The Invisible Force Powering Profitable Growth: Referrals

I spent the first week of February in Las Vegas. No, not for the Super Bowl, though the town was in the full frenzy of preparation. What brought me to town was Medallia Experience, a gathering of people for whom great customer service is the ultimate touchdown.

With Taylor Swift chatter everywhere, I felt lucky to attract a standing room only crowd to my late afternoon keynote. Afterward, to my delight, a long line of audience members formed to take selfies with me. For someone who’s been working on customer loyalty for over 40 years, I can tell you, it was energizing to see my work is still extremely relevant to so many CX leaders!

The focus of my talk was the evolution of CX, where it has been and where it must go. Over time, CX has evolved from customer satisfaction to customer loyalty, and I think it must soon make the leap to customer love, as measured (and powered) by referrals. Referrals are the invisible force fueling growth in our most successful companies, and yet, like the dark matter physicists believe comprises 85% of the universe, we know they are important, but they remain mostly invisible and complicated to measure. This has hindered our ability to understand their true impact and value.

Deepening that understanding and developing ways of tracking referrals and probing both their root causes and economic impact should be job No. 1 of any customer leader today. With the Fortune reporting that Fortune 500 companies are eliminating chief marketing officer roles as the position loses clout, it’s critical that CMOs improve their relevance to the C-suite and board.

They need to put the customer in the boardroom. Bring in their voice, their videos, and—most importantly—metrics and data that will capture board members’ attention and justify investments in those elements that delight customers who make referrals.

My keynote concluded that to become truly relevant, marketing leaders need to measure and influence two customer outcomes that signal happiness. First, the portion of revenues from repeat/expanded purchases from existing customers—known as Net Revenue Retention (NRR). And second, revenues from referred new customers, or Referred New Revenue. These are the two components of Earned Growth introduced in Winning On Purpose. They are the drivers of sustainable, profitable growth—and improving them should be the central pillar of any good marketing strategy. They are the gauges that all C-suites and board members should be monitoring.

Here are four steps I advised the audience in Las Vegas to take that any customer-focused executive will find useful:

1. Establish the connection between current signals such as transactional survey scores and voice/text analytics and the company’s relationship Net Promoter Score (NPS) relative to competitors—and to retained and referral-generated revenue.
2. Recruit the CFO to help refine NRR, measure trends in it, and set proper goals for it.
3. Innovate new ways to better track and value the flow of referrals.
4. Demand that marketing technology vendors also provide these Earned Growth components—NRR and Referred New Revenue—to help you make clear to the board and C-suite that when CX evolves to CL (customer love), it deserves to be treated as a profit center. ?

Loyal customers are far more profitable than traditional accounting indicates, especially when the referral effect is quantified. London-based Mention Me has built a referral generation and tracking software platform that illuminates the true referral (and repurchase) activity for its clients. I shared the results in Las Vegas for one of its clients, a company whose annual purchases from brand promoters exceeded those of brand detractors by 38%. When revenues are included from direct referrals tracked by the Mention Me system (modest incentives are offered), promoters beat detractors by 71%. Add in the referrals of those referred customers, and the advantage doubled again. Even with this kind of tracking, Mention Me acknowledges that most referrals still occur outside of their incentivized and tracked system.?

The result: Total referred revenues generated by each promoter far exceed the value of the promoter’s own purchases.

Most companies do not yet track or quantify the referral effect. But it appears to be the most important factor driving customer lifetime value. Until CX and marketing leaders get control of this powerful force, they will underinvest in promoters, and face declining relevance and shrinking budgets as a result. Shareholders will suffer along with them as referral-driven growth diminishes.

Seeing the power and the potential in referrals is, I believe, the reason the crowd left buzzing after my presentation in Las Vegas. They were starting to realize that tracking and expanding the referral effect deserves to be their top priority. That’s how they can motivate C-suite leaders to make the leap from customer experience to customer love.

This article photo was sourced from Eva Rinaldi on Wikipedia Commons