missed objectives.
7. Hours absorbed by the team.
8. Cost of a new process to replace the person.

The last row is often forgotten: a bad hire almost always means repeating the process. When you've finished, split the total into two columns: visible cost (rows 1 to 4) and hidden cost (rows 5 to 8). That comparison is usually the most revealing part of the exercise, because it shows where the money you can't see is going.

Where the mistake starts

Calculating the cost serves one purpose: deciding where to invest so it doesn't happen again. In our experience, hiring mistakes rarely come from a single failure. They usually start at one of these points:

• A poorly defined profile. The role is described by tasks rather than by the results it must achieve or the competencies it requires.
• Haste. The vacancy is pressing and you choose the “least bad” of the candidates available.
• Unstructured interviews. Each interviewer asks whatever comes to mind and the decision ends up depending on personal impressions.
• Looking at the CV, not the behaviour. Previous experience tells you where someone has been, not how they act in specific situations.
• Neglected onboarding. A good choice can go wrong if the first few months aren't supported.

What we do at Crearte to reduce the risk

We can't promise you there will never be a mistake, because nobody can. What we can do is explain how we work so that the decision is based on evidence. The CREARTE Method is built on competency matching: STAR and CAR interviews and critical incident analysis. Each candidate comes with a fit summary against the role's responsibilities and the personal and technical competencies we have defined with you. You work with senior points of contact and with full transparency about the process: you know where it stands and why we recommend each person.

If you want to apply this approach in your own interviews, we walk you through it step by step in our guide to competency-based interviews. If you'd rather we assessed your finalists, our candidate assessment service is designed for exactly that. And to make sure the new hire stays once they're on board, take a look at the first 90 days.

From the number to the decision

Once you have your figure, compare it with what it would cost to run the next process properly: more time to define the profile, structured interviews, an external assessment or specialist support in recruitment. It isn't about spending more, but about spending where the risk is greatest. For a key role, the cost of getting it wrong almost always justifies taking more care over the choice.

If you like, we can do this exercise together with your next vacancy and see how much of the risk can be reduced before the search begins.

Frequently asked questions