Harvard Business Review LogoAntonio SortinoCompanies that systematically track referral behavior uncover a powerful, underutilized growth engine. An analysis of more than 10 million consumers reveals that while about 20% of new customersJust eight years after its launch, ButcherBox, a subscription-based retailer of premium meat and seafood, rocketed past sales of $600 million. Initially the firm grew by marketing through paid influencers, but over time it increased its dependence on buying new customer leads through digital advertising. Then customer acquisition costs began spiraling as paid influencers and social media and search websites raised their prices. Meanwhile, the quality of the customers produced by the paid channels declined: They made smaller purchases, filled their baskets with a less attractive product mix, and defected at higher rates.
Don’t Underestimate the Power of Customer Referrals
Companies that systematically track referral behavior uncover a powerful, underutilized growth engine. An analysis of more than 10 million consumers reveals that while about 20% of new customers come through referrals, they account for 72% of the profits all new customers generate. Referred customers cost less to acquire, stay longer, buy more, and refer more high-value customers to your company. Yet most firms overlook them because attribution systems give too much credit to paid channels and fail to capture word of mouth. Leading companies, however, treat referrals as a growth metric, invest in identifying true promoters, and design experiences that inspire recommendations. By shifting the focus from buying customers to earning their advocacy, these companies improve margins and build more-durable, cash-generating growth businesses.
