The Cheapest Customer You'll Ever Get Isn't the One You Paid to Find

Prompted by “Don't Underestimate the Power of Customer Referrals”, Harvard Business Review (Fred Reichheld, Jamie Cleghorn & Wojtek Kokoszka).

Most growth conversations start with the ad budget. The data says that's backwards — the customers worth chasing are the ones your own customers are already sending you, and most companies can't even see it happening.

HBR's Fred Reichheld, Jamie Cleghorn, and Wojtek Kokoszka worked from a dataset of over 10 million consumers and found referrals make up only about a fifth of new customers but roughly three-quarters of the profit those new customers generate — because referred customers cost less to land, stay longer, and buy more. Their example is ButcherBox, a $600 million meat-delivery company that leaned on paid influencer marketing until the customers it bought got smaller and left faster, and only then built a real system around the customers it was already earning for free.

Why does a smaller company miss this?

A smaller company runs on referrals more than it probably admits — most of your best clients came from somebody else's recommendation, not a campaign. The gap is that almost nobody's actually tracking it. You couldn't tell me right now what percentage of new business came in through a referral last quarter, who sent it, or whether you've ever thanked them for it. A public company gets forced to build attribution systems for the board. Nobody's forcing you, so it just stays invisible.

Test it out: pull your last ten new clients and find out, for each one, who actually sent them your way. If you can't answer that for at least half of them, that's the gap. Start tracking it beginning with the next one.

Comparing notes on where the best business actually comes from is exactly the kind of conversation an OCTET group has around the table.

Originally posted on LinkedIn ↗