For organizations looking to hire new talent, understanding and effectively managing the cost per hire is crucial. An average cost per hire is $4,700, not including training or benefit costs that are invested in each new employee, with that cost increasing for more executive level positions. Cost per hire is foundational in the hiring process, as organizations strive to optimize their recruitment processes and reduce expenses.

Employee referrals have emerged as a powerful strategy for decreasing the cost per hire while simultaneously improving the quality of candidates. Research shows that 45% of referral hires stay longer than four years, compared to the 25% of cold hires, with referred hires staying 70% longer than non-referred hires.

Discover the benefits of employee referrals, its impact on cost per hire and the strategies to cost-effective hiring.‍

1. The Power of Employee Referrals

Employee referrals are a valuable resource where an organization’s internal team becomes a recruiter. Employee referrals help lower cost per hire by:
‍

• Access to High-Quality Candidates: Employees are likely to refer candidates who possess the skills, qualifications, and cultural fit required for the organization. Referrals tend to result in higher-quality hires, as employees have firsthand knowledge of the job requirements and company culture.

• Increased Candidate Trust and Engagement: Referred candidates often have a higher level of trust in the organization due to the endorsement from a current employee. This leads to increased engagement and a higher likelihood of accepting job offers.

• Streamlined Recruitment Process: Employee referrals can expedite the hiring process by providing a pipeline of qualified candidates. This helps reduce time-to-fill and minimizes the need for extensive external sourcing and screening efforts.

2. Impact on Cost Per Hire‍

Implementing an effective employee referral program can significantly impact the cost per hire in the following ways:
‍

• Reduced Sourcing Costs: Employee referrals reduce reliance on expensive external sourcing channels, such as job boards or recruitment agencies. Referrals and successful referral programs can save companies $3,000 or more per hire. By leveraging employees' networks, organizations can tap into a wider pool of qualified candidates at a lower cost.

• Lower Advertising Expenses: With employee referrals, organizations can allocate fewer resources to traditional advertising methods, such as print or online job postings. The cost associated with advertising positions can be significantly reduced when employees actively refer candidates.

• Decreased Time and Effort in Screening: Referred candidates often undergo a streamlined screening process due to their connection with current employees. As such, referred candidates are on average 55% faster to hire than candidates hired through job boards. This leads to time and cost savings, as the need for extensive resume screening and initial interviews is reduced.

• Improved Retention and Productivity: A bad hire can cost companies up to 300% of an employee’s salary while losing almost $15,000 on hiring that same employee. Referred candidates, having been recommended by existing employees, tend to have higher job satisfaction and longer tenure. This positively impacts retention rates and reduces the cost of turnover, ultimately contributing to a lower cost per hire.

With Alltourage, hiring teams can leverage text messaging (SMS) to directly reach their internal teams and networks, saving costs and time hiring qualified candidates.‍

3. Strategies to Optimize Cost Per Hire

To optimize the cost per hire and improve recruitment efficiency, organizations can consider the following strategies:
‍

• Utilize Cost-Effective Sourcing Channels: Explore cost-effective sourcing channels, such as employee referrals and personalized technology such as text messaging, social media and online communities to attract potential candidates.
  

• Enhance Candidate Screening Methods: Employ efficient candidate screening methods to identify the most qualified applicants early in the process. By implementing strategic and measurable screening methods, it helps reduce time of hire and an organization’s overall costs. Utilize technology-enabled screening tools, structured interviews, and pre-employment assessments to streamline candidate evaluation.

• Monitor and Evaluate Metrics: Continuously track and analyze recruitment metrics, including the cost per hire, time-to-fill, and quality of hires. Regularly review and optimize recruitment strategies based on data-driven insights to drive continuous improvement.

At Alltourage, beyond its core text messaging and referral feature, hiring teams can screen candidates through our extensive partners Certn and TalentClick to help reduce an organization’s cost per hire. With Certn, hiring teams can screen candidates and receive a background check in under 20 minutes. Along with that, TalentClick offers recruiters a wide range of behaviour and talent assessment tools where hiring teams can receive data-driven insights on a candidate’s personality, work ethics, proficiency levels and more. This can all be done right on the Alltourage platform — an all-in-one suite to help accelerate an organization’s hiring journey.

Cost per hire is a vital metric in talent acquisition, providing organizations with valuable insights into the financial impact of their recruitment efforts. Employee referrals offer organizations a cost-effective and efficient method for decreasing the cost per hire while attracting high-quality candidates. By implementing a well-structured employee referral program and leveraging the networks and insights of current employees, organizations can significantly impact recruitment costs while benefiting from improved candidate trust, engagement, and retention. Investing in an effective employee referral program is a win-win strategy that aligns the interests of employees and the organization in achieving successful talent acquisition outcomes.