Employee Referral Programs and the Future of Recruiting

From the way we find jobs to the way we find love, from the way we connect with our friends to the way we connect with colleagues and customers, technology has fundamentally altered the very foundations of how we work, how we live and how we experience the world around us – for better or for worse.

Except, of course, for when it comes to talent sourcing or recruiting, where the legacy of legacy systems remains alive and well, where on premise remains on trend, and where paperwork still requires actual paper.

And, most conspicuously, filling open reqs is still mostly on job ads and blind luck. Posting and praying isn’t a strategy, sure, but at many employers, it remains an integral part of the recruiting process. If the definition of insanity is doing the same thing and expecting different results, then how we hire is absolutely bat$#!+ crazy, to put it politely.

Why Job Ads Don’t Add Up for Recruiting Today

Job boards (which, as much as we can pretend its a “professional network, at least looking at end usage and revenue sources, includes LinkedIn), never particularly effective to begin with, continue their consistent declined in relative recruiting performance; the average organization reports only around 35% of their external hires come from job postings, a drop from nearly 50% in 2018.

Conversely, the percentage of applicants external job postings generate has seen a marked increase in the same period; job boards now account for over 60% of all applicants.

The significant disparity between applicant volume and source of hire suggest that companies that are overly reliant on job ads (which is to say, many if not most employers) are likely to have a candidate pool that’s less qualified, less responsive and less interested in posted roles than other sources of talent.

This creates drastic inefficiencies throughout the talent acquisition process, from hours spent sorting through hundreds of resumes from unqualified applicants, to significantly higher drop off rates in later stages of the hiring process and ultimately, significantly lower offer acceptance rates than any other source of hire.

This is likely because applicants coming from external job postings are often actively looking for employment, applying to myriad open roles irrespective of fit or interest, and being in process with multiple companies at the same time, with accepted offers seemingly driven more by timeline and short term job needs than fit or long term career opportunities.

Despite their relative underperformance and the operational inefficiencies created by job postings throughout the hiring cycle, outcomes which data suggests is only getting worse, employers today spend more money on job advertising than ever before.

In 2024, employers are estimated to spend an eye-watering $4.2B on job ads in the US alone, representing nearly a 7.5% increase from the previous year.

With the BLS projecting that American employers make fill an estimated 66 million jobs every year, that means, on average, we’re spending fully $63 on job ads for every single hire made in the US. And, as we’ve seen, only a fraction of those hires are actually generated from job ads, meaning that we’re spending a whole lot of money many of us don’t really have to generate mixed recruiting results, at best.

While inefficient and ineffective, recruiting remains stuck in the same status quo, so it’s unlikely that organizations will cut spend, or even critically review, job board performance in the years to come. After all, they haven’t yet.

The growing and ubiquitous imbalance between job ad spend and demonstrable ROI, with the right recruiting strategy, can be easily leveraged for competitive advantage. While everyone else is busy advertising jobs and sourcing candidates externally, the most effective employers spend more of their time looking internally, instead.

It’s no secret that the perenially biggest source of hires is internal mobility – from conversions to promotions to lateral moves and project-based assignments; the second highest performing source of hire, a source of hire that’s fully 12 times more effective than job advertising in terms of candidate to new hire ratio.

Referrals are low cost, effective and remain a proven, reliable source of hire that outperforms all other external channels. They are also, of course, the only source of hire that directly impacts not only recruiting results, but employee retention outcomes, too.

This raises the question of why referrals remain such a missing element in so many recruiting processes. And it’s a good one.

 Referrals: The Silver Bullet for Recruiting and Retention.

Referrals, of course, are that part of the process where employers leverage their existing employees to help them identify and attract qualified, interested and viable candidates.

The most powerful talent pool any employer has is an org chart; that’s because existing workers not only know what it takes to work at their company, but more importantly, who else they know that does.

Employees’ professional networks are infinitely more powerful than any online network out there in terms of candidate sourcing and attraction – and it helps that even the coldest potential candidate, in referral hiring, is already a warm lead. It’s a win for both employers, who get the talent they need, and for workers, who get the chance to work with people who they know, like and believe in, personally and professionally.

Of course, when employees proactively recruit the past colleagues and coworkers with whom they’ve had the most positive experience with, they also put their relationship, and their, on the line.

That’s why most workers today approach referrals with the perfect combination of excitement and restraint. Employees genuinely enjoy being a part of the hiring process, but remain selective on who they refer, believing these referrals reflect not only the candidate’s suitability for the company, but theirs, too, to a degree.

The numbers don’t lie: referrals work, empirically and aphoristically. Companies with well-developed employee referral programs enjoyed significantly more engaged workforce with less voluntary turnover, longer employee tenures, higher job satisfaction and are likelier to refer their own colleagues and connections than those companies with a less developed employee referral program, or, commonly, no referral program at all.

Recent research shows that fully 45% of all hires sourced from employee referral programs stayed at their companies for more than years, on average, significantly higher than the national average, and save those companies a whoppinjg 7,500, on average, for every hire they make.

A successful referral makes employees feel more connected and more connected to employers; it represents a validation that their voices matter, are trusted and that their opinion is respected – in short, a pretty powerful retention and engagement driver that’s much more effective than, say, putting up an Indeed ad and hoping for the best.

Referrals are a rarity in recruiting: everyone wins.

Except, maybe, for the Indeeds and LinkedIns and the big staffing agencies of the world, but they’ve had a pretty successful run, all things considered. But the age of job boards being the default for filling open roles is on its last legs – and change is going to come, for once, in talent acquisition and recruiting.

And I, for one, could not be more excited.

It’s Not What You Know, It’s Who You Know

Robust employee referral programs are the future of hiring. They let recruiters – never known for their attention to detail or adherence to standard practices and policies – completely bypass so much of what sucks about recruiting.

Gone, largely, are the onerous components of the traditional job search – the job posting, resume screening, phone interviews and the informal background and reference checks.

Gone is the need to wait to see how the candidate compares against other external applicants, or having them explain why they want to work for the company, or what they can do; this information, in a referral, is both self-explanatory and specious.

Which makes employee referrals the future of hiring.

Sure, no employee referral program is perfect, but they’re a lot better than putting up a job posting and waiting for the unqualified applicants to come rolling in.

Unless you really want to keep losing workers to your competitors, continually up your job board spend and waste months of your life sifting through the thousands of resumes that aren’t even close to qualified that blow your inbox up every time you pay for the privilege of posting a job.

Yeah, I didn’t think so.

About the Author:

 Michael Stafiejis a seasoned entrepreneur and technology executive with over 15 years of startup technology experience.

He is the CEO and Founder of ERIN, the world’s #1 employee referral and internal mobility platform.