How to Measure Referral Effectiveness for Your Employer Brand

By Richard Mosley

Referral has always been an important source of hire (SOH), but the increasing adoption of social media as part of employer branding has resulted in a resurgence of interest in network-based recruitment.

In Universum’s recent global best practice survey, 60 percent of leading global employers claimed they were increasing investment in employee referral and 50 percent were increasing investment in alumni referral. With so many companies ramping up their efforts in referral recruitment, you need to monitor your success in this area in order to remain competitive.

Referral costs

Referral costs boil down to the costs of creating the referral program and funding incentives:

  • Referral program development cost: The upfront investment in establishing a referral program
  • Referral campaign costs: The costs involved in promoting awareness and uptake of a referral program once established
  • Referral incentives (bounties): The costs to fund incentives and rewards for those who refer qualified candidates

Audience exposure

Measuring the total reach of a referral program is difficult, because much of the activity generally takes place through personal communication channels, but you can gain some indication of the numbers involved by measuring the number of applications made that cite referral as a source. This can be further broken down by region, function, job type, and so on to provide an indication of where the program has generated most and least activity.

Engagement

Engagement, as it relates to referrals, applies to both the engagement of current employees in the referral program and the number or percentage of qualified applicants that result from the referral program. Here are two key indicators of referral engagement success:

  • Employee advocacy and net promoter score (NPS): An important base measure, NPS establishes the proportion of employees who claim they would be happy to recommend their employer to friends and family. It provides an important indicator of your company’s referral potential.
  • Participation rate: The participation rate reflects the percentage of employees who play an active role in the employee referral program by referring friends, family members, and professional contacts to the company.
  • Referral applicants: At the end of the day, referral engagement success boils down to the number of qualified prospects who apply for jobs with your company as a result of being referred by a current or former employee.

Source of application and source of hire

The SOA and SOH for referrals are key metrics on measuring the success of your referral program, and they’re fairly easy to measure reliably. Applicants are eager to share information about current or former employees who referred or recommended them, because they believe — and rightfully so — that such a referral or recommendation will help them in landing the job.

Referrals are generally rated as the most cost-efficient source of quality applicants and hires, but you can’t be sure if you don’t collect the data and do the math. Referral costs combined with SOA and SOH provide an accurate indication of your referral program’s ROI.

Improving referral effectiveness through analysis

The following metrics provide insight into the success of your employee referral program, but they’re less helpful in identifying areas of improvement. Referrals may suffer for several reasons, including the following:

The employment experience itself needs improvement. If employees don’t feel that your company provides an exceptional workplace environment, they’re not likely to encourage people they know to apply.

  • The importance of referrals and of building a strong employer brand has been poorly communicated internally.
  • The referral incentives being offered aren’t valuable or exciting enough to encourage employees to participate in the program.
  • To improve participation in your employee referral program, work on improving internal communication and delivery of your employer brand.

In addition to analyzing your own data, compare your results to external benchmarks to gauge your success to that of other companies competing for the same talent. (See “Comparing your results to external benchmarks” for details, along with a list of sources that can provide you with external benchmarks.)