How to Use Referral Marketing to Expand Your Social Capital

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Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with Ernane Iung who is the author of “The Success Factor – Unconventional Wisdom for Small Business Success”. He shares the most important things to consider when starting your company, and contrast conventional wisdom with the latest, but proven unconventional wisdom. For more info www.successfactormedia.com.

SmallBizLady: WHAT IS MEANT EXACTLY BY REFERRAL MARKETING? WHAT KIND OF MARKETING IS IT REALLY?

Ernane Iung: A method of creating revenue for growing a start-up’s business – the “systematic cultivation of business by referral. It’s the system by which business owners create, manage, and leverage their social capital to generate referrals. Referral marketing is about creating a plan that capitalizes on word of mouth to generate referrals. It starts with networking and ends in strong referrals that catapult business owners to stratospheric levels.

SmallBizLady: WHAT ARE THE MOST IMPORTANT COMPONENTS OF SUCCESS OF REFERRAL MARKETING?

Ernane Iung: Trust is the hallmark of any strong relationship and the same holds true for a good referral. It’s based on developing deep biz relationships as a transfer of trust in you and the referral. That’s right. Referrals cannot happen unless trust is present. Relationships, and most certainly the strong relationships that create referrals, do not happen overnight, and must be built over time, always implicitly involving trust.

SmallBizLady: HOW IS REFERRAL MARKETING MEASURED?

Ernane Iung: All marketing: Trade Marketing, Advertising, Product Marketing, Tele-Marketing, Digital Marketing, or any other – must be measurable. The metrics are somewhat different, not being directly financially quantitative for example, an ROI (Return on Investment), but rather as you build your Social Capital through Referral Marketing, you will see a corresponding impact on your business – and that of course, is financial and does hit your bottom line.

SmallBizLady: HOW DO YOU MEASURE AND MONITOR YOUR REFERRAL MARKETING ACTIVITIES?

Ernane Iung: To measure and monitor your Referral marketing activities I recommend using a scorecard that breaks down down and separates your referral activities into five primary areas called “Tactics.” The 5 tactics essential to effective Referral Marketing are:

One-on-One: Refers to meetings or encounters you have individually, with persons in your network to tell them about yourself and your business. Here your aim is to build trust, or possibly have them make referrals on your behalf to generate revenue for you and maybe even themselves, if you have a formal, signed referral agreement with them.
Face-to-Face: This is where you go out and give “face time” by attending relatable conferences or may be volunteering at a charity or fund-raising event, working with a network member on an activity of theirs, or participating at a trade show where you are circulating, making contacts, purchasing, or even just blowing your own horn.
Online: Here this can include everything from updating your profile on LinkedIn, tweeting on Twitter, blogging, posting, commenting and liking on your social media of preference. Add a network member to your newsletter, as well as activities related to your website which can include calls to action, lead generation, and demand or content generation. THIS IS SOMETHING EVERY SMALL BUSINESS SHOULD DO EVERY DAY.
Pure Referral: I call this tactic “Pure Referral” because it is referral marketing in its purest sense: giving. Here you are giving unselfishly and generously to members in your network by providing referrals, arranging meetings or speaking engagements, sending articles of interest, calling on network members simply to connect, nominating members for positions or jobs, and so on. Investments made here pay big dividends in the future.
Events: This can be fun for some people, and the hardest for others, i.e., the Millennial crowd who prefer to hide behind their computers and smart phones rather than meet people the old fashion way – face to face. What are your networking groups? Here I encourage you to track and measure your participation at the events of the networking groups where you are active. As a general rule, I suggest you have AT LEAST 3 Networking groups you participate actively in – the key word here being “actively”. Does no good to anybody if you belong and don’t participate. That’s just wasting money, and no smart business wants to hear of that.

SmallBizLady: WHAT IS ANOTHER COMPONENT OF REFERRAL MARKETING IMPORTANT TO KNOW?

Ernane Iung: One of the most important concepts of a referral marketing platform focuses on the concept of giving. Although we are talking about the application of Referral Marketing in a business context, it’s really an act of giving. Referral marketing or plain “giving” has a well-proven context, including our biz interests, since the beginning of time.

SmallBizLady: ERNANE, THIS IS ALL WELL AND GOOD, BUT DOES REFERRAL MARKETING ACTUALLY WORK?

Ernane Iung: consider these proven statistics on the outcomes from your investment in referral marketing:

The closing rate is a whopping 34%.
Yes, one in three referrals, where an average amount of trust is transferred, ends up in a deal. That’s directly related to the very high level of trust that has been created by you and your referral marketing knowledge.