From Reference Point newsletter, March 2011. To subscribe, please contact me (contact info is in upper right corner).

First let’s me be clear on the difference between a sales reference and a referral. A sales reference helps a salesperson move a deal or close it with a prospect with whom the sales person already has a relationship. A referral is typically to a prospect with whom your sales people don’t already have a relationship.

Now, why are referrals such a big potential opportunity for a lot of companies? I can think of 5 reasons:

1) Referrals create clearer impacts on revenue and firm performance.
If your reference helps to close a deal, she’s just one of many factors so it’s hard to quantify impact on revenue. On the other hand, if your referring customer brings your firm a prospect–particularly a new prospect–who’s predisposed to think well of you, the impact on revenue is much more obvious.

2) Referrals create large impacts on revenue.
For mass market firms, good referral programs can bring in revenues that rival the revenues generated by customer purchases. For example, as I mentioned at the Summit last week, a telecom firm found that the value generated by referrals was about 80% of the value generated by customer purchasing. 

3) C-level referrals represent an especially great opportunity.
At the C-level, the prospects are even better. Major C-level customers want you to succeed–it means more funding, R&D, and support for the solutions they’re buying from you. CXOs are thus already inclined to refer customers to you, if you build a trusting, high-mutual-value relationship. Just one referral a year that turns into a new customer would, on average, double the business you’re getting from such a CXO.

4) Reference programs would be a natural to run or support referral programs.
You already have reference customers, many of whom would probably be happy to provide referrals to their networks. If you engage with Net Promoter Score programs (nearly 20% of reference managers are now responsible for their firm NPS program) then you have access to a whole lot of customers who say they’d refer you.

5) Your competitor probably isn’t cultivating referrals
In our latest survey of Customer Reference Programs, 72% of respondents report that they don’t have a formal referral program. And of the 28% who do, only 16% are tracking the value that referral customers create. Sixty three percent say they’d like to but don’t know how. (If that’s you, drop me a note and I’ll point you to some further resources).