How Much Mis-Hires Hurt Profits

 

There are some relatively simple ways to estimate how much your mis-hires hurt your profits.  I had two such discussions with CEOs last week, and they went like this:

Brad:  How many sales reps did you hire last year?  (“1,000”)

Brad:  What percent have turned out to be mis-hires, falling short of the minimum quota (“75%”)

Brad:  What do you estimate, conservatively, is the cost of mis-hiring a sales rep?  (“$100,000”)

Brad:  What do you estimate is the average number of hours wasted by the sales manager and others, preventing and fixing problems caused by the mis-hires? (“100 hours”)

Brad:  Ok, so there are 750 mis-hires annually X $100k cost of mis-hire = $75 million cost.  And 750 mis-hires annually X 100 wasted hours = 75,000 wasted hours. 

Topgrading has dozens of case studies at www.TopgrangCaseStudies.com; click on View Case Studies and you’ll see the Master Chart showing the average improvement in hiring, from General Electric to tiny Mint.com, is from 26% to 85% high performers hired.  So, continuing my CEO talks last week …

Brad:  Suppose your improvement is “only” from your 25% to 50% hiring success.  Using your estimates your company would save, annually:  250 X $100k = $25 million and 250 X 100 hours = 25,000 hours. 

Conclusion:  Intuitively you know that your high performers “carry” the company, and mediocre or low performers suck the creative, positive energy out of the company.  “Back of the envelope” estimates of the costs of mis-hires are not scientific, but can be illuminating.

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