Whether you realize it or not, referrals are influencing your daily life. It can be seen in the simple quest for the best fish taco in town.
You’re fresh off a “Chopped” binging spree, and you can’t get the thought of fish tacos out of your head—nothing but a great fish taco will satiate your hunger. So, what do you do?
Odds are, you start with those in your immediate surroundings: “Craig, you know of any good fish taco joints in town?”
Or, if you’re living alone, no doubt proud of your independence, you take to the internet: “Siri, what restaurants near me serve fish tacos?”
You compile an impromptu list of restaurants nearby, and you check the reviews of each. I’ll bet a dollar you head straight to the one with the rave reviews on 13th St. That’s the referral in action.
Referrals work the same way in the business world, but on a larger scale, and with even greater results. Customer referrals have the potential to catapult a business into the big leagues and should not be underestimated.
When it comes to advertising, word-of-mouth is king. According to Nielsen, a global information, data, and measurement company, 84% of consumers worldwide find word-of-mouth recommendations from friends and family to be the most trustworthy form of advertisement, and 92% of consumers trust referrals from people they know. Now that’s major incentive to treat your customers with care.
But don’t take it from me, take it from Jim Rohn, American entrepreneur, author, and motivational speaker, who said:
“One customer, well taken care of, could be more valuable than $10,000 worth of advertising.” – Jim Rohn
His words speak to the impact-awareness of customer relations. A positive experience for one customer can translate into ten new clients. Ensuring that you’re taking care of existing customers not only generates future revenue, it has the potential to attract higher-quality clientele (that is, equally valued, but with greater profit potential).
According to a study performed by the Wharton School of Business, the Lifetime Value of a referred customer is 25% higher than that of other customers. This study was conducted using information from a retail bank and a search engine optimization company—how does it hold up in other areas?
According to the homestay network company Airbnb, their Referrals 1.0 program accounted for millions of dollars of additional revenue in its first year of implementation, and referrals drove 900% year-on-year growth for 1st time bookings. To boot, they found that referred customers performed much better than the average user—referred users referred others more often, and they were more likely to use the company’s services. What Airbnb witnessed was the incredible compounding effect of referrals.
Airbnb is not a unique story. Other examples of referrals working their magic in business can be seen in companies like Uber, Dropbox, and PayPal. The question of referrals isn’t whether or not they work, it’s whether you’re ready to take your company to the next level.