How to Assess Your Employee Referral Program

Tawfiq Abu-Khajil
January 3, 2024
2 min read
What is an Employee Referral Program?
An employee referral program is a recruitment strategy where current employees recommend candidates from their network for job openings, often rewarded for successful hires.

Employee referral programs are a valuable resource for companies seeking to attract top talent and build a strong workforce. Leveraging the networks of your current employees can significantly increase the quality of candidates and reduce recruitment costs. However, an employee referral program requires continuous evaluation to ensure its effectiveness and to identify areas for improvement. In this article, we will explore essential steps to assess your employee referral program and make data-driven decisions to enhance its success.

Step 1: Define Clear Objectives

Before diving into the assessment process, establish clear objectives for your employee referral program. These objectives should align with your company's overall hiring strategy and business goals. Common goals of referral programs include reducing dependency on agency or 3rd party staff, reducing your recruitment costs, increasing the number of quality hires, reducing your time-to-fill, and improving your retention rate. By defining specific and measurable goals, you can better track the program's impact.

Step 2: Monitor Referral Metrics

To assess the performance of your employee referral program, you need to monitor relevant metrics regularly. Some key metrics to track include:

Primary Metrics

  1. Referral Rate: What is the percentage of your annual hires that comes from employee referrals? A higher referral rate indicates the program's effectiveness.Typically a healthy recruiting organization has a referral rate of 35% – 40%.
  2. Participation Rate: What percentage of your workforce is participating in your employee referral program? You should aim for at-least 50%. Low participation may indicate issues with program engagement, communication or referring experience.
  3. Repeat-Referral Percentage: This metric is slightly more advanced. How many of your employees who referred someone at-least once have done so again? A high repeat-referral percentage is an indication of a streamlined process that encourages employees to engage with the program multiple times. 

Secondary Metrics

  1. Time-to-higher: Is your referral program speeding up your recruitment process? Measure the time it takes to hire candidates through referrals compared to other hiring methods. A shorter time-to-fill indicates a streamlined and efficient process. Data shows that referred candidates get hired 13 days faster than non-referred candidates.
  2. Quality of Hires: Is your referral program giving you a higher quality of hires? Evaluate the retention of hires coming through referrals compared to other recruitment channels. Higher retention is a strong indication of a higher quality of hire.
  3. Cost-per-hire: Is your referral program reducing your recruitment costs? Calculate your average cost-per-hire and your average referral bonus. The latter should be lower than the former.

Step 3: Gather Employee Feedback

Employee feedback is a crucial component of any assessment. Conduct surveys or hold focus group discussions to gather input from employees who have participated in your referral program. Ask them about their experience, challenges faced, and suggestions for improvement. 

Go a step further and ask employees who never participated in your employee referral program. Ask them about why they haven’t done so and what improvements can be made. 

Employees' perspectives can provide valuable insights into the program's strengths and weaknesses.

Step 4: Analyze Your Program Costs

Assess the financial investment in your employee referral program and compare it with the return on investment (ROI). Analyzing the program's costs will help determine its overall effectiveness and whether adjustments need to be made to optimize the budget.

Typically, the way to do so is to calculate how much has the program cost you in a specific time frame, such as a given year, by taking the sum of all referral bonuses paid in that time frame. 

Then, compare that to the amount you would have spent on filling those open roles have the referred hires not been made. In other words, multiply your current cost-per-hire by the number of referral hires made in that time frame. Take into account any agency fees or third party services, such as travel nurses.  

Another factor to consider is the retention rate of referrals. If your referral program is increasing your retention rate, it is saving you backfilling costs. This is slightly more advanced to calculate but get in touch with the Eqo team and we can do so for you. 

Step 5: Review Your Referral Process Efficiency

Examine the efficiency of your referral process. Is it a simple experience for your employees to refer someone or are you asking for manual forms to be filled? Is the experience mobile accessible for your frontline workforce or requires desktop access? Are there points of friction to making a referral? Such as downloading an app or having to login via email.

All these factors affect the participation of your employees with your referral program. 

What about after referring to someone? Are your employees getting visibility on their referrals and payouts or are they kept in the dark? Are successful referrals getting paid on time? All these affect the chances of someone participating again with your employee referral program. 

What about your own HR team? Is it easy for them to track referral payouts or are they spending hours doing so on manual spreadsheets? 

Step 6: Implement Improvements

Based on the data collected and analyzed, identify areas that need improvement and develop an action plan. It could involve adjusting referral rewards, refining the communication strategy, enhancing the referral participation tracking system, or introducing employee engagement initiatives to boost participation.

See how Eqo can help you attract frontline talent by improving your employee referral program

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