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I just read a timely article by our friend and colleague, Mike Macedonio of Referral Institute.  A lot of people network because they have no budget to market and feel it is the only way for them to get business.  They network because it is “free”, not because they have a plan on how to make it work for their business. They come to it as a solution by default.  Check out what Mike has to say about it:

By Mike Macedonio

Is it just me or is anyone else shaking their head at the assertion “Word of mouth marketing and referral marketing are FREE advertising”. Clearly referral marketing, done properly, is a cost effective way to get business. The only way I can possibly see making it FREE is to do nothing at all.
 
So what is the investment for referral marketing? There are two investments with building your business by referral: time and money. I’m surprised when I ask business owners how much they are investing in referral marketing and they don’t have any idea. Is it because it is so cost effective that they don’t think it is worth budgeting or tracking? Maybe, however I also see business people turn down opportunities to get involved in networking organizations, acquire training, attend conferences or sponsor strategic alliance events for financial reasons.
 
What about the hidden cost? How much time are you spending networking and meeting with referral sources? What is your time worth? Often when I ask that question I get the billable rate. Here is the simple formula I use. How much you earn divided by how much you work. For example, if you’re making $120,000 a year working 40 hours per week, 50 weeks a year your time is worth $60 per hour. You may be billing $150 per hour however after you factor in everything else you are doing this is what your time is returning you. 
 
When you consider that the serious active networker will spend 8 hours a week attending networking events, online networking, meeting with referral sources and all the giving activities with their network that works out to 400 hours per year or $24,000 of time invested a year. Hmm, that doesn’t sound like FREE to me. 
 
Referral marketing is the most cost effective way to grow your business. Getting the best return on your time and money requires a clear referral marketing plan. Will you be spending your time doing the right things with the right people, in the right organizations? Investing in referral marketing knowledge will help you get the best return your time investment. Be careful not to fall into the common trap of being penny wise and time foolish with your referral marketing. Create a budget and invest appropriately in your referral marketing.
 
In 2009 I have significant growth projections for our company. Our referral marketing budget is in place to support that goal. If you have any comments or questions on this topic, drop me a note at mikem@referralinstitute.com.
 
Mike Macedonio is the President and Partner of the Referral Institute, the world’s leading referral training organization (www.referralinstitute.com). He is also a New York Times best selling author of, Truth or Delusion? Busting Networking’s Biggest Myths (www.truthordelusion.com).