The cost of recruiting via referral programs

Most everyone is aware that recruiting is a process that requires dedication and time. What people may not be aware of, though, is what that means to them and their organization by taking this on internally.

I recently had a conversation with a CEO of a local company who had just approached me about our services and explained his reasoning for turning to an outside recruiting firm. His company, it appeared, had always believed in fostering a referral based system which allowed for employees to benefit by referring candidates for internal openings. The company would then pay a referral fee to its staff for the hired referred candidate

The problem with this approach, he continued, was that this actually resulted in a SIGNIFICANT cost for his company. He was not referring to the referral fee they paid to their staff but the time his staff (including himself) had to spend during this process. Instead of using their time exclusively towards revenue-driving efforts, such as product development, more and more time was being spent in the recruiting process. He went on to say that at the end of the day, when he and his executive team included the salaries of the individuals at various levels now tied to the recruiting process, the total cost far exceeded the cost they would incur by paying a contingent fee firm to fill all of their open positions. He also mentioned that his internal referrals did not come with a guarantee.