How To Decrease Your Staffing Firm Spending

By Mike Wolford

One of the most common questions I get in Sourcing is how do I reduce my reliance on Staffing Agencies?  The most frequent reason to hire I have heard to hire a Sourcer is “we are hiring a Sourcer primarily to reduce the amount we spend with Staffing Agencies.”  So is this the answer?

It depends!  As a Recruiter or a Sourcer the most cost effective thing you can do is improve your Employee Referral Program.  Not the answer you were expecting?  Time to follow the golden rule, the 80 / 20 rule.  My experience has been that Employee Referrals account for about 10 to 20% of inbound applicants.  Yet Employee Referrals usually account for 30 to 40% of hires.  Doesn’t it make sense to put more effort there first?

Take the time to propose a systematic approach to generating and processing employee referrals.  This is your very best source of qualified candidates and it should be given the proper amount of time and attention.  As a recruiter, you need to take the initiative and ask for permission to be responsible for the employee referral program.

The Black Hole

A major hurdle in getting employees to refer their contacts is the feeling that their referrals fall into a “black hole.” As a recruiter, you need to gain the trust of your employees.  The first step is to assume the responsibility of keeping the people that send you referrals informed.

When I start with a new company one of the first things I do is identify the people that have the most in demand skill sets.  The next thing I want to do is take the express elevator to wherever those people sit.  My approach goes something like this, “I’m new here and I’ve been asked to find you some help.  I have been in recruiting for a while but I am newer to this particular area.  I was hoping to take you and a few members of your group to lunch so I can learn more about what you do.”  I take them to lunch, learn about what they do and ask for their referrals.

Usually, I don’t even have to ask.  During lunch someone will say, “You know my friend is looking.  He told me that it’s time for him to make a move.”   If it doesn’t come up then I ask directly.  I hand them my card and say, “if you have someone you would like to work with again please send them to me.  I will take care of them and make sure they are considered.”

Great recruiters have excellent relationships with their hiring managers.  The very best recruiters will also cultivate relationships with the people inside of their company that have the most in-demand skill sets.

Next, try to get permission to stand in front of a group of fellow employees and tell them “you are not sending your referrals to an email address, you are sending them to me, and I promise, even if they don’t get hired, I will take care of your referrals and make sure they have a positive experience.  I will also keep you updated as much as is appropriate about the status of your referral.”  The number of employee referrals, and subsequent hires will improve drastically.

Increase the Incentives

Have you ever asked your hiring managers, HR directors, or CEO’s why they are willing to pay a staffing agency tens of thousands of dollars for a single hire but are only willing to pay their own employees $500 or $1,000 for the same result?  If companies really want to have a referral engine, they need to start by offering something comparable to what they would offer a third party. How much money is it costing you to leave those billable jobs open?  If it is worth paying a third party $15,000 to fill that one job, wouldn’t it be advisable to spend a similar amount of money on an employee?

Think of the benefits!  The referral is far more likely to get hired.  That means it requires less effort to make that hire.  Your cost per hire will drop.  The quality of the referral also means that your time to fill will drop.

Additionally, you can help increase your retention rate and make an existing employee very happy with you.  A happy employee is likely to be more productive and will be much more inclined to send you more quality referrals.   If you want to engage your employees and get them to work their network, this is the way to do it.   Pitch it as a pilot program, something to try for 90 days.  I believe you are doing yourself and your company a disservice not to at least recommend this option.

The White Glove Treatment

The next thing I would do is to make sure there is a systematic way to identify employee referrals through the recruiting lifecycle.  Hiring managers need to understand that this is a candidate that one of their co-workers believes has the attributes and skills to work with us.  The person who referred this candidate often has firsthand knowledge of this individuals work habits and abilities.

Where appropriate I would ask the employee to submit a short write up about the person they have submitted for consideration.  A note from another employee stating, “At my last company this was the go to person on our team” or “I relied on this person when I was under a tight deadline and they always went the extra mile.”  Imagine how powerful that simple action can be.

Also, keep your promise.  Throughout the process keep the employee informed about what is happening with their referral.  It is not appropriate to discuss feedback with the employee but it is imperative to let them know that you are doing what you can to move the process forward.  If their referral is not ultimately hired tell them after you have informed the candidate.  Most people understand that not everyone that they refer will be hired.  Thank them for their referral and keep the door open for future referrals.


Finally, advertise your success.  Have you ever been to Las Vegas?  If you enter a casino, one of the first sounds you will hear is the jangle of coins being dispensed the slot machines. Slot machines are designed to make as much noise as possible when they pay out, in order to convey the impression that everyone is winning.

I suggest an update every month. “Congratulations to Stephanie Smith! She earned $5,000 dollars in referral bonus money this month.  Thank you Stephanie for helping us grow our business!” I think it would be a nice touch to deliver the bonus check in person.  Imagine the impact on the employee if the CEO, Sector President or, better yet, you walk into an employee’s office and hand them a check for several thousand dollars.  Also, consider creating an award for the employee with the most employee referral hires.  Such incentives are worth their cost, since in my view, employee referrals are the largest, underutilized source of qualified candidates available to any company.

If you want to decrease the amount of money spent on staffing agencies consider increasing the amount of money spent on employee referrals. If you are hiring a Sourcer as a way to reduce the amount you spend on staffing agencies then give them responsibility for the Employee Referral Program.   Employee referrals and staffing agency candidates have another advantage in common.  It costs you nothing until you make a hire.  What do you really have to lose?

Mike Wolford is a Senior Sourcing Specialist at Agilex. You can connect with Mike on LinkedIn or Twitter