The Cost of a Bad Hire and the ROI of an ATS
Each time a company adds a piece of software to its operations, it should solve a defined problem for the company. But solving a $1 problem with a $100 solution doesn’t make sense. A beneficial software decision will solve a problem, improve the company in its intended way, and do so while providing a positive return on investment.
As a purveyor of HR technology, and specifically Applicant Tracking Systems, we are often asked, “does an ATS provide a positive ROI?” And since you probably need to know that answer in order to make a decision, or get a new platform approved, we are here to help.
Return on Investment calculations can get very nuanced, very quickly. Each individual company has an almost infinite combination of inputs: How many people are involved? What process is used? What is your job advertising budget? How many hires do you make?
But much like our approach to designing software, we try to distill complex processes and questions to the essentials. So how many hires does it take for an ATS to provide a positive ROI? For most companies, the answer is one. Just one? Yes. If an ATS can help you replace one “bad hire” with a “good hire,” it will more than pay for itself, and likely several times over.
How can that be? Well, the costs of a bad hire, both direct and tangential, are much higher than most think.
The direct, hard costs of a bad hire are scary.
By now you may be wondering if we are oversimplifying the issue at hand, and to show you we are not, here are a few eye-popping estimates of what a bad hire could cost your company:
- According to the U.S. Department of Labor, the price of a bad hire is at least 30 percent of the employee’s first-year earnings.
- CareerBuilder says 74 percent of companies who made a poor hire lost an average of $14,900 per poor hire.
- According to a survey published by Society of Human Resources (SHRM), forty-one percent of hiring managers estimate the cost of a bad hire in the thousands of dollars.
The tangential soft costs of a bad hire are just as scary, and might be worse.
If the hard cost figures aren’t persuasive enough for you, what about the additional ancillary impacts of a bad hire? Surveys and studies have also found that:
- Chief financial officers rank a bad hire’s morale and productivity impacts ahead of monetary losses.
- Supervisors spend, on average, 17 percent of their time managing poorly performing employees.
- Sixty percent of hiring managers report that bad hires don’t get along with co-workers.
- Over 80% of employee decisions to quit have been directly caused by other employees, causing increased turnover.
An ATS should be able help
Will an ATS magically remove all chances that you make a bad hire? No. But can an ATS increase your odds of making a good hire? Yes. Here’s how. An ATS:
- Helps you provide a great applicant experience and increases the odds of applications being submitted.
- Removes applicant friction, which reduces drop-off rates of applications.
- Streamlines your applicant processing funnel from receipt through hire, reducing the time from application to hire.
- Ensures no applicants slip through the cracks.
- Provides an easy way to communicate and update both applicants and colleagues.
- Allows hiring teams to work seamlessly together to choose the right candidate
- Quickly separates unqualified candidates and prioritizes the qualified ones.
- Easily determines which applicants are qualified by using job specific questions for each position
Bad hires don’t just cost your organization money. Bad hires can kill your team morale, destroy productivity, suck up unnecessary management oversight, foster negative relationships among colleagues, and increase turnover. Bad hires can destroy you.
If an ATS can help you make your next hire a “good hire” instead of a “bad hire,” it has already paid for itself.