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Is Word of Mouth (AKA Referral Marketing) Worth the Effort?

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By Hector Cisneros

I have been directly engaged in word of mouth marketing (AKA Referral Marketing or Social Networking) for more than 35 years. I often hear business owners say that they tried networking at Chamber of Commerce events and even hard contact networks (exclusive membership organizations), and they felt that the return on investment was poor or nonexistent! Well, this statement can be true and false at the same time. It has been my experience that, for the most part, you can only get back a return based on the time and effort you put into any endeavor.  In this episode of Working The Web to Win, we will take a hard look at organized word of mouth marketing, to see if high returns are real, luck or just fancifully marketing on the parts of the referral organization's marketing department. So get ready to learn my firsthand experiences as to whether referral marketing works and if so, what makes it work and how can the reader minimize the investment in time, money and energy to get the maximum return for their marketing dollars. 





If you're reading this article, (or any article for that matter), you should always keep an air of skepticism as to what is true and what is made up. After all, we are living in the age of "Fake News". So, let me start by giving you a little background on why you should believe what I have to say. First of all, I have been actively engaged in referral marketing since 1981 when I joined the local Chamber of Commerce. I have been an active member of more than half a dozen other referral marketing organizations, including; BNI, he world's largest and most effective Word of Mouth organization. I was a trained professional (i.e. paid) BNI Director  from 2004 to 2010 and I have written two books on Word of Mouth Marketing. One is still available on Amazon.com, it's called 60-Seconds To Success. I have also written many articles that were published on e-zines, magazines, and on my own blog called; The NetWorkers Apprentice Work Shop and on the WorkingTheWebtoWin blog. A simple search on this blog will reveal more than a dozen articles that discuss Word Of Mouth Marketing. Here are a few I highly recommend.

Courtesy of www.flickr.com

To finalize my credentials as a person worth listening to, I'll provide these last facts. I was the Marketing Manager for three franchised Computerland Stores in the '80s, where I directly managed all marketing aspects of those stores. I founded and ran a successful company called Computer Know How, Inc. which lasted 30 years, and during the last 10 years, I have been the COO of W Squared Media Group, AKA Working The Web To Win, where I manage the company's marketing (especially social media marketing) and where I continue to engage in Word of Mouth marketing as a 27 year member of River City BNI.

It's Not FREE - Now I want to get the biggest myth about Word of Mouth Marketing out of the way. Let's me make this clear; Word of Mouth Marketing is not free! It doesn't matter what name you use - whether its Word of Mouth, Networking or Referral Marketing, this type of marketing is just not free. It costs time, energy, effort and money, period! No matter how you slice it, this is not a free form of advertising!

Courtesy of WorkingTheWebToWin.com

Let Me Explain why - Where does word of mouth take place? It takes place everywhere right? But how do you get your message everywhere? You have to meet prospects and clients somewhere and you have to take time to create your message and you have to build a reputation of providing honest and reputable work or service, right? Does any of this just happen on its own? NO! You have to at a minimum expend effort to attend networking events, create your message, deliver your message, engage with prospects, build trust, follow up on meetings and deliver a great product or service. Nothing just happens! Now that I have gotten that out of the way, let's look at the way most businesses engage in Word of Mouth Marketing.


W
ord of Mouth -The Good, the Bad and the Ugly? When I attend networking events, I see three kinds of referral marketers. Those who take word of mouth seriously, (i.e. the Good - pro networkers or those seriously engaged)., those who cherry-pick and are partially engaged (the Bad because their efforts not only hurt their chances, it hurts the network as well). And the Ugly - those who are lost and don't know what to do. 

Courtesy of WorkingTheWebToWin.com

Serious Word of Mouth Marketers understand that it is NOT, Net Sit and Eat or Drink - It's NetWork! They come prepared with a well thought out 60-second presentation. They engage in pre and post event networking and make sure that they set up several one to one meetings with prospects and referral partners that they have developed trust with. 

The cherry picker type networkers follow their own rules (often violating the event's and sponsoring organization's rules), thinking they know what's best for them. In contrast, the pro networkers maximize their efforts by sticking to the venue's rules and by making sure they engage in the fundamentals of word of mouth marketing. This means meeting with others in a giving way, building trust and educating referral partners and prospects alike while being fully engaged in the referral marketing mindset. Cherry pickers, on the other hand, do whatever they deem is right. Most often they begin by engaging in sales pitch techniques and skip the parts that have to do with building trust of giving back (which also builds trust). 
Courtesy of Flickr

The third category, the uninitiated or those who seem lost, often make ugly mistakes. These wannabe referral marketers act as if they are lost, or don't want to be there.  They often cause themselves more image problems than any gain they could have obtained. Their halfhearted effort makes them seem either uneducated with regard to what is necessary for successful Word of Mouth Marketing, or they are not willing (or able) to put in the time, money and effort necessary to achieve success. 

