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 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.
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?
From the candidate’s perspective, referrals are a win too.
How does the employee benefit from referring a friend or colleague?
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.