“Please list three professional references.”
When you set out to design a hiring process for your organization, you didn’t start from scratch. It’s likely that you or your predecessor were handed some guidelines or best practices. You may have even wholesale copied another company’s policies and procedures. But regardless of your starting point, it’s probably safe to say that your hiring process is more similar to those at other organizations than it is different.
One common feature of the hiring process is the “request for references.” It is included in employment applications at most organizations. And while its benefits are plain, the amount of time invested in checking candidate references can raise serious concerns around ROI. In other words, is a candidate reference worth the investment of time and resources it takes to chase (and chase and chase and chase) it down?
To answer that question, you’ll need to establish the value of a professional reference, and that is pretty difficult to estimate. To do it, you’ll need the answers to other questions:
- What is the probability that my candidate is a bad fit?
- What is the probability that my candidate is lying on the application?
- What is the probability that the references will help answer questions #1 and #2?
- What is the cost ($/hour) for the staff member in charge of checking references?
- How much time does it take to request and receive a completed reference?
- What is the cost of re-hiring for any given position because of a bad hire?
Maximizing ROI of Checking Candidate References
Of course, you can just instinctively say, “Yes reference checks are worth it!”, because who wants to risk not checking candidate references, right? Well,
mathematically realistically speaking, that’s probably the right answer. But that begs another question: If we cannot measure the value of checking candidate references, how can we increase the ROI of candidate references?
Answer: Drastically cut down on the time and cost required to conduct reference checks!
Let’s just go ahead and assume that to manually conduct a reference check (staff member calls/emails), the cost is roughly $180 per open position. At a SMB that hires for 50 positions per year, that would put the overall cost at $9,000 annually. So the SMB is paying $9,000 to minimize the risk of needing to re-hire and to avoid the associated costs. That is not a negligible expense for most SMBs.
So while we can’t easily assign a dollar value to candidate references and determine the true ROI, we can decrease our investment in checking candidate references to maximize our ROI. In the chart below you can see this illustrated: As the investment decreases, the ROI increases when assuming the gross return (value of candidate reference) is constant.
- Gross Return**
- Net Return
- ROI (%)
*Cost to Conduct Check
**Value of Candidate Reference/Cost to Re-hire
Software For Checking Candidate References
Over the past several years, the Human Resources industry has seen an explosion of new software solutions that can handle everything from recruiting, applicant management, and onboarding; to payroll, benefits, and employee engagement. Some of these solutions are complex, expensive enterprise-level services, while others are affordable, scaled-down solutions that provide SMBs with the tools to grow and compete with much larger businesses.
Reference check software is an HR technology that has flown below the radar. The larger solutions–in terms of functionality and price tag–have stolen much of the attention; these include applicant tracking software and payroll software, among others. However, reference check software is a technology that effectively addresses a pain that every HR professional knows well for a price that is very affordable for most businesses.
Beyond issues of price and utility, reference check software is often designed to improve your outcomes. What do I mean by that? Well, consider this likely scenario for when a staff member is manually checking candidate references:
- The staff member must follow up multiple times with multiple references.
- When a reference does respond, it’s likely only because the reference wants to end the ceaseless following up (they are annoyed); and so the staff member is dealing with a “let’s just get this done” attitude.
- Staff member likely picks up on this attitude and may hurry through the questions, taking quick notes, in deference to the reference.
- When the call is complete, the staff member moves onto contacting another reference.
- Later, the staff member reviews notes for each reference and pieces together responses based on notes and their recollection.
Now, reference checking doesn’t always happen as described above, but it’s probably a pretty accurate description for small departments that are stretched too thin. The results of this scenario include inconsistent questioning, varying responses that don’t lend themselves to “apple to apple” comparisons, missed or skipped questions, and–in some cases–a failure to even succeed in connecting with the reference. By design, reference check software can overcome these challenges and avoid the poor results as well.
Reference check software reimagines and restructures the common workflow for checking candidate references. By leveraging automation and and cloud-based technology, reference checking software dramatically simplifies the once labor intensive process of checking references. This is great news for the sanity of HR professionals everywhere, but the potential return on an investment in reference checking software will make business owners and executives take notice as well.
What is the true ROI of checking candidate references? Determining this may indeed be impossible, but maximizing it has never been easier.
ExactHire provides hiring and onboarding software for small- to medium-sized businesses. Contact us today to learn how a small investment in the right software will optimize your manual reference checking process and enhance your outcomes.