Reference Success | Boulder Logic

Recently, a customer posed these questions:

“What is the value of a single reference?  What is the dollar value of having one customer success story that can be used internally and externally?”

While I don’t have a simple answer to these questions, we thought it was a good discussion topic.

The answers vary considerably based on the situation.  Thinking about it broadly, I am quite certain companies have been built from just one good reference. From that first success, they are able to close the next deal and the cycle continues.  This fits the classic “technology adoption life cycle” in which selling to one paves the way to sell to others.  The same holds true in penetrating a new industry.  A single sale can be the key to opening a new market.  With this mindset, the value of a reference could be nearly equal to the value of the company or marketplace. The point here is not to underestimate the impact.
  
At the other end of the spectrum, there are references that may be worth absolutely nothing.   If the customer’s story doesn’t appropriately demonstrate the value of the company’s solution, it may not have any impact.  And even a high impact story can have no value if it isn’t given suitable visibility to reach an audience.  If it doesn’t get used, then it may as well not exist.  You could argue that the ROI of the references in these situations is actually negative because it would have taken time and effort on the part of the customer and marketing department.  Another negative value scenario is one in which a less than ideal reference gets used and creates the wrong result.   We’ve seen this happen in sales cycles where there is such a rush to answer a request from a prospect or an analyst that the customer can’t speak positively or appropriately and the reference ends up destroying what could have been a sale.  There is a big difference between having a reference and managing customer references well.
 
Now, assuming that a strong customer reference management program exists and is delivering good quality products, then we can create a formula that shows the value of a positive reference. This equation is directly based on the value of the deal that it is helping to create. If a deal is worth A to your company and you can attribute the likelihood of getting that deal to be increased by B% by using the reference, then the value of the reference is A x B x C where C is the number of deals in which the reference is used.  Let’s look at an example.

A. Revenue from a new sale = $100k
This is the average deal size and would be pretty easy to find out, but is of course specific to the individual company.
 
B.  Increased likelihood of sale with reference = 3%
This is actually not to hard to find out by simply asking the sales team in a survey.  When a reference is involved in an sales opportunity, does it make a difference?  Err on the side of being conservative.
 
C. Number of sales per year the reference is involved = 4
This is also relatively easy to find out. It is just how many deals  this customer reference will be involved in.
 
Given the assumptions above, let’s complete the formula: A x B x C = $100k x 3% x 4 time = $12,000 per year.

So, while there are several variables that factor into the true value of a reference, we can get a good ballpark using basic assumptions and a formula like we’ve shown.

One final point that I would like to emphasize in closing is the role that the overall customer reference process or program plays in maximizing this value.  If a company doesn’t have a process in place it runs the risk of making inefficient requests, waiting too long to deliver, or even bombarding its customers with uncoordinated and multiple requests for the same customer. This can quickly lead to customers becoming unwilling to continue to participate. Since the number of times a single reference is used drives the value equation above, this destroys potential value.  Even worse, this type of behavior can have long term damaging effects on the relationship with that customer.

Having a consistent program in place helps ensure that customers have a positive experience and that the value of each customer reference is maximized.