What's the ROI on an Employee Referral?

Feb 05, 2015

Although many companies have already implemented an employee referral program, there are numerous companies still on the fence about them. Even if you’re one of those companies that still hasn’t committed to a referral program, you’ve probably heard a lot about them.

You’ve likely heard about the benefits of employee referrals in terms of cultural fit and quality of hire. Those benefits certainly weigh into the decision to create and maintain an employee referral program, but they aren’t the only advantages. An employee referral program also makes a great deal of financial sense.

Every company, regardless of the good or service they market, is driven by one overriding factor: The bottom line. How an action either makes or saves money is a vital consideration for each department within a business. Ignoring this reality can have dire consequences for individual managers and for companies as a whole.

The measure of an action’s effect on the bottom line is often referred to as Return on Investment, or ROI. Actions with a high return on investment are the holy grail of business management, as a healthy bottom line means a higher likelihood of increased revenues, raises and year-end bonuses. It’s something every employee should be interested in.

Let’s look at the ROI of an employee referral program. To determine the ROI, you have to understand the key factors that influence both costs and savings with regard to a referral program.

5 Elements of Hiring ROI

There are five basic issues to consider when it comes to hiring. Each one represents a specific cost associated with the hiring process.

  • Direct Hiring Costs
  • Days to Hire
  • Lost Productivity
  • Onboarding and Training
  • Retention

Direct Hiring Costs

These are the expenses you incur through conducting a hiring search. Looking for new hires is the reason you pay your human resources or talent acquisition team, but it’s not the only responsibility they have. Although time spent on hiring may be time well spent, everyone wants to maximize productivity. Other hiring costs include posting and promoting jobs on job sites and career boards, and for some positions, costs include the hiring of an outside recruiter.
Days to Hire

The longer a position stays open, the more time, energy and even money you’ll have to put into filling it, particularly if you reach the point where you go through multiple rounds of interviews, only to start over because you didn’t feel comfortable with the applicants you brought in. Additionally, candidates who find job openings that have been posted for more than 2-3 months begin to see such opportunities as jobs to avoid.1 Fortunately, employee referrals have shown to reduce the hiring time of open positions by almost 50% compared to hires from a career site.2
Lost Productivity

Every day a position remains open is one more day that a task or tasks aren’t being done. Don’t believe that you can successfully divvy up the workload of an open position between remaining employees and get the same level of production. Overloading employees with sometimes disparate job functions will decrease production in all areas and it can lead to frustration and burn out for existing employees. If you feel like you’re able to “share” a job without lowering production, then you need to ask yourself if you even need to fill the position.
Onboarding and Training

Even the best candidate will take time to settle into the routine of your office and become accustomed to the processes and quirks of your workplace. They can’t just hit the ground running. Although every job is different, you have to plan for a learning curve before you can expect a new employee to maximize their potential.

Keeping employees is the real secret of successful hiring. The best way to save on a hiring search is to not have to do one. Employee longevity means saving all the costs and expenses related to hiring. Referral hires tend to be more loyal than hires from other source, and almost 50% of referrals will stay at least three years.2

EmployeeReferrals.com addresses all five areas of hiring costs and savings. Employee referrals reduce direct hiring costs and lost productivity, hire faster, allowing for expedited onboarding, and they stay longer. EmployeeReferrals.com has developed an ROI calculator to show the impact their support can provide; and with savings per referral hire in the thousands, EmployeeReferrals.com can significantly affect your bottom line.