When you hear the word "referral" in recruiting, you typically think of an employee submitting a recommendation on behalf of their friend. But referrals can come from many more places.
In fact, only about 41% of referrals come from current employees, while 59% come from outside the organization.
One thing is for certain though - no matter where the referral comes from, it's an extremely valuable signal. An analysis of 4.5 million job applications found that referred candidates were 7x more likely to be hired than those who applied via job boards.
In this post, we break down the types of referrals and the pros and cons of each.
Employee Referrals
Internal employee referrals make up the bulk of formal referral programs, meaning these referrals are incentivized by financial rewards. In fact, about 71% of American employers have one.
PRO
- Fit: because employees know the inner workings of the business, they're able to gauge whether the candidate not only possesses the skills and experience to do the job well, but also shares the same cultural and personality traits as the organization.
- Non Public Roles: employee referrals work most compared to other types when open roles are not advertised or published publicly due to sensitive business reasons.
CON
- Referrer Dependence: while any referral depends on the reputation of the referrer, employee referrals suffer this risk the most as the business has the most information on this type of referrer. Whether a referral is taken seriously may depend on the referrer's performance, tenure and track record at the company. It may also depend on whether the referrer works in the same function or department as the hiring team.
- Limited: employee referrals aren't as fruitful for small businesses and startups who may have a small pool of employees as compared to a Fortune 500 company.
External Referrals
Former employees, investors, customers, business partners, friends and family, or pretty much anyone else known to the hiring manager, recruiter or team can make an external referral. These are typically informal, organic, word-of-mouth recommendations as compared to incentivized, formal employee referrals.
PRO
- Larger Network: because they aren't limited to the small pool of employees working within the organization, external referrals can come from anywhere.
- More Influential: since external referrals are based on the personal relationship that the decision makers have, the level of trust in the recommendation is higher, resulting in more effective referrals.
CON
- Lower Fit: external associates have less knowledge of the inner workings and culture of the business, leading to recommendations of a lower fit than those made by employees.
- No Program: external referrals are not formalized nor incentivized, which means that they're more sporadic, less structured and harder to cultivate systematically.
Backchannel References
Though not officially a referral, backchannel references are increasingly becoming impactful in the hiring process. Often, the hiring team will reach out to a mutual connection that knows the candidate or to a previous employer to get a sense of the candidate's abilities and performance. This happens anytime between screening and making the offer, though it's more common in the final stages. Backchannel references also serve as a stopgap in cases where there was no employee or external referral.
PRO
- Transparency: because it's initiated by the employer and not the candidate, backchannel references can often be the closest feedback to the truth that the hiring team gets.
CON
- Delayed: referrals happen prior to the hiring process; references happen in between or after. So they are not as effective in reducing costs incurred through the recruiting process. However they can be even more powerful in influencing the hiring decision one way or the other.
Conclusion
It's critical for both employers and candidates to remember that employee referrals aren't the only arrow in the quiver. Referrals can come from anywhere - internal, external and backchannels. In fact, each referral type has its own upside and downside.
Employers and candidates should be equally cognizant of how and when to leverage each.