Customer Satisfaction Has a Compounding Effect on Referral Sales

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Home builders that focus on increasing customer satisfaction also get more referrals.

September 01, 2010

According to, “compound interest” arises when interest is added to the principal, so from that moment on, the interest that has been added itself earns interest.

Customer satisfaction has a similar compounding effect on customer referral sales. The problem is, most businesses don't think about their current customers in a “compounding” comparison; too many are focused on short-term results, solutions and returns. These companies seem to gravitate to simple interest returns while viewing a compound interest formula as too much short-term hassle for its short-term return.

In our recent study, we found that top-performing home-building companies — over time — saw significant returns on their prior customer care and referral sales strategies. We saw builders with “customer referral sales” rates of 50 percent of total sales, compared to the industry average of 11 percent. They grew their customer-centric culture by including customer-care metrics into their management dashboard and focused on continuous improvement in satisfaction.

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