What is the ROI of my Employee Referral Program?

Pieter Neels - 5 min read

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An Employee Referral Program can provide you with a lot of advantages, but also requires a few investments. In the following article we will provide an overview of the benefits & costs that a strategic Employee Referral Program entails.

ROI Formula bar

Advantages

Advantage 1: recruit faster

LinkedIn measured the time to hire of Employee Referral Programs and compared it with other recruitment methods. The results point to interesting differences::

  • It only takes an average of 29 days to recruit a candidate who has been referred by an existing employee.
  • DMost other recruitment methods take around 55 days .[1]
29 Days ROI

Advantage 2: lower cost per hire

The cost per recruitment at referrals is only a fraction of the normal recruitment cost.

Example of a Sales Director with 10 years of experience:

Sales Director Table

Indirectly, you also save a couple of costs:

  • Less need for selection
    Referrals yield more qualitative candidates because an initial selection is made by the referring employee. This employee knows both the candidate and the company and is therefore well placed to determine whether there is a match. This means the recruiter has to invest less in selection compared to online searches.
  • Less production loss:
    Referred employees have more information & guidance through the employee who refers them. This gets them up to speed faster and there is less need for guidance.
  • More loyalty
    A recruitment strategy that focuses on referrals results in less employee turnover. Refereed employees stay in service longer. This is because there is a better match between the individual and the corporate culture.
  • No mishires:
    Securex calculated that a failed recruitment costs companies on average € 35,000 to € 150,000. The chance of a mishire is almost nonexistent when working with candidates from your own network. The employee who introduces them gives them more information about the company culture and working conditions. Referred candidates therefore make a more thoughtful decision before applying.

Advantage 3: more qualitative recruitments

88% of employers indicate that referrals are the best source for recruiting qualitative employees. This is because:

  • there is a better match between the corporate culture of the company and the personality of the referred job candidate.
  • the referred candidate is better informed about the inner workings of the company and can therefore more accurately assess what he or she can expect from the job.[2]

Advantage 4: more employee involvement

An important advantage of referral recruitment is that both the referring employee and the referenced person feel more involved.

An Employee Referral Program gives employees the opportunity to choose people with whom they would like to work. Thanking them for bringing in colleagues increases the sense of appreciation and recognition even more.

Advantage 5: stronger employer brand

A job candidate trusts information provided by an employee up to 3 times more than information gathered from any other channel.[3]

Referral recruitment is a form of word of mouth - the most powerful and authentic form of marketing. A study by the University of Ghent therefore recommends companies to invest in this method.[4]

3 times ROI

Advantage 6: better operating results

Research shows that refereed candidates are 15% more performant than non-referred candidates. For example, there is less need for:

  • a colleague or interim worker who partly takes over tasks
  • training
  • meetings with colleagues to transfer information
Voordeel 8 ROI image

Advantage 7: more hires per number of candidates

The ratio of recruitments per candidate is higher with referrals.

A referred job candidate is 40% more likely to receive an offer.[6]

1 out of 5 referred candidates get hired.[7]

Advantage 8: higher retention

Referred employees stay with their organization longer than employees recruited through other channels such as job boards and career sites.

Research shows us that:

  • after 1 year, 46% of referred employees are still employed versus 33% for employees recruited through job sites
  • after 2 years, 45% of referred employees are still employed.[8]
Retention stats after 1 year

Investments

Investment 1: set up a strategy

It is essential to draw up a personalized referral strategy for the target group and align it with the EVP (Employer Value Proposition). This guarantees success over a longer period of time.

This process does not require a budget, but does require time & effort from the HR team.

Investments Overview

Investment 2: promote the campaign

To keep the referral program top of mind, marketing is needed. That doesn't have to be complicated. A postcard, poster or referral party are things that work well. Make the referral campaign recognizable by using a slogan and symbol.

Investment 3: reward & value

Rewarding employees for recommending candidates is an important cost, but is not always necessary. Survey your employees and find out what motivates them

A reward can take the form of cash, non-cash (perhaps a gift voucher or dinner), donation to charity or even something fun (for instance, using the CEO's parking lot for a month). The amount of the remuneration varies per industry and location.

Investment 4: use employee referral software

You can manage an Employee Referral Program manually, but it is strongly recommended to digitize this with software. It is definitely worth the investment.

A specialized referral platform makes it easy and clear for employees to refer. The ERP is automated and results are measured. This saves time and money.

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Founder Pieter Neels

About the Author

Pieter Neels is the founder of Nakama HR. His goal: creating the perfect match between an employee and a company.