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Tracking Income From Referral Marketing

Written by: Ivan R. Misner

Article Overview: Before you can gauge the success of your networking program, you need to set goals.

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Tracking Income From Referral Marketing

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.

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.
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Dr. Ivan Misner is the Founder and Chairman of BNI, the world's largest business networking organization, which has more than 4,600 chapters in 37 countries. Dr. Misner is also the author of several books, including the New York Times bestseller TRUTH OR DELUSION?
(www.truthordelusion.com), and he is the Senior Partner for the Referral Institute (www.referralinstitute.com), a referral training company with operations around the world.

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About the Author: Ivan R. Misner
RSS for Ivan's articles - Visit Ivan's website

Dr. Ivan Misner is the Founder & Chairman of BNI, the world's largest business networking organization. BNI was founded in 1985. The organization has over 5,800 chapters throughout every populated continent of the world. Last year alone, BNI generated 6.5 million referrals resulting in $2.8 billion dollars worth of business for its members.

Dr. Misner's Ph.D. is from the University of Southern California. He is a New York Times Bestselling author who has written twelve books including his latest #1 bestseller Networking Like A Pro.

He is a monthly columnist for Entrepreneur.com and is the Senior Partner for the Referral Institute - a referral training company with trainers around the world. In addition, he has taught business management and social capital courses at several universities throughout the United States.

Called the "Father of Modern Networking" by CNN and the "Networking Guru"  by Entrepreneur magazine, Dr. Misner is considered one of the world's leading experts on business networking and has been a keynote speaker for major corporations and associations throughout the world. He has been featured in the L.A. Times, Wall Street Journal, and New York Times, as well as numerous TV and radio shows including CNN, CNBC, and the BBC  in London.

Dr. Misner is on the Board of Trustees for the University of La Verne. He is also the Founder of the BNI-Misner Foundation and was recently named "Humanitarian of the Year" by a Southern California newspaper. He is married and lives with his wife Elisabeth and their three children in Claremont, CA. In his spare time!!! he is also an amateur magician and a black belt in karate.



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