The Value of Employee Referrals, Illustrated with Pizza

August 31, 2016
Aubrie Przybysz
Marketing at Drafted

A referral, in its simplest form, is when one person directs another person to a service or business. While the concept of a referral is easy to understand, most people don't realize the benefits a good referral can have on everyone involved. Here's an example: Chris, Drafted's head of sales, and I both love a good slice of pizza. If I tell Chris about an awesome pizza place and he gets a great slice there, who benefits? While many of us are inclined to say "one", because the pizza place just doubled its profit without doing anything, in reality all three parties benefit.

  • The pizza place gets a new customer at no cost
  • Chris eats a great slice of pizza
  • I become a “trusted authority” on good slices of pizza in Alex's eyes

The next time Chris and I feel like grabbing a meal together, we might even meet up at our new favorite spot to enjoy the experience together, thus furthering the value of my original referral (and furthering the pizza place’s profits). I bet there was a lot more value there than you expected.

Employee referral programs share this same value. When properly executed, referral programs provide immediate value to the company (aka the employer), the referred (aka the candidate), and the referrer (aka the employee or friend of the company). But referrals also have a tremendous halo effect on these stakeholders, which businesses are just now starting to quantify.

The impact of referrals on The Employer

Companies are constantly searching for the most talented employees they can hire for their team. In the case of small teams, it might be the founders and hiring managers leading the charge, while in larger organizations, there are entire teams dedicated to sourcing and hiring talent. Regardless of the size of an organization, there’s one constant that stays the same: Companies spend a lot of time and money hiring, in fact $7B annually in the US. So what are the benefits of referrals for employers?

  • Referrals reduce the cost of hiring.
  • Referrals reduce the time to hire.
  • Referrals are less likely to leave your company.
  • Referrals are the number one source of “A players”.
  • Referrals continue to build the community you’ve already established.
  • Your employees believe referrals make better coworkers.
  • You have the “inside scoop” on where your referred candidate stands.

The impact of referrals on the candidate

From the candidate’s perspective, referrals are a win too.

  • She gets introduced to a lucrative career opportunity she may not have found.
  • Her resume gets fast-tracked.
  • She gets hired faster.
  • She knows about the culture and benefits of working on your team.
  • She has the “inside scoop” on your hiring process.
  • She has the chance to work with a friend, former colleague, or admired connection.
  • She will onboard faster once hired.
  • She will stay at the company longer.

The impact of referrals on the employee

How does the employee benefit from referring a friend or colleague?

  • He’s seen as a trusted resource to his employer.
  • He’s seen as a trusted resource to his friend.
  • He’s shaping his team and company culture with people he enjoys and trusts.
  • He will help his friend “get settled”
  • He will stay at the company longer.

Establishing the right referral program for your team.

Referrals add a tremendous amount of benefit to your business. They reduce costs, increase retention, and build a strong culture. But hoping for referrals is not a viable hiring strategy. If your hiring program only receives intermittent referrals, you essentially have to plan for no referrals. What you need is a scalable referral process, and there are several types of referral programs to choose from. In our next post, we'll explain all 4 types of employee referral programs and how to decide which employee referral program is right for you.

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