Calculate the Cost of a Mis-Hire

The overall cost of a mis-hire is far more expensive to an organization than simply the hire's salary. These all add up when factoring in opportunity costs, hiring fees, administrative overhead, sidetracking the team, or slowing down progress, not to mention severance and legal fees.

The following calculator was designed based on the Topgrading Methodology's "Cost of Mis-Hires" exercise. It sums the overall cost of the mis-hire and multiplies that by the position level. Executive mistakes are 27x more costly than the base salary. Mid-managers are 15x, and sales positions are 6x. These serve as general rules of thumb, but every organization is different.

As a Scaling Up coach, I see many companies laser focus on "green dollars" rather than "blue dollars." Those terms come from IBM, which coined the phrase "blue dollars" to describe the organization's cost of human capital and time. An easy example of a blue dollar calculation would be calculating the cost of an unstructured, internal department meeting. Ten executives meeting for 2 hours equals 20 human hours. Our calculation is the hard costs for those employee salaries, say $65/hr, times the total meeting time, 20, giving us a blue dollar cost of $1,300 for that 2-hour meeting. That fails to factor in the opportunity costs of taking those members out of more productive time use.

Though the above scenario is imperfect, it should cause you to reflect on how time is used. When applied to hiring, blue dollars are very costly—the interview process, the review process, onboarding, ramp up time, etc.

Topgrading emphasizes the hiring process and weeding out those that could go south. It has a 93% success rate in finding long-term A-players.

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Think about recruitment fees, advertising fees, testing, add up the interviewing costs of your team, admin costs for paperwork, travel costs, relocation, etc.
Full cost of salary, benefits and bonuses.
Equipment, training, furniture
Admin cost, total cost of the teams time documenting the severance, legal or consulting fees, severance payment.
Time spent by the team fixing or babysitting the mis-hire.
Cost of lost customer, bad product launch or team members
Added 5 great team members, added $500k to the bottom line, etc.