Customer Marketing News

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Measuring the Financial Impact of Customer References

Successful executives understand, on an intuitive level, the intrinsic value of customer references. It is often harder to explain the financial return that can come from investing in this area, yet with limited manpower and dollars to spend on sales and marketing, showing real dollar results is an imperative. One way to explain the value of reference management is to illustrate the impact on sales margin.

The approach is simple.

Step 1) Consider the number of sales opportunities where customer references are relevant. More often than not, there is a direct correlation. Even when cross-selling to existing customers, references increase the likelihood of closing.

Step 2) Reduce the total number of sales opportunities by the number of references that are a poor fit, or worse, where no reference is available, and consider the negative effect this has on completing the transaction.

Step 3) Consider the impact on the close rate. There isn’t any magic number. Estimates of how much a good reference affects the probability of a deal closing can range from 3% to 30% or more. We’ll save the process for determining a precise figure for a future article, and recommend using a conservative figure.

Step 4) Factor these figures with the number of deals affected and your average deal size. The impact is quite visible. See the hypothetical example below:

Example: Impact of Customer References on Sales Margin per Sales Rep

Number relevant opportunities per sales rep	90
Poorly matched reference requests (90 x 50%)	45
Estimated impact on deal close rate	3%
Average deal size	$125,000
Total impact on margin per sales rep (90 x 3% x 125K)	$168,750

More difficult to compute are the less tangible ramifications reference management can have on your company’s bottom line. For example, producing references in a timely manner can be the deciding factor in eligibility for RFP’s; a failure to provide such reference can result in exclusion. Positive, appropriate references can help to shorten the sales cycle, freeing sales staff to focus on other responsibilities and new potential customers.

To increase your sales margin, invest in an active program to manage your customer references. Focus on increasing the number and breadth of customers willing to participate as references. It will yield more direct results at a lower cost than most traditional marketing investments.

If you have any customer reference stories or tips you would like to share please send them to news@boulderlogic.com

We look forward to hearing from you!

Reference Success News is published and distributed by Boulder Logic, specialists in customer reference management.

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