How Much a Bad Hire Can Cost Your Franchise

Of the 277,950-plus employees the franchise industry hired last year, roughly 27,795 were labeled as bad hires. That’s one out of every 10 employees.

By Adam Robinson

Bad hires are one of the simplest, yet often unidentifiable ways a business can lose money. This is especially true for most franchise owners (91 percent), who find it challenging to recruit skilled applicants. Any hiring manager will tell you that the hiring process is long and full of uncertainty. A candidate might seem great, but a constant layer of doubt lingers as you move toward making the final decision.

The Make Up of a Bad Franchise Hire

There are many contributing factors that lead to a bad hire. Perhaps there was a position that needed to be filled immediately and the employee’s skills were not properly tested, or an adequate reference check was not performed. A recent study found that of the 69 percent of companies that reported they made a bad hire, 43 percent of those bad hires were made because the company had to fill a role quickly. Or, maybe you chose someone based on a “gut feeling” or because you liked their personality — only to come to realize that the candidate was not capable of performing up to standards.

Most often, franchise hiring managers find that the bad hire fails to grasp job objectives, performs poorly, doesn’t fit in with the company culture, lacks critical skills or has a personality that clashes with others. Whatever the case, it is important to spot a bad hire and correct the situation before it ends up hurting your bottom line.

Bottom Line Impact

According to eFinancialCareers editor Fred Yager, a bad hire could end up costing your franchise two and a half times that person’s salary on top of the already negative impact to productivity and employee morale. When you add together all of the time spent recruiting and training a new employee, the cost of a bad hire is significant. In fact, a recent CareerBuilder survey found that 41 percent of businesses said a bad hire cost them a minimum of $25,000 and 25 percent stated that it cost them as much as $50,000.

Combating Bad Hires

Simply matching keywords on a resume to a job description rarely leads to a perfect hire. In fact, if you’re using an approach as simple as this one to hire employees, you’re significantly increasing the chance of having a bad hire on your hands. Take the time to develop a clear hiring process. This approach will help weed out any bad matches before they ever make it through to the final interview, reducing time-to-hire, decreasing cost-per-hire, increasing quality, providing a transparent process and, most importantly, ensuring that you’re building the right team to grow your franchise.

A Well-Defined Hiring Process

A well-defined hiring process has four key steps. The first: properly define the role looking to be filled. Lay out what the job will entail, expectations and responsibilities for the future employee and how he/she will impact the business. From there, the next step is to source the candidates. In order for a job opportunity to attract the right pool of applicants, it’s necessary to publish jobs to the most effective job boards and to utilize multiple mediums to reach the desired candidates. After sourcing and interviewing, it’s time to track, evaluate and select the candidate that is the best fit. Create a consistent framework for evaluating the traits that predict success, including attitude, sense of accountability, critical job skills and culture fit. Once you’ve selected the ideal hire, the last step is to verify your candidate. Verification can include conducting reference checks with previous manager as well as comprehensive background and drug screening, if allowable in your state.

The expression ‘hire slow and fire fast’ has stood the test of time for good reason. While the cost of a bad hire may be a hidden line item on your income statement, the results can negatively affect your organization in many ways, from cash flow to lost sales to reduced team morale. Taking the time to ensure a candidate is truly the right fit for a position, the team and your company culture will positively benefit your business for the long-term.

Adam Robinson is the CEO and co-founder of Hireology. Read more about the Importance of a Well-Defined Hiring Process in the February 2016 edition of Franchising World.