In most cases, if referral marketing is not working for you, you are either not working it the right way, need to learn the venues agenda, are not fully engaged in the process, or are not utilizing the techniques of the sponsoring organization. Now let's look at the real cost of referral marketing. There are two main types of cost: Time spent, and Hard money Cost.

Time Cost - First there is time cost, which includes things like; Time planning your campaign, Time creating your elevator speeches, time creating your long presentations, time engaging in networking, time building relationships with referral partners, time spent tracking and evaluating your results and travel time. There is also a learning curve where you spend time learning how to take care of customers, learning how to motivate customers to spread your good name, and time spent mastering networking skills. As a member of BNI and other organizations, I spend a minimum of about three to six hours a week engaged in face to face word of mouth marketing. That leaves me a minimum of 34 hours (of a 40 hour work week) to devote to other aspects of my businesses. Of course, you can always spend more time on growing your business and even more time on word of mouth marketing.

Hard Cost -  Hard costs include things like travel expenses (gasoline, auto maintenance, cost of the vehicle), event fees, venue food & beverage fees, organization membership fees, and any additional advertising cost you may incur. As a member of BNI, my cost includes; vehicle maintenance, the venue fee, and my membership fee. This can range between $1,000 and $1,200 a year. 
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Analysis of the Return on Investment - For a new business startup or even a seasoned business, these fees may seem high. In fact, the above-mentioned numbers are in line with any organization I have been a member of, including the Chamber of Commerce and others. The mistake most small businesses make is that they only look at the cost of participating in referral marketing and leave out the possible return on investment. The second most common mistake is the equating their return on investment by looking at the amount of a single sales versus the life of customer patronage. Let's look at a hypothetical Mary Kay Representative's sales to see if the numbers work out? Let's say our hypothetical Mary Kay rep sells a customer products that net $30. Then, let's assume that she can get one new customer a month during her one-year membership. Twelve times $30 yields $360 total. Not anywhere near the cost of membership, right? But what about the lifetime value of those 12 customers? If each customer renewed their order each month during that year's membership, our hypothetical rep would receive $2,340. In fact, if she does a good job of taking care of her customers she could very well make a lot more than that. This is close to a two-fold return on investment if you use my hard cost numbers from my BNI membership as a model. 


As a marketing person, I am telling you that this is a good minimum ROI for any kind of marketing. In fact, our hypothetical Mary Kay Rep could easily make a lot more than my example shows. It's also possible that she could make a lot less as well. It all boils down to how effective your word of mouth marketing is, and that boils down to what effort you put into achieving your success. 
Courtesy of www.flickr.com

The Good News is that you have a great amount of control over the results you produce in word of mouth marketing. The bad news is that halfhearted efforts will only produce poor results. Since this type of marketing has a real cost in time, money and effort, it makes no sense not to be fully engaged in whichever organization or venue you choose to participate. Not buying into the organization's process and not engaging fully in all the networking opportunities, means throwing away your money, time and effort! No matter how you slice it," Word of Mouth Marketing" is not Free, If you plan on engaging in referral marketing, the least you must do is learn their system and be fully engaged in that organization's process. Anything less will produce diminishing returns. If you put in the right effort and do a good job by providing top-notch service and engage in all the opportunities available to you,  you will most likely receive a three to six-fold return on your investment your rookie year.

As a seasoned networking professional and word of mouth advocate, I look to get at least a 20 fold return on investment. Last year my company received a 41 fold ROI. If you take the time to embrace a referral networking organizations process, like BNI,  you will gain a significant return on your marketing investment.  On the other hand, if you like to cherry pick rules, techniques and corporate cultures, your return on investment will be unpredictable and hit or miss at best. If you're going to network, do it right. Be prepared to embrace the organization's corporate culture and be fully engaged in its methods. If you do this, you will be very successful, probably far beyond what you thought possible. As a marketing professional, I advise that every business engage in referral marketing. I have for over 35 years and it has been profitable for me.


That's my opinion; I look forward to reading yours.



This article discusses Word of Mouth (AKA Referral Marketing or Network Marketing) and whether it is cost effective for most businesses. It explains what the real cost is for engaging in word of mouth, what the real returns on investment should be and what's involved in maximizing your return on word of mouth (aka referral marketing).
This blog also provides many links to related articles, and it includes a link to the accompanying BlogTalkRadio show for this episode.

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Hector Cisneros is COO and Director of Social Media Marketing at Working the Web to Win, an award-winning Internet marketing company based in Jacksonville, Florida.  He is also a co-host of the weekly Internet radio show, "Working the Web to Win" on BlogTalkRadio.com, which airs every Tuesday at 4 p.m. Eastern. Hector is a syndicated writer and published author of “60 Seconds to Success” and the co-author along with his business partner Carl Weiss of their hit book also called “Working the Web to Win.”


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