9 Reasons to Develop an Employee Referral Program

Chad Harrington


Employee referrals rank as the top source of hire in the United States. As many as 40 percent of hires within the average company come from employee referrals.

For example, a recent survey of 50 large U.S. companies reveals that nearly 100,000 hires came from employee referrals during one year.

 


While employee referrals are the top source of hire, only 71 percent of companies in a recent survey even have a defined employee referral program. That means that more than a quarter of companies have not tapped into the potential that employee referral programs offer for sourcing talent. 

Two types of companies will be inspired to develop their employee referral program (ERP) by reading this blog.

Here's the two types of companies:

  1. Companies that don’t have a ERP developed. 
  2. Companies that need to improve their ERP. 

According to Dr. John Sullivan, everyone has the ability to improve employee referral results by at least 5 percent

Of all the tools out there, we've got one that is simple and free to start:
 


An employee referral program is any way to organize job candidates that come from referrals. Referrals come from your company's social network, which includes employees and non-employees connected to the company in some way.

Why develop an employee referral program?

1. INCREASE QUALITY OF HIRE

The top reason employers develop an employee referral program is to increase their quality of hires. 93 percent of employers surveyed listed "increase quality" of hires as a top reason for having an ERP.

2. SAVE COMPANY TIME

Employee referrals took a 48 percent lower time to fill in comparison to other sources:

  • 28 days is the average time to fill positions from referrals  
  • 54 days is the average time to fill positions from other sources

Among those surveyed, 58 percent listed "decrease time to hire" as as a top reason for having an employee referral program.

3. BROADEN YOUR REACH

Employees provide a great source for referrals, but a referral program can include non-employees too. In fact, of those companies who have a formal program, these are the top networks that refer candidates:

  1. Alumni (70% percent of companies include individuals from alumni as referral sources)
  2. Customers (48%)
  3. Social Media Connections (48%)
  4. Vendors (35%)

4. SAVE COMPANY MONEY

The cost to hire is 58 percent lower with employee referral hires among survey participants:

  • $1554 is the average cost of employee referral hires
  • $3704 is the average cost from other hiring sources

5. INCREASE investments

A job seeker who is referred is at least three times more likely to be hired than someone without a referral. 

6. RETAIN EMPLOYEES better

Among those surveyed, 49 percent listed "increase retention" as as a top reason for having an employee referral program.

Of hires made from referrals, 46 percent stayed for three years or more, while only 14 percent of employees who come from job boards stayed for three years or more.

7. INCREASE COMPANY REVENUE

Hires from referrals can produce 25 percent more profit than hires from other sources. 

8. increase DIVERSity

Among those surveyed, 32 percent listed "increase diversity" as as a top reason for having an employee referral program.

An old myth is that referrals do not make a more diverse workforce, but the opposite is true, as Dr. John Sullivan describes. In fact employee referrals are the "'most productive' source for diversity hires."

9. CULTIVATE COMPANY CULTURE

When companies source hires from employee referrals, they will naturally cultivate consistent company culture. While the workforce itself might become more diverse with each new hire from employee referrals, the employee who refers a friend already likes their job, so they are likely to communicate well what the company culture is like. 


So whether you've got an employee referral program already or you're just starting the process, these reasons show that you've got plenty of reason to develop a great program. The dividends will pay off over time. With regard to growth hacks, an employee referral program is exponentially beneficial. It's simple and natural, and the statistics prove it to be effective. 

Your ROI is a gift that keeps on giving.

What reasons would you add to or modify from the list? Leave your comments below. For real. Let's get a conversation going.


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Chad Harrington is Creative Content Director @relodetools. He's a student of all things hiring. Listen to his exclusive interviews on Relode's podcast and contact him at chad@relode.com.