Q: I've been promoting my
business more and more by word-of-mouth through some networking
groups I belong to, but I'm having trouble figuring out how to
accurately calculate my revenue from referrals. Do you have any
advice on this?
A: It's critical to track your
income sources, whether from referrals, advertising, walk-in or
drive-by traffic, or elsewhere. But before attempting to track the
results of something, you must first set goals to shoot for. How
many referrals do you expect to get? How much income do you expect
to realize from these referrals? How many referral sources will you
need to achieve these projections? You could guess at the answers
to these questions, but there's a better way-a systematic
method of setting your goals using your experience as a base.
First, look back at a recent period of sales revenues from
referrals and all other sources. Then project what you expect
revenue to be as a result of your referral marketing campaign.
Your forecast should be based on four factors: the number of
referrals you expect to receive, the dollar value of the referrals
you expect to get, the percentage of your business you expect to
result from referrals, and the number of sources you'll need to
achieve the expected number and dollar value of referrals.
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Many networking organizations ask members to track the amount of
money earned from the referrals exchanged with one another. When
tracking revenue from referrals, I often see business owners look
at the value of each referral for the dollar amount-in other words,
they report the value of each referral based on the cost of the
item sold. Obviously, this isn't the net income to their
company. They're actually reporting their gross sales as the
amount of money referrals bring in to the business. So when
you're looking at the dollar value of each referral, remember
to calculate the actual net income to your business.
The bottom line is you should measure the income that comes
directly to you. With some professions that means gross income, and
with others it means gross commission; however, in both cases, it
is gross money to the business owner.
Let me say that there's no perfect way to measure. Every
variation has a problem with it. But based on years of experience,
I've found this approach has the most level playing field, and
it's the measure we use in all official referral numbers in
BNI, the referral organization I founded almost 20 years ago.
Measuring the value of your referrals is important because it
helps you determine your return on investment in a group. One thing
that you should consider is the critical-mass point for your
networking group. In BNI, we have found that to be roughly 20
people.
There's an interesting dynamic relating to net income that
happens in networking groups. In one region of our networking
organization we studied, for example, chapters over 20 members
produced an average net income of 289 percent more than chapters of
20 members or less. If you're in a networking organization,
it's clear that the size of the group is going to impact the
bottom line of your business! During the time your networking group
is between 10 and 20 members, you're in the growth stage.
Between 20 and 30 members, you're in the profitability stage.
Mike Garrison of the Referral Institute calls this the "Power
of 20." The more sources for referrals you have at your ready,
the more referrals you are going to get and the higher your income
from referrals will be.
With the results of that survey in mind, you can see that
building your business through referrals is systematic. Too many
people approach this concept socially. While developing your
business by referral is about relationship-building, it's not
social! It's based on numbers. You have to measure what
word-of-mouth is doing for you. It's the only way to tangibly
see what impact referrals are having on your income. An essential
part of any marketing plan is measuring the results, and referral
marketing is no different. To use your sources wisely and
efficiently, you've got to know how well your plan is working,
how you can change it to improve current and future results, and
how much your investment of time and money is earning you. When we
go back to the beginning of my answer, you can now see how your
projections are inextricably linked to tracking your results. In my
book Business by Referral, co-author Robert
Davis and I have outlined some projection and tracking methods
which are very helpful for those wishing to have some really hard
numbers on the effectiveness of their networking efforts.
With a thorough tracking and evaluation system, you'll know
whether your plan is working and whether it's cost-effective.
You'll be able to demonstrate to managers, investors, bankers
and employees that you're a focused and capable marketing
professional. Be patient, persistent, flexible and imaginative, and
you'll eventually find yourself running a successful
referral-based business, one that will be the envy of other
business owners.
is a New York Times bestselling author and founder
and CEO of BNI,
the world's largest referral organization with over 3,100
chapters in 17 countries around the world. His new book,Masters of Successcan be viewed at www.MastersofSuccess.biz. Misner teaches business at
Cal Poly University, Pomona and resides in Southern California with
his wife and three children.
The opinions expressed in this column are
those of the author, not of Entrepreneur.com. All answers are
intended to be general in nature, without regard to specific
geographical areas or circumstances, and should only be relied upon
after consulting an appropriate expert, such as an attorney or
accountant.