ROI and your Customer Reference Program

January 5, 2011

It’s January and the New Year brings renewed energy, sales and marketing objectives, and of course, budgets.  If one of your goals in 2011 is to create or enhance a customer reference program it will be critical to demonstrate why precious dollars should be allocated to this effort rather than some other sales or marketing initiative.

Even though sales people and senior executives generally understand that there is value in customer references, they often cannot quantify the financial return.  So by demonstrating the ROI that a customer reference program brings, you will be able to justify the value and build a better and more productive program right from the start.

To avoid initial doubt your team members, sales organization and most importantly executive management may have about a program they are unfamiliar with it will be important to be strategic in presenting the rewards and financial gain.

Here are some tips for how to present your case in a compelling and engaging way:

1) Start early and let the numbers do the talking: Demonstrate financial value at the beginning of the year and set expectations.  Use recent examples of noteworthy and high profile deals that the company is proud of.  And be sure to create an exciting and fun presentation that has a wow factor punctuated by financial growth and resource savings.

2) Remind your audience: Send monthly or quarterly updates to the organization and management team to remind them of the work you are doing and the financial value it is bringing to the company.  Using real dollar figures will be the key to your message.  Make your communications succinct and readable.

3) Show them the money: Enlist an executive’s support by showing concrete financial value of the program.  An executive sponsor lends credibility and influence throughout the organization.  Find someone who shares your vision and enthusiasm to be your evangelist.

4) Deliver the Data: Create detailed reports that analyze data in a variety of ways that show you understand all angles of the financial impact of the program.  Analyze impact on sales margin, sales cycle time, time spent on core sales activity, resources utilized, etc.

5) Chart a course for the future:  Identify and cast light on areas that need improvement and make projections for the financial value of these improvements.

Now that we know how to present your case, here comes the tricky part – actually calculating the ROI.  Determining financial impact requires consideration of several factors that will be unique to each organization.  Top-notch customer reference management service providers will have quantifiable data and formulas to help you determine and demonstrate ROI.  When evaluating customer reference management partners, make this the first question you ask, as the answer will lead you to the solution that works best for your organization.

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Posted by Joshua Horwitz

Executive Viewpoints – Running an Enterprise Global Customer Reference Program

November 17, 2010

We recently had a chance to sit down with some seasoned Customer Reference Program executives to discuss what it’s like to run large scale enterprise customer reference programs.  Eileen D’Ippolito from Citrix and Siemens’ Karen Newman have both been working in this space for a long time and understand the challenges and the benefits that go along with running global reference programs.

As technology companies, both Citrix and Siemens had the ability to build their own solutions for reference management but they both selected an out of the box solution.  Check out both their interviews here to learn more.

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Posted by Joshua Horwitz

Moving the needle with references

June 15, 2010

One of the things that gets me jazzed most about customer references is the really big impact they have on the bottom line of almost any business. 

If I had to think about it, I guess this enthusiam comes from a marketing background exposed to too many carefully crafted, super cool campaigns that required a ton of work and money, but just didn’t move the needle on results for the business.

Testimonials from customers are different because they are so directly involved in the sales process. At the same time it’s sometimes hard to put your finger on exactly how to quantify it.

When working with clients and prospects, Boulder Logic typically starts by looking at the number and size of deals that can/should use references and then considers the impact that a positive testimonial can have on the deal closing.

Here’s a table illustrating that formula for a single sales rep with some hypothetical values:

Number relevant opportunities per sales rep 90
Poorly matched reference requests (50% x 90) 45
Estimated impact on deal close rate 3%
Average deal size $125,000
Total impact per sales rep  (90 x 3% x 125K) $168,750

If this is of interest, our company recently recorded a webinar that walks through this and other customer reference ROI calculations step by step. It’s about 15 minutes long.

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Posted by Joshua Horwitz

Building the business with that first reference

April 20, 2009

Today, I came across this Wikipedia entry for Savvis that included a nice illustration of a point we made about the value of a single customer reference. 

In the company history section, it included the following note about how their first customer reference was instrumental to building the business. 

“By leveraging the Apple Computer customer reference and testimonials, Savvis was able to close additional large contracts with other industry providers.

Let it be good encouragement for reference advocates out there!

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Posted by Joshua Horwitz

What is the value of a single reference?

March 5, 2009

Recently, a customer posed these questions:price

“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.

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Posted by Joshua Horwitz

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