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Referrals vs. Jobs Ads

Posted by Eric Friedman

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Referrals have long been considered to be the best way to find new employees, as opposed to placing job ads. Finding someone who fits well with your company culture and also has the skill set you’re looking for can be a challenging task. For recruiters, proving a positive ROI when hiring is always an important metric. ERE, the recruiting information and networking organization, has come up with some compelling numbers that reveal the power of employee referrals. Here are a few statistics we found that really speak to the value of the referral.

High-Volume Hiring: When it comes to high-volume hiring, referrals are the #1 source for candidates. This is at least in part due to employee referral programs that offer some type of incentive to current employees who refer someone who is hired. When a large number of positions are open, these incentives can add up to a strong motivating factor.

Higher Retention Rates: The retention rate for referred employees after two years is 45%, compared to a 20% retention rate for employees hired through job boards. This may be because candidates who are referred will probably have a pretty good idea of what the company is like, from having discussed it with the person referring them. Knowing what they’re getting into ahead of time makes it more likely that they will want to stay. These numbers prove that.

Top Companies Rely on Referrals:
46% of all hires at top-performing firms are referrals, while for all firms referral hires range between 28% and 39.9%, according to ERE. This indicates that companies that put a high importance on referrals are going to be better off than those who don’t. While it does cost on average of about $635 more to hire someone through a referral, the savings from retaining them as long-term employees outweighs this, since having to rehire for the same position every 2-3 years is costly.

While there are several statistics out there that prove that referrals are the best way to go, this doesn’t mean that job ads are in danger of becoming extinct. It’s important to explore all of your options, especially if you are hiring en-masse. Many companies are now creating their own job portals, or are recruiting from social networks such as LinkedIn or even Facebook. Hiring someone from the outside who has no knowledge or passion for your company’s industry can make for a long start-up period. That’s why hiring through referrals translates into better statistics and is the better route to go when you’re deciding where to invest your hiring budget.

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About Eric Friedman

Author

Eric Friedman is the founder and CEO of eSkill Corporation, a leading provider of Web-based skills testing for pre-employment and training. With academic degrees in Psychology and Business, and experience with both mature and expansion-stage company growth, Eric has focused on how best to hire and motivate team members to be the best they can be for their companies.

3 COMMENTS Join the discussion
  • Donna Towson January, 02, 2014

    I think a referral gives you a better chance of a good hire than a job ad especially if the source of referral was your current employee. In this case you can be sure that a candidate has no false expectations as s/he has been informed well about the company, the staff and the management team as well.

  • Roy January, 03, 2014

    Referrals are good but you can’t rely on them only and refuse from using job ads, because that would be ridiculous. Don’t let yourself forget that a good deal of percentage that makes a perfect hire is luck and you never know where it comes from!

  • Lilly January, 05, 2014

    I think if you aren’t focusing enough on referrals as part of your recruiting process, well, you’re missing out on the very best way to build your future workforce. If you want to form a pipeline of talents that’s where you should start – get a referral!

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