How finding the right candidates can reduce your company's costs

Avatar of Konstantinos Pantazis

Konstantinos Pantazis

Head of Data

A hiring manager has a lot of tough decisions to make, but one of the most crucial ones is who exactly they should hire. Despite this, a CareerBuilder survey found that 74% of employers admitted to hiring candidates who weren't the right fit for a position. This is a huge number! So why are employers making these decisions and can it be avoided?

Calculating your Bad Hire Rate

So what exactly makes a candidate the wrong fit? A "bad hire" is defined as an employee who leaves the company within the first 12 months from the hire date. According to the US Department of Labor the individual cost of a hire like this this is roughly equivalent to 30% of that new hire’s first year salary.

So, how much could this potentially cost your company on an annual basis? To calculate this figure, you'd need to have the average annual income, the percentage of employees who have left the company within the first 12 months and the number of employees you are planning to recruit for the next 12 months. 

Formula:

Total cost = Average Annual Income x 0.3 x Bad Hire Rate x Number of Employees to recruit

Example:

Average Annual Income = $50000

Bad Hire Rate = 10%

Number of Employees to recruit = 50

Total cost = $50000 x 0.3 x 0.1 x 50 = $75000

In reality, the cost could be even higher than this due to certain costs being harder to measure than others. Below you'll find examples of some of those costs:

  • Time and expenses for new employee onboarding and training 
  • Time and expenses reviewing CVs, scheduling interviews, and posting job ads
  • Time and energy spent on managing poor employee performance
  • Decreased productivity since projects are disrupted and workflows are affected
  • Increased stress and low team morale
  • Risk of engaging in long and expensive legal procedures after termination

If we're aware of these drawbacks, why do we still witness these practices happening? The CareerBuilder survey mentioned above provides some really interesting insights: 

  • 35% knew the candidate didn’t have all the needed skills but felt they could learn quickly
  • 32% took a chance on a nice person
  • 30% felt pressured to fill the role quickly
  • 29% focused on skills and not attitude

Decreasing your Bad Hire Rate

So you've now calculated how much these hiring decisions are costing you, what steps can you now take to start decreasing this number?

If you haven't already started thinking about investing in recruitment software for the new year, now might be the perfect time to do so. According to G2, 94% of recruiters and hiring professionals say that using a recruitment software has positively impacted their hiring process, while 78% of employers that use an ATS said that recruitment technology makes finding great talent easier than ever. Because of these statistics, it's also no wonder over 98% of Fortune 500 companies have recruitment software in place.

So how exactly can recruitment software help you start hiring the right candidates?

Streamline your recruitment process

Great candidates are most probably going through multiple applications, so time is of the essence. Using manual processes for hiring can take a lot of time, which risks losing the best candidates. Hiring should be quick and frictionless, so making use of an ATS which can automate your recruitment can save you heaps of time.

Identify a set of highly-skilled and diverse candidates

With an ATS, you set the rules. Customise everything from your career site, job ads and application questions, all the way to your application workflows, messaging and integrations. The combination of these tools and tailoring the process to exactly how you and your team work will allow you to attract not only the best candidates, but the right candidates for your roles.

Minimise bias in candidate selection processes

It's no secret that diverse teams lead to both a more productive and a more creative workspace. Recruitment software can make it possible for you to screen candidates by masking any personal information that could lead to the risk of unconscious bias.

You can read about Teamtailor's anonymous hiring here.

Optimise your career site

Organisations that invest in employer branding are three times more likely to make a quality hire. Having a career site where you can showcase your employer brand and company culture will increase your chances of attracting top talent. Most candidates will do a deep-dive into a company before deciding to apply, so having a space where they can find all the information they need and get a better insight into who you are as an organisation is beneficial.

Improve transparency and communication

We recently surveyed 400 candidates to work out exactly what they're looking for during the recruitment process—31% of respondents label ‘being ghosted by the recruiter’ as their top pet peeve. Recruitment software can help you avoid ghosting your candidates by automating messages within the recruitment process, send you reminders and ensure you reach out to everyone, whether they get the job or not.

This level of transparency and communication should be present from before a candidate even applies all the way to onboarding and beyond. Unsurprisingly, 69% of employees are more likely to stay with a company for three years if they had a great onboarding process.

These changes can help lead to a decreased Bad Hire Rate. Taking our example from before, if we halved the Bad Hire Rate from 10% to 5%, we would also halve the associated costs.  

Total cost = $50000 x 0.3 x 0.05 x 50 = $37500

Investing in recruitment software can lead to significant savings that can be used for covering the investment on the software itself. In this way, finding the right candidates for your roles can be made simple, giving your company the chance to thrive and grow. 

If you'd like to know more about how recruitment software can help you find the right candidates, click here!

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