How Employee Referrals Deliver ROI

January 25, 2018 Stephen Brown
How Employee Referrals Deliver ROI

Most companies that deal regularly with recruitment will have considered deploying a referral system, but many have reservations about the long-term ROI potential of such platforms. Given the uncertainty of the current job market, hirers are more careful than ever before and are sceptical of to taking a chance on a new system.

Yet employee referral systems are actually one of the most efficient ways to navigate the current job market and deliver consistent ROI. Their effectiveness is such that a referral program can save an organization $3,000 or more per hire. Below, we’ve provided a breakdown of how an employee referral program can deliver ROI for your business.

1. Minimizing The Recruitment Cycle

Time to hire is one of the biggest concerns when it comes to recruiting new talent. The more time spent looking for a candidate, the more money spent on job advertisements and recruiters fees. Deploying an employee referral program decreases the amount you spend on fees and improves the quality of candidates you take in; referred candidates start much sooner than any other type of hire. In fact, on average candidates from career sites begin work after 55 days, those on job boards at 39 days and employee referrals at 29 days.

2. Decreased Cost Per Hire

Sourcing a new member of staff is often one of the most costly aspects of the recruitment process. Most recruiters will charge a fee between 15-25% of the candidate’s first year annual earnings. Using a referral program allows you to avoid working with an agency, enabling you to avoid paying these high fees. Even if you provide bonuses for successful referrals, you won’t be paying anywhere near the same amount of money.

3. More Profitable New Hires

Using a referral system also delivers new hires with a greater level of competency than those sourced through recruiters or job boards. Research indicates that employee referrals produce 25% more profit than hires from any other source. The reason is that an internal member of staff is vetting these hires and can identify whether they’re a good fit for the company. The result is new hires that are competent and assimilate quickly.

4. Increased Retention Rates

Finally, hires placed through a referral platform stay with the new company much longer than their counterparts. After one year of employment, referrals boast a 46% retention rate compared to 33% from career sites and 22% from job boards. This results in a lower turnover so you don’t have to keep paying to start the recruitment cycle over as regularly as you do with external hires.

A More Efficient Recruitment Cycle

In every sense, employee referrals make the recruitment cycle much more time efficient, cutting out extortionate recruiting fees and decreasing the amount of recruitment needed on a long term basis. Likewise, the increase in competency of the staff and their ability to drive the profitability of the business is the icing on the cake. The efficiency and profitability of new referral hires is certainly a force to be reckoned with.

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