Introduction
If you're wondering how to evaluate the effectiveness of your employee referral program, you're in the right place. In this post, we explore how to measure the efficiency and effectiveness of an internal referral program, examine the typical activity rate of employees, and analyze the cost savings achieved through such programs. For more insights into employee referrals, check out our guide on the most important tips for employee referrals.
1. Understanding the Measurement of Efficiency and Effectiveness in Referral Programs
Assessing the efficiency of an employee referral program depends on two main factors: the number of referrals generated and the quality of those referrals. To measure efficiency, consider how many of your new hires come through referrals and how many referrals each employee provides on average. You can gain a deeper understanding of recruitment metrics and employee satisfaction by referring to our article on key questions for employee satisfaction surveys.
Effectiveness is judged by the quality of the referrals. It's crucial to analyze how many of the referred candidates were actually hired and how their performance compares to other recruitment sources. Long-term indicators like employee retention and the productivity of referred employees can also serve as useful barometers for effectiveness.
2. Properly Evaluating the Power of Power Users
Interestingly, we often find that a relatively small group of power users makes the biggest impact. Typically, about 5% of employees account for up to 30% of successful hires through referrals. This highlights the importance of identifying these power users and properly motivating them to remain the backbone of your referral program.
Participation rate remains important, as it provides 1) an indicator of whether the program is fundamentally accepted and 2) a high rate increases the chance of reaching all power users within the company. You can support your program by offering attractive incentives; for more, see our article on choosing the right incentives.
The rate of power users in your company cannot be predicted in advance. Depending on the company, industry, management, and culture, we see rates ranging from 5 to 15%. Therefore, it's crucial to understand the why and the hygiene factors of the employees and address them.
3. Expected Cost Savings Through Referral Programs
Referral programs can mean significant cost savings for your company.
- Faster Time-to-Hire: Referrals often speed up the hiring process as they have already had a quality initial contact, possess an internal advocate, and generally fit better with the company culture through the first screening.
- Higher Employee Retention: Referred employees tend to stay longer with the company than those who did not have personal contacts within the team beforehand and independently became aware of the company. This reduces costs for future hires and training of new employees.
- Lower Expenses for Job Ads: The more qualified candidates come through referrals, the lower the necessary budget for job ads and the like – or you can use the gained potential for additional campaigns! For more, see our article on tips for successful employee referral programs.
- Lower Costs for Headhunters: As you build a qualified talent pipeline or talent pool, you will need to rely less on expensive external recruitment services in the future.
Continuation: 4 & 5. Setting Goals for Your Employee Referral Program & Early Involvement of the Right Stakeholders
You can read sections 4 & 5 in our free community whitepaper here.
```Jürgen Ulbrich
Jürgen Ulbrich has more than a decade of experience in developing and leading high-performing teams and companies. As an expert in employee referral programs as well as feedback and performance processes, Jürgen has helped over 100 organizations optimize their talent acquisition and development strategies.
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