10 Reasons Why Customer Referrals Matter


The only way to grow your company and make more money is to increase your sales. It takes a lot of work to make a single sale. With all the work and money involved, you’re always looking for a way to maximize your effort and expense so that you can grow your bottom line. No matter how long you’ve been in sales, you already know that getting a sale through cold calls is tough. It’s always easier when a friend or client recommends your products or services to someone else. This is one of the reasons why customer referrals matter and should be an integral part of your sales and marketing plan. Here are some more reasons to consider.

Word of mouth is the primary factor behind 20 to 50 percent of all purchasing decisions… In the mobile-phone market, for example, we have observed that the pass-on rates for key positive and negative messages can increase a company’s market share by as much as 10 percent or reduce it by 20 percent over a two-year period, all other things being equal.Jacques Bughin, Jonathan Doogan, and Ole Jørgen Vetvik

Closing Larger Sales

You want your sales staff to invest their time in making large sales versus a bunch of small sales. Each sale requires a minimum investment in time and energy spent pursuing it. Of course, the larger sales are the ones that are most difficult to close.

This happens when the person placing the order is distrustful of salespeople. This occurs often at the beginning of the relationship. When you start a sales call with a customer referral from someone the prospective customer respects, they will start out with a higher level of trust. This encourages them to place a larger order, which equates to a larger sale for your company.

Important note

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Creates an Expectation

When you ask a client to refer you to a friend, it creates an expectation that your company and your customer are working together. This helps your customer get excited about your company and doing business with you.

When your customer has a sense of excitement, it transfers to the person that they refer to your company. You want your prospective customers to come to you with a positive perception already in mind. This makes getting the sale much easier and increases your closing rate.

Customer Referrals Breed More Referrals

In this case, customer referrals are a lot like a snowball rolling downhill gathering up more snow as it goes. When someone buys goods or services from your company based on a customer referral, then they’re more likely to tell others in the industry if they had a positive experience.

If each company tells five more companies, and then those companies tell other companies, then you see exponential sales growth. This is an effect that you want to have on sales for your company. In this way, you turn each person providing a referral for your company into an unofficial salesperson without that expensive salary.

Reaffirms the Reasons Your Customers Do Business With Your Company

When a customer calls a friend of theirs or a counterpart at another company and refers them to buy your goods or use your service, it reminds them why they like to do business with you. The reason could be a customer service representative that they like to talk to on the phone or the number of colors you have available in a certain product.

No matter what the reason, when they tell others, it spurs them to place larger orders from your company themselves. It affirms that your company offers value, quality and a host of other benefits to them.

Customer Referrals Cost Your Company Very Little

The cost to your company when one of your customers refers your goods or services is exactly nothing. You haven’t mailed out a catalog, made a long distance phone call or paid someone of your sales team to stop by the customer’s business. Word of mouth is a powerful driver of sales for any company that takes advantage of it.

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Anyway ... we'll continue from where we left off above.

Once you establish a way to harness customer referral business, it will keep building without expense to you unless you choose to establish some sort of rewards program for customers referring other clients.

Appeals to Your Client’s Ego

There is nothing more flattering than for someone to think enough of you to ask a favor from you. When you ask a client to refer your company to someone else, you are paying them a compliment by implying that his opinion has weight in his social and business circle.

Conversely, when he offers up your company’s name as a referral, he shows that the person that he is referring values his opinion in your company. Your customer gets a double ego boost by providing a referral for your company. Hopefully, this means they’ll do it over and over again.

Increased Closing Rate

How many leads and sales calls does it take your sales team to close a deal? According to the Huffington Post, companies see up to an 80 percent rate of closings when the sales call came from a strong customer referral and makes the company money.

This is in sharp comparison to the 1 percent of cold calls that end with a sale. The percentage of sales calls ending in a sale when the client calls the company is only between 15 percent and 30 percent. As a business owner, you know how important it is to have a high closing rate on sales calls of any kind and your effort should strive to make the most of those opportunities.

Can Tremendously Increase Your Overall Sales

When someone refers your company to someone that they know through business or social circles, they know that your company is a good fit for that person or business. This translates to higher overall sales for your company because the new customer is already looking to buy the products or services that you’re selling.

When they see your company’s product line, they immediately find the items or services that they wanted and purchase accordingly. However, this level of purchasing can wane over an extended period.

Referred Customers Remain Loyal

A recent study showed that bank customers who opened an account from a customer referral were 18 percent more likely to stay with the bank than new customers who weren’t referred.

When these new customers with referrals arrived at the bank, they already knew that the bank’s hours, days of operation, and other key features were a fit to their needs. People who refer your company to other people provide the same types of information. Long-term customers help build a study revenue stream for your company.

Shows Your Company Is Doing It Right

If your company is offering a great product or service at a good price point, then your customers will be more than willing to send referral business your way. In fact, 83 percent of customers who have a positive experience with your company are willing to offer your company as a referral to others.

When your sales team asks a client for a referral and gets one, this is an affirmation of the job your company is doing for that client. In addition, these types of customer referrals instill more trust in the prospective clients.

Customer referrals are important to your company for many reasons and almost always have a positive effect on your bottom line. It pays to encourage your sales staff to seek out referrals. In some cases, you might consider creating a customer referral program to reap the many benefits.

If you think we might have missed something or you come up with more reasons for why customer referrals are important, let us know in the comments section below.

Photo by Tyne & Wear Archives & Museums and Freepik

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