One of the biggest mistakes companies old and new make is not clearly defining the lines between references versus revenue.

References are clients to whom you sell goods or for whom you perform a service whose value to your business goes beyond the amount collected on an invoice. These clients, because of their stature or keen understanding of what you sell, can serve to help convince future prospective clients to sign on with you as well.

Of course revenue ultimately drives profit, and businesses can never take their eye off the revenue ball, but there are a couple of compelling reasons why attaining solid client references is gaining increasing importance.

1. Many products and services these days are intangible and thus harder for potential customers to understand.
2. Innovative products and services further leave questions in consumers’ minds.

This combination of intangible and innovative can lead to potential clients needing “a little extra” to be pulled over onto your side of the fence. References can often provide this little extra because:

• References provide customers who come later in your product cycle with a proof point that your product or service is good.
• References help customers understand innovative products and services by showing real world examples.

References are able to do this in three basic forms:

1. Simple reference – “Company XYZ is a customer…”
2. Testimonials – a compelling, illustrative quote from customer
3. Case Study – in-depth details of a customer’s experience with your good or service; this is often the hardest to get but also the most convincing.

So how can you as a business owner be proactive in clearly defining the lines between references and revenue to put the power of references to work for your company? Here are four key steps:

1)  Instill a reference vs. revenue mentality in your sales force.

If a customer asks for a discount, do you give it to them? The first trade off is that they have to become a reference. In this sense you are still getting full value from the customer and they have an enticement to a) be an early adopter and b) become a proof point for you down the road.

2)  Clearly define what you are willing to do for free or give away in building references.

Assign a budget to your reference building strategy as they relate to your overall business. Break it down based on the three types of references listed above. Understand that work done for no charge, if it results in a powerful reference, is bringing value back to the company that will grow revenues down the line.

3)  Define a point in your product life cycle when you wind down reference initiatives and just go for revenue.

Again, the eye can never be taken off of the revenue ball. Generating references is done with the specific intent of using them as a foundation for future revenue growth. At some point you will receive diminishing returns from each new reference. Once you attain compelling and varied references, it’s time to earn the value from those references and focus on revenue.

4)  Be prepared to walk from customers who won’t be a reference and want to hammer margins down to nothing

This is very important. We all know that some customers are easy to work with and some are simply a pain in the neck. The painful customers are only worth it if a) you are able charge them a premium or b) they will be a solid reference. If you are making the same or less revenue off of the difficult customers who suck up more of your time and energy, and these customers are unwilling to be references, what value do they have to your company? Not much. Walk.

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