Why Referred Customers Are So Valuable
Aside from being a really effective form of marketing and making your business look awesome, referrals contribute directly to your bottom line. Here are 3 reasons why you need to make sure you have a healthy mix of referred customers in your pipeline:
1. Referred customers have a lower acquisition cost
Customer Acquisition Cost (CAC) is the price you pay to obtain a new customer. That number includes your total Sales and Marketing. With other methods, you pay for each click and impression that lead up to converting that customer.
Your CAC is significantly decreased when you recruit your current customers to do the sales and marketing for you. How much it decreases depends on the success of your referral program, if you offer incentives, and if you are manually doing outreach to your customers.
2. Referred customers are more loyal
In an era where consumers have so many readily available choices at their fingertips, it’s not a surprise that brand loyalty has dwindled. It’s more important than ever to reduce your customer churn.
The Journal of Marketing reports that referred customers are 18% more loyal than non-referred customers. When your customers refer you to their family, friends, or extended network, you receive the benefit of the trust and credibility they’ve built up among their community. It’s also likely that referred customers will have a stronger sense of commitment and attachment to your company because someone they know, like, and trust has matched them to your brand.
Customers that refer you also have a higher likelihood of having a long-term relationship with your company. This is why the intention to refer a company is frequently used as an indicator of loyalty to that brand.
3. Referred customers are more profitable
So far, we’ve determined that referred customers are less costly to acquire and have a higher likelihood to be more loyal. But that’s not all. There are also other ways they are generally more profitable for a business. Referred customers are also more likely to refer others to your business. Rinse and repeat #1 and #2.
In addition to that, your referring customer will likely have a deeper relationship with your product or service. That may mean a higher frequency of using your service or a history of exploring more features. These customers are a lot more advanced than a novice customer.
Consistent positive experiences with different products means that these customers are likely to spend more over their entire life time as your customer. Think of it like this. If you’re a clothing brand and your customer loves the new pants they bought from you, it’ll be a lot easier to sell them the shirt and the jacket.