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A blog about recruiting, talent management, and trends

Why Employee Referrals Work at Companies of Every Size

Employee referrals are the top source for hiring - on average, companies walk away with 30 percent of hires from referrals.

Taking the number one spot in sourcing, and producing consistently solid results comes down to a few key factors. Referral programs produce higher quality applicants that produce for the company. Referral programs are a more affordable sourcing strategy than traditional methods of recruiting. Finally, if set up correctly, referral programs can lessen administrative time, while producing more effective results.

It's a common misconception that employee referral programs only work successfully with large companies. It's easy to think that these programs don't work well with smaller companies - however, referral programs can still highly benefit smaller businesses, putting them on a faster road to growth.

Let’s see why employee referrals work at companies of every size.

 

Referral Programs are the best source of hire.

An employee referral program is the best source for recruiting top talent. Most companies hire approximately 30 percent of their new hires through referrals. Referred candidates are an efficient way to fill positions with specific job descriptions. For example, on average it takes 29 days to fill a position with a referred candidate, compared to 39 days for a job posting candidate or 55 days for a career site candidate. This can make a significant different for a company trying to grow or meet a competitive schedule.

Additionally, referred candidates boost retention. After one year of employment, on average, 46 percent of referred employees were still employed whereas only 33 percent of career site employees and 22 percent of job board employees were still employed. Longer retention of higher quality candidates can make a significant difference in engagement, production, and profit.

 

They are a more affordable sourcing method.

Compare to traditional recruiting methods, an employee referral program is more cost efficient. For example, employers can incur costs from $4,000 to more than $18,000 per employee using traditional recruiting methods. If you are looking for a new hire with a particular set of skills, be prepared to pay a higher amount while you’re searching for that right fit.

If you implement an employee referral program, however, your costs can significantly lower. You can reduce the costs of advertising on job boards or paying agency fees—which can really take a bite of your budget. Plus, you reduce internal labor costs.

Even if you take into account your employee bonus structure of $1,000 - $5,000 per referral, depending upon the position, you’re still coming out ahead financially. Imagine the immediate budget increase you would see, plus the higher quality of candidate, using an employee referral program.

 

Referral programs draw higher quality candidates.

When you hire through referral programs, you attract higher quality candidates. Referred candidates typically perform better on higher-impact tasks and perform at higher levels, thus boosting your business.

Additionally, when you hire through referrals, you attract not only active candidates—those actively job searching—but also passive candidates—those not actively job searching. Why would you want to attract individuals content with their current positions?

Active candidates make up 30 percent of the global job market where passive candidates make up the remaining 70 percent. Passive candidates aren’t connected to agencies. They aren’t on job boards. They aren’t sending resumes out. However, if you’re only limiting yourself to those who re actively looking for a job, you’re missing out on this 70 percent. And for positions with specific skill sets, such as healthcare or IT, you’re really limiting yourself. It’s getting more difficult to fill these positions with top-tier talent.

By exploring passive candidates for niche positions, you can connect with additional talent. Through referrals, you can demonstrate that your company’s opportunity is more attractive than what they currently have. Highlight your business’s culture, opportunity for growth, and benefits.

This isn't a suggestion to exclude active candidates in your referral search - just a reminder to include passive candidates. You want access to as many high quality candidates as possible. After all, 87 percent of both active and passive candidates are open to new career opportunities, if presented correctly.

 

They help minimize time spent on administrative tasks.

Implementing an employee referral program decreases a company’s internal administrative time. Though you'll have to set up the referral program, manage the employee referrals, and monitor employee rewards, by implementing a technological system to manage the referral system, you’ve undercut much of the administrative work by reducing the need for sourcing. Additionally, you’ve developed best practices to control the variety and volume of the referrals - because you'd probably get them even without a program in place.

By creating a talent channel through employee referrals, you’re gathering data on your referrals to ensure diversity. You’re also ensuring that you’re recruiting for your needs—now and in the future as you grow.

By utilizing technology to manage your employee referral program, you can create a strategic recruitment plan, such as exploring talent from your employee’s social media platforms. The fact is that 81 percent of the U.S. population has at least one social media profile, with hundreds, if not thousands, of connections - think about the access you have to potential talent if you can tap that network.

Companies expand their workforce by at least 10x by recruiting through their employees’ social networks, such as LinkedIn, Facebook, and Twitter. The number one way potential candidates discover a new employment opportunity is through a referral. For example, potential candidates on LinkedIn are 46 percent more likely to open a message if it is from one of their connections than if it is from an unknown sender.

Not only can you get access to quality talent through your employees’ social networks, but your current employees feel pride by taking part in the hiring process. They might receive an award for referring someone to the company, but they also participate in the company’s growth and success. That creates a happy, loyal workforce—no matter the size of your company.

When you’re thinking about your next hire, do the math. Recruiting through referrals create external and internal benefits. Externally, you can hire better candidates at more affordable costs. Internally, you boost morale and loyalty. You can on-board those candidates faster, and they’ll produce for you at a higher rate. Your retention numbers will increase as will your profit. Cut the overhead and increase your profit. You’re improving both sides of the balance sheet. Numbers don’t lie.

 

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