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3 Simple Steps to an Effective Employee Referral Program

Written By: Adam Robinson
Posted on September 27, 2016

Most business owners understand the importance of referrals when it comes to their customer base. According to a recent survey conducted by Harris Poll and Nielsen, 82 percent of Americans indicated they look for recommendations from friends and family members when they’re deciding on a purchase. With big-ticket items like a vehicle, advice from trusted mentors is even more valuable. Meanwhile, brands have tapped into the fact that incentives help facilitate the referral process. That above study also found that 88 percent of American consumers said they would want to receive money, products or services, loyalty points, and other reimbursements for promoting or referring a product via social media or email. By doing so, businesses can put themselves in a strong position to grow and generate additional revenue through new customer acquisition.

What does your employee referral program look like?

As critical as new customers are for your dealership’s continued growth, your employees are equally important to your business’ sustained success. An effective employee referral program allows you to tap into your dealership's talent and utilize them as proxy recruiters. The foundational aspect of this approach to hiring is ensuring your existing employees are precisely aligned and identify with your company culture. They should possess the internal motivation to recommend a friend because they feel comfortable and appreciated at work and have a positive outlook of the business.

How do you build an effective employee referral program?

Let’s assume your dealership’s company culture is in excellent condition, but your recruitment costs are exceeding what you had forecasted on a yearly basis—with average turnover rates for salespeople at 71 percent. With this in mind, here are three simple steps that will help you build a referral program that takes the headache out of recruiting:

1. Expectations

As you put your program policy down on paper, you must begin with clearly defined objectives and expectations—both from an employer and employee perspective. Run an audit of your staffing needs and how to best optimize your referral program to bolster specific departments. Are there a few employees reaching retirement age in the sales or service departments? Has someone in accounting recently relocated? Are you rebuilding your marketing team? Whatever your short- and long-term needs may be, these goals are critical to the strategic success of your referral program.
If you’re already sitting on a large stack of high-quality resumes for salespeople, direct your referral efforts elsewhere. At the same time, your employees need to know who qualifies as a referral. Can it be their high-school buddy? Should it be a former colleague? How about a friend or classmate from college? Can employees refer candidates who have already applied for a position? Who can recommend candidates? In many organizations, those at the highest levels—including vice president and above—or those directly involved in the hiring decision, are restricted from making referrals.

2. Incentives

Participating in an employee referral program inevitably leads to the expectation of a reward. The extent to which you choose to compensate employees for their successful referrals may depend on the role. For instance, a management position may offer an incentive at a higher rate than an entry-level candidate. That’s up to the discretion of the dealership and how you assign value for each referral. However, having a consistent, documented incentive is a way to show your employees that you take the referral program seriously. Something else to consider is timing. As an employer, it feels better to wait to reward the referring employee—especially monetarily—until the new hire proves themselves to be a successful member of the dealership staff. From an employee’s perspective however, this sends a confusing, mixed signal. On one hand, you trust their referral enough to hire the candidate, but you don’t have confidence that the new hire will last. So, you withhold the reward until six or 12 months down the line? This policy produces a net loss in terms of employee engagement and culture. Consider a two-step process where you pay a portion of the financial incentive at the time of hire and deliver the remainder after the new employee proves themselves.

3. Process

If you truly want your employee referral program to get off the ground, you have to make it as simple and straightforward as possible. The fewer obstacles employees have to go through to submit and benefit from a referral, the better the results. If you want to take a bare-bones approach, you can ask employees to simply email HR with a name and contact number for the referral. Or, you may ask them to provide the candidate’s resume as well. Regardless, your employees aren’t the one applying for the open position, so avoid making the process too complicated. No matter how simple, an integral, ongoing step to this whole ordeal is ensuring consistent communication with your staff. Make sure they know where they should send referrals, and that they understand their role in the review process and the employment requirements through the onboarding stages. It’s also a smart idea to include a communication plan in case you don't hire the referral. If a candidate doesn’t meet the established requirements, you must clearly explain so your staff doesn’t perceive it as a slight against their recommendation.

What do employee referrals mean for your dealership?

What would you think if you weren’t getting any customer referrals? Clearly, that would be bad. One on hand, you likely have operational issues in one or more departments that are keeping your clients from telling their friends and family to visit your dealership. On the other, you have to invest significantly more in other marketing channels that are an expense on your P&L sheet. The same rules apply for your employee referral program. Forbes contributor, Liz Ryan, explained that if you’re not getting any referrals from your existing staff, it could signal a couple of issues:

  1. Your dealership’s culture is suffering. Your employees are telling you that they wouldn’t want their former colleagues and friends working at your dealership.
  2. Your existing referral program is filed away somewhere and hasn’t seen the light of day in the past 12 months. Nobody remembers this is even an option.

As a result, you have to increase your budget for job board advertisements and other recruitment channels to get the attention of prospective candidates. Either way, it’s not an ideal case. An effective employee referral program doesn’t replace other recruitment strategies, but it certainly alleviates much of the strain—after you’ve put in the hard work to build a dealership culture where talented people want to work.

Learn more about Hireology. And join NCM’s experts for more actionable advice for hiring the best people for your team in our NCMi courses.

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