Here’s What You’re Doing Wrong with Your Referral Networks

February 3, 2015 at 11:42 AM by Kathleen de Lara

peekaboo_blog.jpg“Who’s the smartest person you know?”

It’s a question thrown around the office, especially when hiring push comes to shove. Getting the team ramped up with your employee referral program has been long cited as a top source for finding new pools of candidate, and to no surprise.

Employee referral programs, sometimes referred to as ERPs, can be the well-oiled machine that decreases the time and cost of each hire, and increases the quality of the candidates coming through to the talent funnel.

Employees know exactly what the team is looking for – what type of candidates would fit well with the company and in the role, not to mention they’re a direct line to the source, meaning you can tailor your outreach to mention a mutual connection, or get an in-person introduction and an extra nudge.

Used in tandem and in balance with sourcing, finding candidates through a referral program is an effective way to expand the team’s network of talent and simply, to find smart people to talk to and learn from.

Hiring people who are pre-vetted by the team reaps several benefit for the team:

  • Faster growth (Referrals add a useful middle man who closes the gap between the unknown recruiter and the sought-after candidate.)
  • Higher close rate (On average, the applicant-to-hire ratio of referrals is higher than other candidate sources.)
  • Higher likelihood of success and retention (Employees are more likely to refer candidates whom they think will do well because they know what works and what doesn’t work for the company.)
  • Helpful for recruiting (Referral programs can be used as a way to measure teams’ engagement while boosting the company’s employer brand – people wouldn’t refer their good friends to a company they don’t like.)

Used excessively, a referral program can be the dearth of your workforce, stifling efforts to expand the talent pools you’re recruiting from, to build a diverse team, and to grow an extensive network.

If most of your hires are coming from your employee referral program, you may be at risk of building a homogenous team.

Think of it this way: Employees are likely to refer people who are like them – what they know will work, who they know will succeed. If your core group of employees are already fairly similar to each other – in age, gender, background, and experience, for example – and the company relies on referrals for a majority of new hires, a tapering effect starts to distort the talent funnel.

The company’s grows from a core group of similar people to a larger group of similar people, which becomes more difficult to correct further down the road.

  • A homogenous team can turn off interviewees. (A team lacking diversity can be a red flag signaling a team unwilling to welcome diversity – people, idea, experiences, backgrounds.)
  • New employees hired outside of the referral network may be less likely to stay around. (People hired from outside the “inside” circle making up the company may feel out of place or that they’re a bad fit for an inclusive team.)
  • Building a team of employees who are similar to each other can affect how people view the value of their work. (New ideas stemming from different backgrounds and experiences may come off unrealistic and unconventional, not innovative.)

Here are three ways to keep your employee referral program in check:

Keep track of the percentage of hires coming from referrals.

In general, balance out talent coming from referrals and talent from sourcing. The rate we’re hearing? Anywhere between 35%-55% is a healthy rate for early stage companies to hire from referrals, according to Entelo Head of Talent Vivek Reddy, as the number can fluctuate based on the types of open reqs you have, who’s already on the team, and who’s coming in through your referral network.

Don’t completely nix out candidates coming from your referral network.

The last idea we’d want recruiters to get from this post is to ditch their referral program and put all the company’s resources into sourcing, sourcing, sourcing. On another hand, employees are equally likely to refer candidates who aren’t like them, and would make a solid addition to the team. Limiting your talent funnel to only candidates who are sourced or only candidates who are referred isn’t cost or time-efficient, it’s snubbing a considerably large pool of qualified people.

Remember sourcing can be efficient, too.

If you don’t have a big budget for promising referral bonuses or are unsure about how much you’ll be able to trickle throughout the year, the upfront cost of hiring a skilled sourcer (or sourcing team) is one way to set aside a definite portion of the budget specifically for hiring at the beginning of the year. 

The takeaway? Employee referral programs are a good source of hires and can help your team build an extensive network of skilled, talented people who likely know other skilled, talented people. Pay attention to how you grow the team and the rate you’re dipping into the referral talent pool to find new hires – it shouldn’t be the only place you find candidates.

What are some ways you’re making the most of your team’s employee referral networks? Biggest challenges you encountered growing the company? Share your thoughts with us in the comments or send a tweet to @Entelo!

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