Ask your most settled clients for referrals, and keep looking after them once they send someone
A 2018 study in the Journal of Marketing Research found evidence that referred customers stay partly because of the person who referred them, since their lower churn lasted only as long as that referrer remained a customer. My reading for agents is that a referral system should start with who you ask and continue well after the introduction is made.
Key points
- A 2018 Journal of Marketing Research study found evidence of two mechanisms behind the value of referred customers: better matching between referral and firm, and social enrichment by the referrer.
- In that study, referred customers had lower churn only as long as the customer who referred them had not left the firm.
- The authors recommend recruiting referrers among customers acquired at least six months earlier who have high margins and are unlikely to leave.
Referred customers stayed longer only while their referrer stayed
Customers acquired through referral programs have been observed to bring higher margins and lower churn, and an earlier paper by three of the same authors measured that difference. In a 2011 Journal of Marketing paper, Philipp Schmitt, Bernd Skiera and Christophe Van den Bulte tracked about 10,000 customers of a leading German bank for almost three years. Referred customers had a higher contribution margin, though that gap shrank over time, and a higher retention rate, which held up over time. The authors report that the average referred customer was worth at least 16% more than a nonreferred customer with similar demographics who joined at a similar time, and that the size of that difference varied across customer segments.
The follow-up study asked why. In How Customer Referral Programs Turn Social Capital into Economic Capital, Van den Bulte, Emanuel Bayer, Skiera and Schmitt tested two explanations from the theory. The first is better matching: the referrer knows both the firm and the friend, so the people they bring in tend to suit the firm. The second is social enrichment by the referrer, which I read as the relationship becoming more valuable to you because someone you know is already part of it. The authors describe their paper as the first to provide evidence of both mechanisms in a customer referral program.
Their evidence for matching came from margins. Referrer and referral pairs shared unobserved factors in their contribution margins, and referrers with more extensive experience of the firm brought in higher-margin referrals. That link between the referrer's experience and the referral's margin became smaller the longer the referred customer stayed. Their evidence for social enrichment came from churn: referred customers had lower churn only as long as their referrer had not left.
Why a client who knows you well sends a better fit
The matching result makes intuitive sense to me for real estate. A past client who went through a full purchase or sale with you knows how you work and what kind of client you do your best work for. When they recommend you to a colleague or a sibling, they are doing a quiet screening job that no portal lead comes with. The study found that more experienced referrers brought in higher-margin customers, and my reading is that experience of working with you is what lets a client make that match well.
The churn result has a direct consequence for agents. I read it as the referred customer's loyalty being partly borrowed from the referrer, since the retention advantage in the study lasted only while the referrer stayed a customer.
The limits matter here. The study looked at one firm's referral program and wasn't about real estate, and a customer relationship like the banking one in the 2011 study runs continuously, while a client might buy or sell with an agent only a few times in their life. So applying these findings to agents is my own reading. I still think the logic carries over, because a homebuyer referred by a friend arrives with that friend's opinion of you already attached, and that opinion keeps changing after you close.
What this means for who you ask and when
The authors end with a recommendation for the firm they studied: recruit referrers among customers who were acquired at least six months ago, have high margins and are unlikely to leave. The six-month figure belongs to that firm, and I wouldn't copy it into your calendar. The principle I'd take from it is to ask the clients whose relationship with you is settled and strong.
Agents I've spoken to have said most of their referral asks happen around closing, when the client is grateful and the deal is fresh. That's a reasonable moment, and I'd add a second one. Plan referral conversations with past clients who are well past closing and still reply when you get in touch. They're the nearest equivalent I can think of to the established, loyal customers the authors recommend recruiting.
I'd also be selective. The 2011 study found the value of a referred customer varied by segment and the authors recommend a selective approach, so I wouldn't send the same referral request to your whole database on the same day. Pick the clients who fit the profile above and make each ask personal.
Then treat the referral as the start of two relationships. If the referred client's loyalty depends on the referrer staying connected, your relationship with the person who sent them is now part of how you keep the new client. Thank the referrer promptly and keep in touch with them on the same schedule as before, even once the new deal starts taking your time. When you do share an update, keep it to what the new client is comfortable with, since their business is private.
Settled relationships take steady attention to keep
In my view, the clients who make the best referrers are the ones you've kept in touch with long after closing, and that takes consistent attention across hundreds of contacts while you're working live deals. Worthington keeps you in front of past clients month over month, and he knows when to prompt for a referral and when to say nothing at all. He drafts each message in your voice for you to review and send.
The referral itself is only one moment in a longer relationship. In this study, a referred customer's margins were linked to who sent them and their lower churn to whether that person stayed, and both are things an agent can plan for long before the introduction happens.
Common questions
Should I stop asking for referrals at closing?
The study doesn't look at timing around a single transaction, so it doesn't answer that directly. What it does suggest is that experienced, established customers make stronger referrers, so I'd keep the closing conversation and add referral asks with past clients whose relationship with you has lasted.
Was this research done in real estate?
No. The 2011 study tracked customers of a German bank, and the 2018 study examined a customer referral program at a single firm. Applying the findings to agents and homeowners is my own interpretation, based on the fact that both settings rely on one person vouching for a service to someone they know.
Does paying a referral reward make referred clients more loyal?
The abstracts don't report on reward size, so the research here can't tell you that. The mechanisms the authors found depend on who refers and whether the referrer stays, which is why I'd put more effort into choosing and keeping good referrers than into the reward itself. Check your local rules before offering any referral reward.
Why does it matter if a past client stops working with me?
In the 2018 study, referred customers had lower churn only while their referrer was still a customer. My reading for agents is that losing touch with a past client can weaken your hold on the people they referred, so staying in contact with referrers protects more than one relationship.
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