How can employee referral help you cut recruitment costs?

Recent research by LinkedIn shows that 79% of working professionals are passive candidates, meaning that they are open to discussing new career opportunities, but are not actively looking for jobs. On the other hand, companies expect their recruitment needs to rocket in the near future since new roles are emerging as a consequence of the technology boom.

We’re currently competing in a labor market where recruiters and candidates are playing hide-and-seek.

Therefore, companies are going to fall behind their hiring targets if they keep investing money and time in recruitment methods that don’t pay off anymore.

Traditional recruitment vs. employee referral

Nick Corcodilos, headhunter, and author of numerous HR books, has challenged job boards to publish data about the hiring success rates that companies record after posting open jobs. He also suggested companies to pay job boards only after successful hiring on a posted open job. Without minimizing the role of the job boards in covering some of the open roles, he questioned their efficiency as recruitment strategies widely adopted by employers: “Certainly, they fill some jobs, but just because millions of people gamble doesn’t mean enough of them win to justify the practice. All it means is that the house wins.”

Times have changed, and candidates don’t look for just a job anymore. They are looking for an employer. Don’t expect to get their attention if your strategy is based only on posting open jobs and waiting for applications to fly in. You may be throwing your recruitment budgets out the window.

Instead, focus on building a strong employer brand and reach your candidates with minimum efforts and costs.

The easiest way to achieve this is by turning your employees into your brand ambassadors, through well-structured employee referral programs (ERPs). Although employee referral is the most efficient recruitment channel in terms of candidate quality, hiring rates, and retention, companies are often unaware of how effective it is in attracting more candidates at lower costs.

One of the reasons why employee referral is overlooked when analysing budgets is the misconception that it takes a generous bonus to get people involved.

In fact, research has pointed out that the main employee referral driver isn’t money (although rewards do increase its efficiency, without racking up 4-figure sums). The main pillars of ERPs are people’s engagement at work, a healthy, motivating organizational culture and employees’ willingness to help their friends or their employer.

How much money can employee referral save?

To answer this question, you will first need to assess your current recruitment costs (external and internal) and identify your hiring needs (see the table below for guidance). Based on this data, it’s easy to find out your cost-per-hire:

Internal and external costs comparison between Traditional Recruiting and Employee Referral

4 facts about employee referral and their impact on your recruitment budget

#1: Your employees’ network gives you access to a candidate pool ten times larger than any other traditional recruitment channel (LinkedIn Global Talent Trends survey 2015).

→ How referral helps your budget: You have the option to drop or go slower on some of the other talent sourcing channels like job boards, external agencies or consultants, participation in recruiting events.

#2: 1 in 3 employee referrals vs. 1 in 10 non-referrals are hired

→ How referral helps your budget: This means less time spent on shortlisting, assessing, interviewing. It makes perfect sense to focus on the recruitment channel that delivers the highest quality for the least time investment.

#3: Employee referral adds a pre-screening layer, performed by the recommender. Not to mention that smart employee referral is done nowadays with top-notch technology, as Talenspotting provides, that brings on the table automated matching between jobs and candidates.

→ How referral helps your budget: you can cut down significantly the time spent on pre-screening, close to 0.

#4: Employee referrals’ retention rate in the first 2 years after being hired is 45% vs. 20% for non-referrals. Moreover, employee referrals are 350% more likely not to be fired.

→ How referral helps your budget: this means lower turnover for companies and a decrease in replacement costs on short- and long-term.

Bottom line:

On average, employee referral helps companies reduce hiring time from 45 days when using career sites to 29 days when using referral.

When you rely on employee referrals, cost-per-hire drops to $1,000 or even less, while, with traditional recruiting methods, it varies from $3,000 for entry-level positions to $18,000, for blue collars.

What you SHOULDN’T give up on when relying on employee referral?

Referral rewards

Your budget should include resources to be spent on rewarding your employees who add value to your company through good recommendations for the open roles. Rewards can come in many other formats than money like small gifts, experiences that improve employees’ engagement and motivation (extra-days-off, new gadgets, trips) or simple “thank you” notes. Discover more ideas of innovative employee referral rewards.


Good software is the standing ground for your ERP success. Ideally, a referral software should be doing more than just allow referrers to upload resumes. Talentspotting referral software is also a solution enabling employees advocate for their employer brand and recruiters build agile strategies based on data analysis. When choosing your ERP technology have in mind a set of key features that will facilitate time-consuming tasks :

  • matching mechanisms between jobs and candidates that enable you to cut CVs screening time
  • automated social referral, allowing your employees share the open role with all their social networks
  • applications tracking system
  • advanced reporting and analytics functions to assess the program’s performance

ERP cost-effectiveness success stories

Coca-Cola, Deloitte, Ernst & Young, Telus, Radisson, Dell are just a few names that have integrated an ERP into their recruiting routine. They are big names, but it’s not their financial power that got them into the ERP game. On the contrary, their wish to have a performant and efficient hiring process determined them to take steps towards ERPs. Over the last seven years, Dell has gone through a restructuring of its ERP, doubled by a powerful communication strategy. According to Jennifer Newbill, Director of Global Employer Branding, after rethinking employee referral from scratch, Dell got 10,000 shares of the open jobs on the social networks and an overall 20% decrease in the cost-per-hire, over the last three years.

If some big companies could afford to spend money on non-lucrative recruiting activities under the guise that they might help to build and keep their reputation as employers, for start-ups things are different. Their budgets are tight, and they might use a helping hand to save time and money on recruiting, without compromising hires’ quality.

Yotpo, a technology start-up based in Tel-Aviv, has gone wildly creative when they needed to sustain their company’s growth with new hires:

  • They launched an employee referral event called The Bingo Recruitathon for a whole month
  • The event was entirely gamified, asking employees to fill in various HR tasks like referring someone for an open job, share open jobs on social networks, get more than 40 likes for the open job they shared etc. For each task completed referrers would gain gold stars and they were rewarded, when reaching a number of gold stars.
  • They offered various rewards for the referrals, ranging from free coffee and breakfast to winning a trip to Europe.

The result? As they show on their blog:

  • 500 referrals
  • 16 hires
  • USD 70,000 saved

ERPs cut time and budget and add value

Any company can save budget with an employee referral well structured and communicated. What is even the best about employee referrals is that the dreaded expenses on rewards will, in fact, boost the employees’ engagement and turn out to be an investment in the organizational culture. The same goes for employee referral technology: choose tools based on automation, that help you save time spent on tedious tasks and integrate extra-features like reporting or ATS, that will add value to your overall recruitment process.

Ready to explore some new ways to make your recruitment more time and cost-effective? Contact us to discuss how Talentspotting can help you turn your employees into your brand ambassadors and increase your talent pipeline on a budget.

Talentspotting - Referral Technology

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Talentspotting is the employee referral tool that improves hiring rates by 40%.

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