Customer Referrals – A Proven Profit-Booster

business referralsMany companies have been using referral programmes as part of their marketing strategies for several decades. The simple principle behind referrals makes them easy to implement as a marketing tool: valued customers who are satisfied with your company’s products and services refer friends and family members and earn a reward for each referred person who becomes a customer.

If you are wondering whether this system yields results, you are not alone. Recently, a study published in the Harvard Business Review tracked the progress of a referral program at a large German bank. The results of this research are very encouraging, and should provide useful insights for any company owner considering a referrals programme as a tool for boosting sales.

The study tracked 10 000 bank clients and measured the effectiveness of referrals by comparing referred and regular clients. On average, referred clients were both more loyal and more valuable than those who simply joined the bank of their own accord.

Clients who had been referred to the bank were 18% more likely to stay with the bank over the long term, and also generated 16% more profits than clients who were not referred. With higher levels of customer loyalty and spending, the increased client base and turnover that referrals generate, more than compensates companies for the incentives offered to clients who refer others.

Several reasons were given for the effectiveness of referrals. Clients who are satisfied with a company’s products and services will seek out friends and family members who are in need of them, making their referrals a very targeted marketing tool that matches the potential clients needs with the company’s offering far more closely than a mass marketing campaign could hope to do. The study also concluded that similar results could be obtained by businesses outside the banking sector, making referrals a serious consideration for every business owner.

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