How to Build a Successful Employee Referral Program

When you see a movie that blows your mind or eat at a restaurant that leaves you craving more, what’s one of the first things you do afterward? If you’re like most of us, you tell your friends all about it.

Employee referral programs, when used effectively, tap into this human desire to share things we like with people we care about. That’s why such programs are consistently the best source for hiring; according to SilkRoad’s 2017 Sources of Hire Report, over 30 percent of hires and more than 20 percent of interviews came from employee referrals.

So how do you build this channel for your own organization? Or, if you already have a referral program, how do you get the most out of it? We’ll dive into the details of what an employee referral program is, how you can build one, and the incredible benefits that can come as a result. You’ll even get an idea of how we run our referral program here at BambooHR so you can see a real-life example. Ready? Let’s get to it.

What is an Employee Referral Program?

An employee referral program is a program through which employees can refer the people in their networks, such as friends or family, for open positions in their organization. Because referrals are so valuable, many programs include some kind of incentive to motivate employees to refer more and more people. The best referral programs can help employees feel excited about referring their friends, allow recruiters to provide a better candidate experience for referrals, and make it easier for the organization to hire excellent new team members.

FAQs About Employee Referral Programs

We’ll go into how to implement an employee referral program later on, but first, here are a few FAQs about why employee referral programs are effective in the first place.

What Is the Purpose of an Employee Referral Program?

The four main purposes of an employee referral program are to:

1. Deepen the job applicant pool with other qualified candidates. Since referrals come prescreened, they tend to be higher quality applicants. And, because the candidate has already been informed on the job and company, they can apply with confidence and genuine interest.
2. Shorten the length of time it takes to find qualified applicants. If you don’t already have many (or the right) candidates for a position, it can take weeks or months to find and hire them through job sites.
3. Decrease the cost it takes to recruit applicants. Online job posting sites cost from 95–399 dollars per month for a single job posting, with possible additional costs. Recruiting firms can be partnered with either on a contingent, retained, or contract basis. Costs range from 25–150 dollars per hour, or up to 15 percent of the new hire’s first year’s compensation. Referrals don’t cost nearly as much to find and hire.
4. Lower turnover rates due to:
   1. Employees referring people they already know and trust
   2. Candidates who already know what to expect with the position and company, and have an idea that you’re probably a good fit for them
   3. Employees working alongside friends and/or family, making a comfortable and fun work environment for them

When all of these elements work in harmony, both the organization and the referred hire gain great worth from the employee referral program.

How Effective Are Referrals?

Referrals are very effective at getting good candidates not only on the interview list, but in the door of their new job.

Generally speaking:

• Referrals are more likely to be hired than other candidates, especially by smaller companies.
• It takes less time to fill a position with a referred candidate versus a traditional recruit.
• Referral hires save a company money in the recruiting process.

The consensus among organizations is that referrals are a practical and profitable way to find new employees to fill open positions.

Why Do Referrals Work?

Since an employee referral is basically an endorsement of a person’s talents and character, referrals tend to work well for employers looking to hire. Sometimes hundreds of people apply for a single position, but an employee referral program helps thin the crowd and zero in on top candidates.

Other reasons employee referral programs work are because the referred candidates:

• Already know about your company and its culture
• Help the company save time and money on the recruitment process
• Tend to be more excited and engaged in their work, as they already have at least one person they know there with them

These reasons go to show how important training employees on how to give a good referral is to the program’s success.

What Makes a Good Referral?

Spotting a good referral when it’s presented brings value to an employee referral program. Here are a few signs a candidate is relevant for the position, from their own perspective as well as the company’s.

• The candidate can slide right into a specific position and hit the ground running. Building a position around a new hire isn’t wise and can lead to redundancies and a waste of costs.
• The referral comes from an employee who is trustworthy, dedicated to their own job, and a pleasure to work with each day. This is the type of person you can count on to make referrals that make sense.
• The referral can contribute and complete required work. Take notice if you ever hear an employee say something like, “I know someone who can get it done.” Employees are apt to say such a thing only if it’s true.
• Your employee is educated about how to give a good referral (see below). Providing plenty of information about what you need and clearly explaining your expectations can make all the difference.

How to Build Your Company’s Employee Referral Program

That being said, how do you build a referral program that does all of those things? Here at BambooHR, we have been through a few iterations of our own employee referral program—and we’ve learned a lot along the way. In fact, we’re still learning. Below, we’ll share what steps and principles have given us the best results with our referral program.

Don’t Overemphasize Incentives

You’d be hard pressed to find an employee referral program today that doesn’t include at least a small reward for submitting referrals, whether it’s a cash bonus, additional paid time off, or a special t-shirt. We aren’t here to tell you that this is the wrong move; after all, many organizations see a vast improvement in the number of referrals coming in when they set up a referral bonus for employees.

However, if you focus too much on the reward, you may create a perverse incentive within your program. In other words, your employees may begin submitting referrals just to earn the prize instead of actually considering who might be a good fit for the position—you may see the quantity increase at the expense of quality.

We do incentivize our referral program, but we see it as a thank you rather than a motivator. Employees receive a small bonus, but only after their referral has been hired and worked at BambooHR for a few months. Because the reward is minimal, and because we focus on making BambooHR a great place to work, our people are primarily motivated to refer others by two reasons: a desire to help their friends, and a desire to help the organization. When employees are focused on helping their friends or helping their organization, they still produce plenty of referrals, but the referrals tend to be higher quality.