Do any of these statements describe your referral program?
- “Our referral program rocks! Referrals are our top source of qualified leads.”
- “We have a referral program, but it doesn’t do much for us. I can’t remember the last time a referral came in.”
- “What referral program?”
If you’re in Group 3, check out our article on why referrals matter. Groups 1 and 2, this article is for you!
If you have a referral program, but aren’t getting many referrals, there are several possible reasons. But even if referrals are already your top source of leads, you have the opportunity to build on your strengths. For example, if 40% of your business comes from referrals, think about the impact of increasing that to 50%.
We recently wrote about why people refer their friends and colleagues for jobs. If you haven’t read it, head over there first – it establishes the three “referral program table stakes”:
- Offer a referral bonus
- Make sure your recruiters are asking for referrals
- Promote your program consistently
It also talks about the psychology behind referrals, i.e., the non-monetary reasons people make referrals.
Those are the “dos.” This article focuses on the “don’ts.” It outlines three common mistakes that can keep your referral program from performing as well as it should.
Mistake #1: Your referral program is too complicated
Which of these referral programs would you be most likely to participate in?
- Refer a friend and you both get $100 after they work for 250 hours.
- Refer a friend and you’ll get $25 when they apply, $25 when they get a job, and $50 after they work for 250 hours. Your friend will get $50 when they accept a job and $50 after 250 hours.
- Refer a friend and you’ll get $0.40 per hour after they put in 250 hours of work. Your friend will get $50 when they accept a job and $50 after 250 hours.
Our guess is that your immediate answer was #1. Why? Because it’s easy to understand.
All of the offers are exactly the same: both the ambassador and the applicant get $100. But offers #2 and #3 require some mental gymnastics to get there. You may even have to pull out a calculator. Who wants to do that?
They also present management challenges, especially if you’re using a spreadsheet – Are your recruiters accurately tracking where all applicants are in the hiring process? Is payroll being notified in a timely manner when the milestones are reached? Who’s keeping an eye on everything?
Of course, your referral bonuses need to make financial sense for your agency. You don’t want to pay bonuses for leads that never turn into placements or cut too far into your margins. This is the reason that some agencies opt to pay tiered bonuses (like in offer #2) or per hour bonuses (offer #3).
But these structures are overly complicated, which can drive away the very audience you’re trying to attract and also create headaches for your recruiting and accounting teams.
Our advice: Follow the KISS model and keep it simple. We highly recommend a flat bonus structure, like in offer #1.
Mistake #2: Your referral program isn’t standardized
You’re a recruiter at a healthcare staffing agency that places travel nurses, allied health professionals, and locum tenens. You’ve been working with Kerry, a locum tenens physician, on several contracts and you have a good relationship. You tell Kerry about your company’s dual-sided referral program: for every referral that leads to a successful placement, Kerry will earn $1000 and her friend will earn $500.
Kerry is excited and refers her friend Tom to you. Tom is a great fit for one of your open reqs! But there’s a problem – Tom is a travel nurse, not a locum tenens physician. So, the referral bonuses are only half what you told Kerry: $500 for her and $250 for him. Awkward conversations ensue…
Just like the complicated structures in Mistake #1, having different referral bonuses for different roles can lead to confusion and frustration due to unmet expectations – if they’re not clearly communicated. This creates a poor experience for your ambassadors, your applicants, and your recruiters.
Our advice: Standardize your referral bonuses as much as possible. If you must offer different bonus amounts because you work in multiple verticals or you fill jobs with significantly different margins, make sure the amounts are clearly communicated in your terms and conditions. Also, understand the extra administrative burden this places on your team.
Here’s one way to keep your bonuses the same while still ensuring you make your profits: offer the same bonus but vary the work hours required. In the example above, you could offer $1000 for referring both locum tenens physicians and travel nurses, but to earn the bonus the locum would need to work 30 days while the travel nurse would need to work 90.
Mistake #3: You’re taking referral bonuses out of recruiters’ commissions
We hope you cringed just a little when you read this one. We’ve encountered a few agencies that take referral bonuses out of recruiters’ commissions, for example, by subtracting the referral bonus from the profit margin. If you want to guarantee that your recruiters never mention your referral program to anyone ever again, this is how to do it!
Think about it like this: you don’t make your recruiters pay for Indeed or LinkedIn Recruiter or any of the other sourcing tools they use every day. And referrals are a sourcing tool. They happen to be the most effective, and in many cases, the lowest cost sourcing tool – but in the end they are just another sourcing tool in your recruiting toolbox.
Our advice: Treat referrals the same way as every other sourcing tool from a financial perspective – pay for them out of your marketing budget, not recruiters’ commissions.
Want more tips, tricks, dos, and don’ts? Download our Referral Program Best Practices eBook. It’s full of recommendations to make your referral program a success.