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The Hidden Cost of a Bad Hire: Why Rushing to Hire Could Ruin Your Business

Updated: Jan 4

The ongoing tight labor market has small businesses rushing to hire talent ... any talent.


But if businesses make bad hires, the cost goes well beyond their salary and the time they cost management to fix the situation.


In fact, one bad hire can ruin workplace culture, alienate your staff, and damage your company’s reputation.


Yet, many small business owners feel they have no other option except to hire quickly to fend off the cutthroat competition.


Let’s look at the numbers to see why this strategy fails.


It’s Worse Than You Think


According to the U.S. Department of Labor, the price of a failed hire is 30% of an employee’s earnings for the first year. According to RedBalloon’s estimates, a single bad hire will probably cost you upwards of $21,000.


And that’s not the worst of it. Managers routinely find themselves spending 17% or more of their work hours—almost a full day each week—correcting the work of underperforming employees. Imagine if you only knew, in the interview, that a candidate would cost your management team one day per week of productivity!

And don’t underestimate the impact a bad hire can have on your workers and customers.

In a survey conducted by CareerBuilder, employers were asked to identify the most significant costs of a poor hiring decision, and at the top of the list were lost productivity, compromised quality of work, plummeting employee morale, and time wasted on recruiting and training a replacement.

Any one of these is a huge loss, but consider employee morale.


If a bad hire is making excuses, performing poorly, and bringing other negative elements into your workplace, they will destroy your workplace culture. A healthy workplace culture takes time to build, but it can be destroyed in a matter of days.

And toxic workplaces are driving away employees in the current economy. SHRM reported in late 2019 that 20% of America’s workforce have left a job in the past 5 years due to bad company culture. They estimate that the cost to American businesses is $223 billion.

Since then, the pandemic and “Great Resignation” intensified this exodus. A 2022 study by the MIT Sloan School of Management found that toxic workplace culture was the “single best predictor of attrition during the first 6 months of the Great Resignation” and that employees are 10 times more likely to quit due to a toxic workplace culture than due to compensation issues.

So don’t let a bad hire poison your workplace.


Understaffed or Poorly Staffed?


At RedBalloon, we talk to a lot of businesses, and they frequently tell us they would rather be understaffed than poorly staffed.

Given the steep costs of a bad hire, this is the right choice. So why are a staggering three out of four employers still making bad hiring decisions? According to a study by CareerBuilder, employers said that these were the most common reasons:

It’s pretty clear what’s happening here.

COVID ushered baby boomers out of the job market, right as zoomers were entering it. This means that a massive pool of workers is being replaced by a significantly smaller one. We have a high demand for labor and a low supply of workers, causing the cost of labor to rise.

Employers are feeling the heat of competition for labor, and they’re making quicker decisions to snap up talent before losing them to another offer. This includes settling for a bad hire.

But the labor market is no longer a vending machine. You can’t just put your quarter in and get the outcomes you want.

Hiring today is much more complex. Employees aren’t driven by pay, but rather overall “experience.” Those employers who figure this out and adjust their strategies are the ones outpacing the pack.


The Old System for Hiring Doesn’t Work


The question remains: how can businesses successfully navigate these tumultuous times and make the best possible hiring decisions?


Big companies are throwing money at the problem. According to SHRM, the average cost of recruiting an employee is nearly $5,000. In a large corporation, this money is spent on HR managers, recruiting services, job boards, and background checks.


However, small business owners do not have those financial resources, so 90% of them manage the entire process themselves.


On average, hiring a new employee takes 30 hours, which any small business owner will tell you they just don’t have. Instead, they hope to speed up the process by posting a job on Indeed or Zip Recruiter. But such job boards are often an expensive gamble.



For example, we’ve heard from multiple employers that Indeed’s pay-per-application system cost them thousands of dollars without yielding a single qualified candidate.


This is because posting to a generic job board like Indeed or Monster.com is like throwing a message in a bottle and hoping it happens to float in front of the right candidate.


It doesn’t have to be this way.


The Value of Values-Alignment


There’s a backlash underway in the talent market.


Good workers don’t want to work for a big faceless corporation with woke diversity agendas. Job seekers are looking for good companies where they are valued for their hard work, skills growth, and results.


The secret to attracting and retaining the right talent in today’s highly competitive labor market is “values alignment.”



Good company culture starts with merit-based recognition. That means avoiding the latest trend of instituting Diversity, Equity, and Inclusion (DEI) policies that reward based on gender or ethnicity, and not on effort and output.


At RedBalloon, we specialize in matching values-aligned job seekers with good companies where these employees can grow a career in a positive, productive workplace.


The response from the marketplace has been overwhelming, with tens of thousands of new job seekers visiting our site every month.


The old hiring channels are forever changed, and the ongoing labor shortage requires new strategies for finding and retaining the right people.


The cost of a bad hire could be tens of thousands of dollars lost from your bottom line, and possibly even the loss of your business.


Visit RedBalloon.work to learn more.


For our detailed report on the High Costs of a Bad Hire, download here.

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