Growing your business from a startup into an established company involves a lot of steps, but the one that many take for granted is hiring. Sourcing and bringing aboard the best talent can be difficult and expensive, and the job gets harder as you scale. 

There are a few tactics available to you to make the process more effective. One that we use at Fundera: We offer our employees a $3,000 referral bonus for every new hire they refer to the company. At times, we've upped that bonus to $5,000 for certain roles. 

To some, that's a shocking number. It can change an employee's life--funding their dream vacation, or serving as the starting point for a child's college fund.

To be fair, it's not as high a number as some other referral bonuses we've seen. Data analysis company ThoughtSpot announced that they'd offer a $20,000 referral bonus to employees who brout on new hires who they're connected with on LinkedIn. Executive position referrals are often quite lucrative as well. Other companies offer paid time off in exchange for a referral. It's all about what makes sense for your business. 

And to us, offering this bonus is worth every cent. I wouldn't be surprised if, once you crunched the numbers, it makes sense for your organization as well. 

Here are a few key reasons why we offer employees thousands of dollars in referral bonuses. 

It improves recruiting and hiring performance metrics.

Assessing the quality of your hires doesn't end when a candidate signs a contract and comes aboard. You never stop calculating how well your organization did with a hire until they leave the company, and you can see the impact they made throughout their time with you. 

But let's put it in this very simple way: If, after spending weeks or even months filling roles, you hire a few people who flame out quickly, then your cost per hire skyrockets. The quality of those hires ended up being quite low. You aren't getting much bang for your buck. 

Hiring through referrals helps boost the quality of your hires and decrease the cost per hire, because--as HR professionals will tell you--referred hires are more likely to work out in the long run. Employee referrals are often the number one quality-of-hire source. 

Internal referrals will also cut your time-to-hire. Studies show that while external sources lead to the larger share of total interviews, internal sources lead to the most hires. Basically, you'll spend more time talking to external referrals, and more time hiring those referred by employees. 

Encouraging employees to send along referrals, therefore, is worth quite a bit of your capital--because it prevents your HR team from having to waste valuable time and resources on interviews that won't pan out.  

It boosts your brand equity.

Some companies don't need to do much to acquire top talent. Google and Apple always have jobseekers knocking on the door. That's the power of brand equity. 

Your business, at this point, may not be a household name that talented people across the country want to work for. That can change with time--and with a referral program that encourages conversation. 

Word-of-mouth marketing is a powerful tactic not just for your standing among consumers, but among potential employees. By asking your existing workforce to be brand ambassadors for your company--extolling the virtues of working for you, touting the company benefits, and calling attention to the important and good work you do--you start building brand equity in a way that recruiters alone may not be able to. You can't pay for the kind of reach this affords your business. 

It closes the connection gap.

No one is saying that employees on your marketing or engineering teams are better at sourcing, recruiting, interviewing, and hiring than those in HR. The truth is, however, your HR team can't know everybody. 

And when it comes to hiring, or getting hired, we all know that it's often who you know as much as what you know. 

With a referral system, the person reaching out to the candidate in question is someone who knows them on a personal level. They are able to better make the connection between the company and the prospective candidate, because they know how this person might fit a certain role. Otherwise, you're asking your recruiting team to cast around for people who may or may not be a good fit from a skills or culture perspective. In this way, your employees build bridges between HR and good candidates. 

The final piece to consider with a referral program is how it turns growing the team into a group effort, whereby everyone in the company feels they can contribute to the culture and success of the business. A team that is tight-knit and passionate about each other's success is something you can't put a price tag on. 

Published on: Nov 26, 2019
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.