The Customer Confidential Podcast
Referrals, when genuine, can be a powerful growth tool for businesses. They not only bring in more new customers but they also bring in higher-quality customers. The customer lifetime value (CLV) of referred customers is almost always significantly greater than the average.
But the best ones don’t come from referral incentives. Instead, they come from the desire to share something great with others—to give to people you love a positive experience. Companies who fully grasp the economic value of true referrals can build enduring, impactful relationships with their customers, fueling lasting growth.
Andy Cockburn, chief executive officer and cofounder of Mention Me, a platform helping businesses unlock the power and value of referrals, emphasizes that successful referrals arise when companies' advocates share a product or service out of sheer belief in its value. As Andy puts it, “Referral is about an interaction between two people. It’s about me talking to you to convince you the company I've chosen to engage with is worth you engaging with.”
According to Andy, personalized referrals thrive on authenticity, deeply rooted in social psychology. A referral is most likely to occur when the referrer believes their recommendation will not only enhance their personal relationship but also mitigate social risk.
“If I think you’ll judge me because it might look like I’m spamming you, if it’s not relevant to you, or if I think there’s a risk the company might not deliver for you, then I am going nowhere near it,” Andy says.
Recognizing the power of referrals opens vast economic prospects for businesses. As they gather more advocates, they generate more referrals, and these referred customers have higher-than-average CLV, fortifying a robust customer base with a steady flow of high-value, enduring customers. Comprehending this requires a data-driven mindset and a strong analytic approach to valuing referrals. Andy refers to the incorporation of referral value into CLV as “extended lifetime value.”
“Tracking extended lifetime value is the next phase in the journey for us,” Andy says, “because that starts to give you real insight as to who your most valuable customers are, and then lets you try and figure out how you can get more of them.”
In our latest episode of the Net Promoter System Podcast, Andy and I delve into the essence of trust-based referrals. We explore embedding advocacy in company culture to release the transformational potential of referrals, and we discuss how a data-driven strategy can amplify the power of your promoters’ recommendations.
In the following excerpt, we discuss how businesses can quantify referral value by tracking extended lifetime value and adjusting their strategies accordingly.
Rob Markey: Play the role of skeptic. In an organization you've been working with where you're showing them the data, what do they say? What points of resistance do you run into?
Andy Cockburn: To get referrals fully optimized requires working at it. If you haven't put it front and center, it can’t be at its full potential. It can often look like it's not a big driver.
In the referral programs we are running, there are three challenges to solve.
No. 1 is advocacy: How do you get as many 9s and 10s on NPS as possible?
No. 2: How do you convert promoters into actual advocates?
No. 3: How much data can you get? How many referrals can you track? Often, they don't have data point No. 2, so that's where we're working.