A closer look into referral equity

A closer look into referral equity

Intangible assets are very much part of valuation of a company as the physical assets themselves. Generally creations of the mind, intangible assets are considered critical to the long-term success or failure of a company. Intangible assets stretch beyond brand recognition alone, however, and can relate directly to the reputation of a company itself — such as goodwill. There is one area of intangible assets that is not widely known to most businesses: referral equity. At Rocket Referrals we define referral equity as the segment of your customer base that is actively giving you positive referrals.

It is important to distinguish between referrals themselves and referral equity. Actual referrals are a product of referral equity and because they are so regularly converted to new business are more closely related to revenue. The asset itself lies in those customers that are actively bringing you new business. Referral equity is the salesforce companies have working for them that are not on the payroll. It is important to note, however, that even if a customer is willing to refer (promoters) they are not necessarily part of your referral equity until they have given a referral. This explains the large gap that lies between a high Net Promoter Score and actual referrals.

High Net Promoter Scores are generally a result of great customer service. If you ask a highly satisfied customer if they are willing to recommend you most will answer yes. Unfortunately many of these customers are not actually referring you to friends and family. Therefore they cannot be considered referral equity — not yet. Most customers who score high on a NPS survey are doing so without the actual intention to refer you. They are, however, satisfied customers that are your best opportunity to realize more referral business. A successful referral strategy is aimed at targeting these satisfied and willing customers and turning them into referral sources and boosting your referral equity.

There are several methods that are particularly effective in bridging the gap between satisfied customers and referral equity — several of which will be explained in detail in later posts. If done consistently, a company will begin to grow their referral equity over time and realize a wealth of new business. The best place to start for any business is to begin tracking their source of referrals. Start asking new customers “who referred you to us”. This alone will go a long way in determining your current referral equity and give you a starting point in implementing a strategy to grow it in the months ahead.

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