Create Your Employee Referral Program

Companies spend a lot of time investing in complex, expensive recruitment strategies. However, in many cases, your best recruiting resource is right in front of you. Referrals from existing employees are extremely effective and often result in the best quality candidates.

In this playbook, we’ll show you why you should be building an employee referral program and how to do it.

Why create an employee referral program?

Simply put, employee referrals are one of the best ways for sourcing new talent. Here’s why:

• Your employees know what it’s like to work for you. They understand your mission and company culture, and they know who would be a good fit for that and add value.
• Employee referral programs boost retention rates. Research shows that 45% of employees sourced from referrals stayed with the company for more than four years, while only 25% of candidates hired from job boards stayed for more than two years.
• You can save time. On average, it takes 10 days longer to onboard a candidate from a job board than it does a referred one.
• You can save money. Hiring from a referral is fairly low cost — no need to invest in sponsored job ads and other outreach methods. In fact, on average, companies save $7,500 per hired employee referral.
• It results in better quality hires and more qualified candidates. Referred candidates are 85 times more likely to be hired than job board candidates.

How to create a successful employee referral program

Set clear goals

Before you start, get clear on your goals when it comes to your employee referral program. What do you want to achieve in the short-term (within the next year) and the long-term (within the next 5 years)?

Try to be specific and concrete with your goals. For example, don’t just commit to spending less — aim to decrease recruitment costs by X% per hire. Without quantifying your goals like this, it’s easy to lose track of progress and lack direction in your referral process. Here are some other metrics you might want to set goals around:

• Reducing time to hire
• Increasing conversion rates
• Increasing first-year retention rate

Set up a system to track referrals

The best employee referral programs are simple and straightforward. The Swarm was purpose-built to streamline employee referrals for early-stage startups, making it easy to manage and track your referrals.

Other tools you can use include Applicant Tracking Systems, which often have built-in features to help you create an automated employee referral program. If you’d rather not invest in any tools yet, many companies have also tracked their referrals effectively with just an Excel sheet.

Give your current employees everything they need

Always make sure to encourage your employees to share job posts and openings within their own networks — social media, email, and in person.

It can help to give your employees access to a shareable document like an email or social media template (which they can and should personalize), which removes friction and makes it as easy as possible for your employees to spread the word. You can see some examples of templates here.

Promote your employee referral program

This is where you make sure everyone in your company knows about the employee referral program and how they can use it. Try hosting a launch party or meeting where HR can explain what’s involved and how individual team members can take part.

Once the program is up and running, keep your teams updated about information like hiring goals, tracking reports, and news about new hires. This can be done via email or in-person meetings.

When an employee’s referral is hired — let them know! Make sure they are recognized and rewarded both publicly and privately.

Incentivize current employees

On top of praising and showing appreciation for your current employees when they refer a successful candidate, it can also help to reward them financially.

The truth is, your teams are busy and not everyone will be enthusiastic about taking time away from their workload to share job postings on LinkedIn or email their contacts. An incentive program can be the extra nudge they need to start looking for people to refer.

How much should you spend? The answer is, it varies. Typically the average referral bonus is between $1,000 and $3,000, depending on how hard the role is to fill and usually comes with stipulations (such as the new employee having to stick around for a few months before the bonus is paid out).

Don’t wait until a hire has been made to offer a smaller reward, though. For example, you could offer a $5 gift card to employees for simply referring a candidate.

Incentives don’t have to be financial, either. You could reward employees with free sports tickets or travel points if their referred candidate gets to the interview stage. It can also help to gamify referrals by creating a public leaderboard.

Don’t discriminate (even unintentionally)

One potential downside to employee referral programs is that they can sometimes exclude certain demographics. Our networks typically consist of people similar to us in terms of education, job position, career experience, and more. If we rely on people our teams already know, it can lead to an overly homogenous pool of candidates.

As a result, it’s always best to use a wide range of recruiting channels and not focus solely on referrals.

Track your progress

Tracking the progress of your employee referral program can be extremely valuable, helping you better understand what is working, if it’s worth the money, and what you can improve. Focus on metrics like:

• Return on investment
• Cost per hire
• Employee retention
• Quality of hire

If you track these metrics specifically for employees hired through your referral program, you’ll gain a good idea of how it compares to existing methods, if it’s worth it, and what you can do better.

Extra resources

• Get a peek behind the scenes at what companies’ referral programs look like by company size and demographics.
• Not sure how to collect potential referrals from your employees? Find example forms here and here.
• Having an employee referral policy in place makes sure everyone is on the same page. Find an example policy from Workable here.

Harness the power of networks to make your recruiting more efficient. Start free at theswarm.com