Three Reasons Why Referrals are the Way Forward for Recruitment in 2018

Key to better retention, 46% referred candidates stay in your company for at least 3 years – but just 6.9% resumes come via referrals. Learn why (and how) recruiters must change this scenario.

Employee referrals are a time-honored hiring route – imagine the cofounders of a tech startup, looking to hire their third employee. Or a large organization with high retention rates, where recruitment has plateaued at senior levels. Does it make sense to wade through tens of career sites and hundreds of resumes, to choose that one, ideal employee?

Referrals are a great way to fill positions with user-specific requirements, while also cutting down on costs and timelines. Employees hired via referrals come in 55% faster than those sourced through career sites and this could make a world of difference for competitive firms, tight schedules, and demanding product development pipelines .

Located in the heart of the Silicon Valley, Appstem presents one such story. A boutique app-development company, it has tech behemoths like Google, Salesforce, Yahoo, and Twitter as neighbors. However, their CEO Robert Armstrong is confident about their competitive hiring practices: “We implemented an employee-referral program a year or so ago. It has not only helped us attract new talent, but also retain talent because the new employees are generally friends.”

A solid employee referral program helps burgeoning companies tap into local talent more effectively and lets startups like Appstem stay neck and neck with established players.

Here are 3 biggest advantages of focusing on referrals as a key component of your hiring strategy:

Hiring costs are significantly less via referrals, than through job boards and staffing agencies:

Companies do not need to invest in advertising or third-party staffing agencies. What’s more, since referral bonuses are paid on an outcome-based model, the costs are contained and generate a far higher ROI.

For companies choosing job boards and career sites, advertising costs: have to be paid across the board – regardless of whether the campaign met the required benchmarks. And if an agency charges say 10% of a hire’s net annual pay, for a candidate earning USD 80,000, that’d round off to USD 8,000.

In case of referrals, even a generous bonus would be around USD 2,000 – a sizable difference.

And with the process being faster, internal efforts and resource allocation is also saved – on an average, a referred candidate takes about 29 days till completion, less than both job posts (39 days) and career portals (55 days).

It’s easier to retain referred employees than traditional candidates:

Companies with referral programs in place boast a 46% average retention rate, compared to 33% for employers using only career sites .

This could be a result of several factors – job seekers who come through existing employees have a clearer picture of what the role entails, the culture of the company, organizational practices, and can self-calculate the probable fit . The candidates coming in, therefore, have already undergone a round of self-screening.

External candidates, on the other hand, are more in the dark.

Further, referred hires know there’s a familiar face in the organization to make their employee journey smoother. This support system boosts engagement and ensures they remain part of the organization for a longer tenure. In fact, about 47% employees hired via referrals stay for over 3 years – for job boards, the number is an abysmal 14%.

Employees who refer candidates , are likely to stay longer as well:

While this may sound almost like a no-brainer, it’s interesting to note that workers who make successful referrals typically have a longer stint at the company. A study by LinkedIn offers a useful insight: referral programs are like Net Promoter Scores for an employer; they’re essentially asking “How likely are you to recommend us as a workplace, to your network?”

Workers responding positively are more loyal to the organization, more invested in its growth, and are more likely to stick in the long run. Successful referrals come with bonuses (in cash, or as rewards such as vacation days) which also make him feel valued and appreciated.

Finally, the simple fact of being surrounded by familiar faces – people with similar values and goals – has a massive impact when it comes to happiness in the workplace, and also on productivity. As Boryana Dineva, HR alumni at Wikipedia and Tesla put it, “The wider and stronger your network, the quicker you can get work done.”

The bottlenecks, and how technology can help:

Despite being a mine of quality talent, referrals are lagging behind as a primary hiring strategy. Imagine an employee has 10 viable candidates in his network for a specific position, and the business vertical comprises 30 employees.

Even at these modest figures, that’d mean 300 potential candidates for the job – yet they account for just 6.9% of all applications. There’s a clear disconnect between demand and supply, and the first step to bridging the gap is improved communication channels.

It’s not surprising to find on-floor workers who are completely unaware of hiring plans, let alone the availability of referral programs. This is especially true for larger teams or hierarchies where several layers exist between the employee and the HR/hiring departments. That’s why companies are trying to automate the process, deploying tools that’d raise the requisition, alert employees, and let them suggest candidates on the platform itself.

The lack of motivation is another challenge. Lukewarm encouragement from management, piecemeal bonuses, or the failure to understand latent needs (more leaves, rewards, and other forms of compensation) all add up.

What’s needed is a smart assessment of employee requirements – spoken and unspoken – and a solution that keeps them engaged and updated on the referral’s progress.

HR innovators are now stepping into the arena, taking what’s been primarily a word-of-mouth practice and overhauling it for the digital age. According to CEO and Chief Architect of AkkenCloud, technology can help find quality candidates without spending a fortune. Their Inbound Referral Management solution has already garnered cost reductions to the tune of 75%.

And just last week, referral solutions provider Preferhired joined Workable in creating a framework that combines the intricacies of referrals, with the enhanced visibility and control of ATS. With so much potential in the space, it appears solutions providers are just getting started – the next few months promise bold leaps, exciting integrations, and moves that will restore employee referrals to the strategic position it deserves.


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