A New Way to Measure Customer Referrals

The Insider is a weekly, subscriber-only newsletter where our managing editor curates HBR stories, research, and ideas that senior leaders shouldn’t miss. If your company spends huge amounts of time and money marketing via social media, digital advertising, sponsored search, and paid influencers, you may be neglecting one of the best ways to gain quality customers: referrals. According to an analysis of more than 10 million customers by Bain & Company, about 20% of new customers come through referrals—but account for 72% of new customer profits. These customers are also cheaper to acquire, buy more, and are more likely to recommend your products to others. The problem, of course, is that tracking and measuring referrals is significantly harder compared to paid campaigns and advertising spends. In a new feature article by Bain’s Fred Reichheld (the creator of the net promotor score) and Jamie Cleghorn, and Mention Me CEO Wojtek Kokoszka, the trio share new evidence on the connection between referrals and profitable growth. They also explain actions your organization can take to better identify who is recommending your brand and why, including: Identifying new referred customers. For example, residential painting company CertaPro includes a non-negotiable “how did you hear about us?” question in its purchase process. And Mention Me’s clients can get contact info about who referred a customer so they can send a “thank you” gift—and so they have more information about who these valuable referrers are and what triggered their recommendation. Quantifying your referral economics. This involves identifying a way for your company to determine how referrers impact profits and growth. For example, the subscription-based meat and seafood company ButcherBox had its finance team quantify “the post- acquisition-cost value of referred customers, incorporating purchasing patterns, average order size, product mix and margin, frequency, customer retention, and profits from the new customers they subsequently referred.” Learning how to delight core customers. Because referrals result from delivering exceptional products and experiences, you need to get a granular sense of how customers decide what’s exceptional. For instance, Intuitive Health discovered that “the time it takes for someone to check in, wait, get treated, and walk back out the door” was key for their hybrid urgent care and emergency rooms. This led the company to focus its energy on this exact metric. The article also outlines strategies for incentivizing referrals strategically and developing more sophisticated referral-tracking capabilities—and explains why B2B companies should pay attention to referrals, too. “In their quest for growth, too many leaders look outward, searching for clever ways to attract new customers,” Reichheld, Cleghorn, and Kokoszka argue. “They should instead be looking inward to revitalize their referral engine.” Go Ahead, Hire Job Hoppers Job hoppers have long gotten a bad rap among hiring managers. But a new article, based on research from Cornell professor Rebecca Kehoe and Rutgers assistant professor F. Scott Bentley, finds that this traditional red flag may mask very good reasons to bring a job-hopper onboard. Specifically: Studying data on moves made by 8,693 hedge fund managers between 2,129 firms from 2004 to 2019, we found that employees with a history of frequent job changes tend to ramp up faster in new roles because they are practiced at entering unfamiliar organizations, learning new systems, and navigating new cultures. The authors also discovered that hiring job hoppers is most beneficial in organizations with deeply ingrained workplace cultures, among newcomers entering a less familiar professional context, and in roles that require extensive collaboration. They also suggest ways to successfully onboard these employees and provide a few caveats about their findings (for example, it’s still true that job hoppers may be more of a flight risk than other workers). But if you’re looking for highly-adaptable employees who can hit the ground running, it’s worth giving job hoppers a chance. What Is AI Really Changing at Your Company? Last week, tech editor Tom Stackpole and our audience team hosted a subscriber-exclusive conversation with Babson professor Tom Davenport and BetterUp social psychologist Kate Niederhoffer about the hidden realities of AI adoption in organizations. The group discussed what the big picture goal of AI transformations should be, how AI can change processes and relationships (for better and worse), and red flags that signal trouble might be brewing as a result of AI adoption. If you weren’t able to make it live, here’s a video and transcript to peruse. We’ll likely host similar subscriber events future; when we do, I’ll share more info about them in this newsletter. Insider Insights: Leadership and Career Development If you have a few minutes this week, we’d love to learn more about the following as part of our latest Insider Insights survey: Looking ahead, what do you think will be your biggest leadership or career challenge over the next six months? What’s a specific leadership challenge you’ve struggled to find good advice on—even after using AI or other resources to help solve it? If HBR could publish one article next week that would make your work noticeably easier, what would it be about? An answer that caught my eye among subscribers who have already responded is “dealing with the pace and rate of change in a positive way.” One recent article that might help is on managing what CEO coach Karen Walker calls “ambient urgency”: “the chronic, low-grade sense that everything is urgent, has to keep moving, and nothing can wait.” In her piece, Walker explains how to make better decision in this environment. Take the survey here. More Must-Reads and Listens New research on how AI agents broaden the scope of knowledge work… …and new ways agents can orchestrate work across silos. Also, don’t let AI make bad analytics worse. Our favorite management tips on setting strategy when the path is unclear. Are you modeling the transformation you’re expecting your employees to deliver? Researcher Dan Wang explains how China’s engineering mindset drives innovation in our latest IdeaCast episode.

A New Way to Measure Customer Referrals

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