£26,959: The cost to an SME of one bad recruitment decision

Most of us can calculate the direct costs of recruitment and we will probably come up with a few hundred pounds or more realistically one to two thousand but the real cost impact comes from the time and effort required to get a new recruit up to speed as a fully productive employee able deliver at an optimum level of performance.  Unum’s latest study,  produced by the highly respected Oxford Economics, sets a figure on the cost of staff replacement at £26,959 so you need your new recruit to last.

“£26,595 is a startling amount, and I would encourage SMEs to place more emphasis on retaining talent and developing good staff to reduce the cost of staff turnover.”  Peter O’Donnell, CEO of Unum.

£26, 959 is a not insignificant sum, just a fraction of which would provide a budget that could be used on more effective employment practices thus reducing the risk of future waste.  More positively, this will deliver more motivated and productive employees.  In many cases, with a sales person for example, the cost of replacement could be significantly higher and therefore the benefits gained from solving the issue are also much higher.  Whilst dealing with the immediate financial consequences is very important, the really important gain to be made with a sales person comes from the increase in their sales figures and the revenue and profit generated.

From our own research, the key contribution to this issue is the perception that employing someone new is just a recruitment activity when in reality recruitment is only one of four essential dimensions required to deliver a complete employment solution.  Those four dimension are; recruitment & selection, thorough induction, on-going learning & development, and appropriate management, leadership & coaching.  By locking these four together you can deliver an environment of continuous improvement in staff performance and productivity.

The simplistic cost calculation most often utilised considers only the direct costs of recruitment; agencies, adverts, temporary staff to plug the gap and the time taken by HR and management in the recruitment process.  However, in reality the calculation should also encompass the cost of lost production and productivity, and opportunity and reputational cost; almost no one we have met has considered these extra costs.  Taking the true cost into account, is £26, 959 just the tip of an iceberg?

So let’s look at those four dimensions in turn.

Recruitment & Selection

This is where it all starts, this is where the foundation is created, so investing the time and effort required to get this stage right will always more than pay you back in kind.

The first step is to carefully define and agree the requirements of the job including what you expect the new recruit to achieve for the business.  This should then drive the complete recruitment and selection process; what you will pay including incentives, where and how you search for candidates, how you will interview, other section methods you will use including profiling & psychometrics and finally referencing which should include their use of social media and other public platforms.

Then there is the matter of the final selection process; don’t just choose the best of the bunch, choose only those who match the full requirement.  However, if you cannot find the perfect match and you are considering a candidate who is a near match to the job specification, then you must work out what you will need to do to support them to fill whatever gap they have.  Discuss the gap with them as part of the job offer process, tell them what you will do to help them address the gap and agree with them what they will be expected to do.  Make it clear that failure to do what they have committed to could become a performance issue.  If they are put off by this process you will have saved yourself a deal of cost and potential heartache watching them fail.  When you take up references ask the referee what they think about the person’s ability to learn and adapt in line with filling the gap.

Thought: Don’t be afraid to recruit people who are better than you; be afraid not too!


Treat each new employee as raw material that will need to be moulded before they can deliver their part in your finely tuned engine.

No matter how experienced someone is when they join you that experience is only a reflection of their past and it may not be a relevant indicator of how they might perform with you.  Past successes may have been a function of a specific environment where they worked or it may even have an element of luck.

You must allocate time and resources to thoroughly induct the person into the company and their role in it, including an introduction to how technology and other tools are used in their role.  You must help them to understand your history, ethos, culture, principles and business objectives; where you are going, how you plan to get there and where they fit* into the scheme of things.  * Consider giving them a taste of each additional role /department/function so that they have a context for the impact of their role in the overall scheme.

If during the recruitment process you have identified gaps in the candidates’ skills or knowledge required for the job, the induction should also commence the process of plugging the gaps.

At the end of the induction ask your new employee to present back to you what they now know about your company and their role and also what they think they still need to learn.  For recruits into more senior roles such as management, sales and selling, invite them to present to you their ideas for their next 30/60/90 days.

Thought: One week of induction will typically cut three to four months off the process of “learning” the company and the job, which means the recruit will become fully productive much faster.  This will save a significant slice of the £27K.

Learning & Development

The development process commenced with the induction but you now need to focus more on the individual and their specific learning needs to achieve the ideal role competencies.  Technology will be a significant area to consider and in many cases this will be IT related.  The world of IT based business systems is one of constant change and if you fail to keep your people up to date and engaged with their use you may well be handing an advantage to your competitors.

We recommend that companies create a development programme for individual members of staff and even for departments or functions.  The purpose is to create a regime of continual improvement which should be a combination of formal and informal training, refreshers and updates plus, as discussed in the next section, coaching and mentoring from management and colleagues.

By making this a permanent feature of the way you operate your business you can create and ring-fence a budget for staff development.  All too often training is seen as a nice to have and in tough times the training budget is typically one of the first casualties.  However, there is sufficient evidence that companies who invest in training and development during periods of economic difficulties invariably emerge stronger than competitors who failed to invest.

Thought: The FD asks; “what if we spend money training them and they leave?”  The HRD asks “what if we don’t train them and they stay?”  This is the classic debate between cost and value – we recommend you go for value every time as it will ultimately cost you less!

Management & Leadership

The most important element for a successful and progressive employment environment is the leadership, coaching, mentoring and on-going development of teams and individuals across the business.  Having recruited the right person (perhaps with some gaps) and equipped them with the basics through induction and development programmes the real difference will come from good quality committed management.

This is true in all areas of the business but will deliver the most significant performance improvement in the sales and selling areas of the business.  Imagine a sales person tasked to deliver orders that will produce a margin of £150,000 and they under-perform by 15% (not uncommon) that represents a loss, every year, of £22,500.  A good committed coaching manager will get that back for you in no time so the investment justification is simple.

Thought: if your sales managers spend most of their time in the office with spread-sheets they are simply studying history when they could be changing the future.  They need to be out with their people helping them to become more productive and effective.

Bringing it all together

One model for delivering a co-ordinated approach to the four dimensions; recruitment, induction, learning & development, and leadership, is as a process focused on continuous improvement and thus increasing levels of performance and productivity.   The process was once fashionably illustrated by sales schools or sales academies, and as with any fashion it can enjoy a revival at the appropriate time.

Resource bandwidth and skills availability may be a challenge to any company in times of change or planned growth and who might be considering embarking on this approach, however, if you wish to convert that £27k cost into rewarding benefit, now is a good time to plant those seeds.

Contact us to find out how we can help you cultivate and reap the rewards.