An employee referral program is an inbound recruiting method that companies use to find talented people. Basically, the company asks their existing employees to recommend candidates who might be a good fit. It’s a simple, inexpensive strategy, but it can easily go wrong.

According to TalentLyft, employee referral programs fail because:

Employers do not respond to referred candidates in a timely manner.
Employees who made the referrals receive no feedback, which erodes their motivation to refer anyone else.
The rewards for referring someone aren’t sufficient. There are ways to motivate employees to make referrals without straining your budget.
The referral process is too complicated or lacks structure. Employees may need to jump through too many administrative hoops, or the system may make it too difficult for employees to share the job opening on social media.
Employees aren’t given clear information on how the program works.
Employees don’t know when job openings are available or haven’t heard of the program in the first place.

When done right, employee referral programs yield huge success.

New hires acquired through employee referrals typically perform better than do those who weren’t referred by employees, according to the Society for Human Resource Management (SHRM). They also tend to stay longer with their employers. Further, employee referral programs are “more cost-effective than other recruiting strategies and often are the fastest way to find external talent.”

Other findings:

Eighty-two percent of surveyed employers say that employee referrals have a higher ROI than do other recruiting methods (CareerBuilder).
Hiring referred candidates is 55% faster than hiring through career sites. (HR Technologist).
Employee referrals reduce cost per hire, saving on fees associated with advertisement, recruitment or staffing agencies (LinkedIn Talent Solutions).
Eighty-eight percent of surveyed employers say that employee referrals “are the #1 best source for above-average applicants” (Dr. John Sullivan research).
Referred candidates are much more likely to accept your job offer (Glassdoor Economic Research).

Based on these statistics, there’s a compelling case to be made for employee referrals. But as noted earlier, the program will fail if mismanaged.

To build a successful employee referral program:

Create a referral-worthy culture that regards employees as brand ambassadors and supplies the tools for fulfilling that role.
Develop transparent, easy-to-understand policies and expectations, including eligibility requirements.
Motivate employees to participate. Research shows that the median cash award for successful employee referrals is $1,000, but most employers offer $500. Employers with tight budgets often provide time off or additional vacation days instead of cash incentives.
Keep referred candidates and referring employees informed. Aim to respond within a specific time, such as one week or 10 days.
Automate the referral process to make it quick and simple.

Institute an ongoing marketing campaign to promote the program.

Finally, encourage your top performers to participate. Top performers tend to provide the best referrals because they don’t want to tarnish their reputation by recommending poor candidates.