Referral programs are recruitment strategies of companies that tap into the networks of their people with the hopes of hiring more quality employees. As a reward for referring successful candidates, an employee can receive referral rewards like monetary compensation, extra vacation days, and the like.
The Power of Referral Programs
Much like other strategies and tactics, employee referral programs are well-known because they bring success along with other advantages for the company.
The power of referral programs can be best explained with these three main benefits:
1. Source Quality Candidates
According to a survey conducted by Jobvite, only seven percent of applications were through referrals, but this small number generated a whopping 40 percent of newly hired employees.¹
This means that there were many, many candidates who sent their applications through traditional means but unfortunately did not make the cut.
Candidates who applied through referrals are usually of higher quality. Another survey mentioned in Forbes showed that job boards have only a 1.3 percent hire rate while referral programs have 16.7 percent.²
Candidates from referral programs are usually better than other sources because your own employees are weighing in.
A successful referral is equal to more benefits for the employee who referred the new hire. This means your employees won’t just refer anyone for the sake of it – they’ll refer people they think have a good chance of getting hired.
2. Increase Employee Retention Rate
Forty-five percent of referrals tend to stay in a company for four or more years compared to non-referrals who leave within a shorter period of time.
Since referrals are usually hired through their friends, family members, or acquaintances, they are more likely to become invested in the company and strive to perform their best with the hopes of honoring the trust given to them. This leads to increased loyalty and a better quality of work.
Employee retention can also happen because of the positive environment that can be created thanks to referral programs. Employees refer people who they already get along with.
If your people have a healthy working relationship with one another, they are more likely to remain happy and content in your company. Staff that has good dynamics with their workmates also result in a better work environment where people support and boost each other.
3. Build a Strong Network of Advocates
Research shows that 70 percent of quality candidates come from referral programs rather than non-referrals because great professionals know other great professionals.
If you have employees who are awesome at what they do, best believe they have a network of people who are also experts in their respective fields. This can become a goldmine of potential skillful candidates for your company.
How? Through the advocacy of your own people. Employees who are treated right will vouch for you without any hesitation. They will become automatic ambassadors for your organization.
Compared to other types of advertisements, employee advocates are one of the most cost-efficient and effective ways to hire more worthy individuals. And since referrals target passive candidates, you can ensure less competition once you give your offer at the end of the hiring process.
A Step-by-Step Guide to Establishing a Winning Referral Program
Now that you have a clear picture of how important referrals are for the growth of your company, only one question remains: How can I create a good referral program?
Below are five steps to take to make sure your referral programs will lead to success.
1. Create a culture your employee would WANT to promote.
The first step to making a successful referral program is to create a working culture and environment that your people can actually advocate for without any hesitation.
In referral programs, trust goes both ways. Employees trust in the skills of those they’re referring and those being referred trust that the company they’re joining is a good one.
It’s difficult for your employees to recommend a position in your company if they themselves hate working in your organization.
To create a positive culture and healthy working environment, you need to find the perfect balance of pushing for greatness while still prioritizing the wellness of your employees. For example, you can create manageable timelines for achievable goals. In this way, your employees remain productive while still maintaining a healthy work-life balance.
2. Establish clear guidelines for the program.
Once you have a work culture worth advocating for, it’s time to create the program itself. You need to make sure every detail has been thought of before you inform your employees. To do this, try to answer the following questions in detail:
Who gets to refer?
To ensure the best outcome, you need to be precise in setting the rules of the program, starting with who gets to refer people.
Keeping it simple and easy to understand is the best way to explain who’s eligible to take part. For example, only actively employed individuals who meet the performance standards set for them can refer another employee.
As discussed earlier, great professionals know other great professionals. Ensuring the quality of the employees who are eligible to refer will also increase the chances of having quality candidates.
How to be eligible for payout?
Establish when people will get rewarded. You have to make your employees understand that their referral needs to succeed in the hiring process before they receive any compensation.
This will ensure that they won’t just focus on quantity and refer anyone they think of. Instead, they will only recommend qualified candidates in the hopes of receiving their referral incentives.
Speaking of incentives, inform your employees about the referral program rewards in advance. Rewards don’t always have to be monetary compensation. It can also be paid leaves or other perks your employees would want.
What are the frequently asked questions?
To answer this question, you need to do your research or pull from experiences and testimonies from other companies.
Find out the questions asked most often when discussing referral programs. Once you have listed all possible questions, you need to work hard to create answers for them.
Remember, it’s better to have everything planned rather than to look like a deer caught in headlights when your employees ask you questions you’re not prepared for.
3. Make your process for referrals easy.
When a candidate is referred by an employee, they usually expect to experience an easy hiring process. The same goes for your people making the referrals – they expect their friends or acquaintances to experience a smooth application.
The best way to meet these expectations is to streamline your hiring process as well as your referral process.³ Make it easy for people to apply to your company so that they won’t quit in the middle of the process.
To streamline the way you hire, you can consider using automation for repetitive tasks like scheduling interviews. Keep steps simple and don’t give tasks or tests that take two hours or more to complete.
4. Promote, promote, and promote some more
How do you expect to gain referrals if your employees are not aware of the program in the first place?
As the head of the company, you need to promote the referral program and all the details. Make sure every employee is aware of the rules and rewards that come with the program.
Promotion can be done in many ways. It’s possible to use word-of-mouth from team leads to their members. Even better, you can create infographics to disseminate information effectively through physical or online means.
Regardless of what medium you choose to promote in, your main goal is for everyone to know the program and be encouraged to take part in it.
5. Prioritize communication with referrals and employees.
When candidates are referred, they are not entitled to be hired with no question, but they do deserve respect and courtesy.
As mentioned in Business Daily News, referred candidates should be treated as VIPs throughout the hiring process.⁴ This doesn’t mean giving them special treatment—it just means making sure that you’re responding to their follow-up questions and concerns in a timely manner.
Another thing to consider is keeping your employees in the loop. It doesn’t matter whether their referred candidate will get hired or not; it’s your responsibility as the employer to communicate with them.
When your employees who participated in the referral program are updated and acknowledged, they have the tendency to feel more appreciated. And an appreciated employee will be more encouraged to keep sending qualified candidates your way.
CREATE REFERRAL PROGRAMS TO HELP YOU SUCCEED IN THE WAR FOR TALENT.
If you need help in making an effective referral program, then you’re in the right place! Allied Insight is a full-stack marketing agency that is experienced in helping companies all over the country. Looking for advice or better connections? Contact us today!
- Jobvite. “The Value of a Referral: Why It’s All About Who You Know” May 2022, https://theundercoverrecruiter.com/wp-content/uploads/2012/09/TheValueOfAReferral-1.png
- Folwell, David. “How Staffing Agencies Can Beat The Great Resignation With Referrals” Forbes, 11 Feb 2022, https://www.forbes.com/sites/forbesagencycouncil/2022/02/11/how-staffing-agencies-can-beat-the-great-resignation-with-referrals/?sh=1325044039cd
- Folwell, David. “How To Get More Out Of Your Staffing Agency’s Referral Program” Forbes, 10 May 2022, https://www.forbes.com/sites/forbesagencycouncil/2022/05/10/how-to-get-more-out-of-your-staffing-agencys-referral-program/?sh=2fb6f77661ac
- Driver, Saige. “How to Create a Great Employee Referral Program” Business News Daily, 8 March 2023, https://www.businessnewsdaily.com/8737-employee-referral-program.html