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Weighing the Costs of Referrals

Weighing the Costs of Referrals.

When you sign the lease on your first apartment or purchase your first home, you have to contact local utility providers to get services set up under your name at that address, for water, gas, electric, etc. Many times, turning on the services at your address will require a deposit be made. This deposit goes to ensure that should you not pay your bill for that utility service over time, they will have some financial recourse to recover financial damages.

For many young adults or people who are limited on access to financial resources, there is good news! Many Utilities also offer a program that can negate your requirement to make the cash deposit. You simply need to have a current customer of that utility whose account is in good standing, contact the Utility company and vouch for you. That’s it. Deposit waved.

The liability inherited generally keeps people from abusing the system and works to help ensure a high level of good faith and quality vouchers.

So why wouldn’t everyone take advantage of this program? Chances are, you know someone who has had a utility service with that company for three years, right? The reason not everyone takes advantage of this program is the ability that the person who vouch’s for you inherits. If someone agrees to vouch for you, and thereby negate your deposit, the Utility now moves that person who vouched for you as personally liable for any unpaid bills that you may accrue. So, if your parents vouch for you to help you out and something happens that results in your bill becoming overdue, they will be responsible for paying the balance of your account. The liability inherited generally keeps people from abusing the system and works to help ensure a high level of good faith and quality vouchers.

I recently thought about this program when I had yet another candidate referred to our firm for work. Referrals are often intended as a compliment and a form of praise for a company. People refer you to others who they believe might be able to provide you value, and very often there is a potential to create mutual value. But there are also referrals that may prove more detrimental to the person or company who receives the referral, or potentially even both parties. That’s what made me start thinking about the Utility companies and how they’ve structured their referral program to minimize low quality referrals. While it may not be realistic to expect everyone to be personally liable for the conduct of their good-faith referrals, it’s worth explaining that there is often a cost to be borne by bad referrals. And it will be borne by someone.

Many times, referrals can be one of the top ways a company relies on to find quality talent and thus referral programs are invested in and nurtured. But – if a company found that referrals were continually presenting unqualified personnel, they would likely make the simple decision to re-evaluate, or perhaps even completely shut down, their referral program.

When someone refers a candidate, whether they believe it or not, it reflects on their credibility. And while no one can predict the wild-card of human nature, you can be a fairly decent judge of character overall. So while it is understood that not every referral will pan out as a good hire for a company, it should also be understood that if a majority of candidates were poor first for the company, the source of those referrals can actually begin to work against a candidate. For instance, if I sent a company unqualified candidates 8 out of 10 times, chances are pretty good that over time, that company would not want to take the time to fairly consider my candidates that I’ve referred because 80% of them were wasted time for the employer.

While I don’t believe a person should necessarily be on the hook for every bad (though good intentioned) referral, I want to stress that they should, at the very least, be aware of the costs of a bad referral.

Here’s a good article to read about Referrals

Weighing the Costs of Referrals

In the staffing industry, I see a lot of referrals. And, as is true with many companies, our referral’s can often be great candidates that we’re proud to send out an assignment as a representative of TRAC Staffing. But there are also referrals who are not good fits for employment. The referral game is a two-edged sword. One that should be weighed carefully when considering a referral. While I don’t believe a person should necessarily be on the hook for every bad (though good intentioned) referral, I want to stress that they should, at the very least, be aware of the costs of a bad referral and Weighing the Costs of Referrals. Because while it may not be borne by the person who made the referral directly, it will be borne by someone – likely their future referrals.

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