Forecasting Sales From Referrals

It is important to look down the road a bit and set goals. To set realistic goals, however, you must first answer the following questions: How do you expect your business to change as a result of your referral marketing campaign (RMC). How many referrals do you expect to get? 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 (your reference period). Then project what you expect revenues to be as a result of your RMC (your first forecast). Your forecast should be based on four factors: 1. The number of referrals you expect to receive; 2. The dollar value of the referrals you expect to get; 3. The percentage of your business you expect to result from referrals; and 4. The number of sources you will need to achieve the expected number and dollar value of referrals.

Below, are the five steps necessary to systematically forecast referrals for your business.

STEP # 1 Select Reference Period. Use the most recent twelve months of sales revenues as your reference period. If you do not have twelve months of data to analyze, use a nine, six or three month period. The reference period in our example is six months, July 1, 2005 to December 31, 2005.

STEP # 2 Complete Reference Period Questionnaire. Answer the following questions about your activities during the reference period you identified in step 1.

------------------------------------------------------------------------------------------------------------------- Reference Period Questionnaire Reference Period: 7/1/05 to 12/31/05 Prospects 1. How many prospects did you generate or identify from all sources? 35 2. How many of these prospects were referred to you? 22 What percentage of all prospects does this represent? 63% Clients 3. How many new clients did you get from all sources? 12 4. How many of these new clients came from referrals? 8 What percentage of all new clients does this represent? 66% Sales 5. What was your sales total during the reference period? $17,000 6. How much of this was generated from referrals? $10,000 What percentage of all sales does this represent? 59% Referral Sources 7. How many sources provided the referral prospects identified in question 2? 5 8. What was the average number of referred prospects per source? 4.4 -------------------------------------------------------------------------------------------------------------------------- Step # 3 Select Forecast Period.

The length of your reference and forecast periods must be equal. In our example the forecast period is six months beginning January 1, 1999 and ending June 30, 2005.

Step # 4 Complete Forecast Period Questionnaire. Use the forecast period questionnaire to project what will happen during the RMC. The questionnaire is similar to the reference period questionnaire with two exceptions: 1. The questions focus on the future instead of the past and 2. A forecast statement follows each question.

Consider your responses to the reference period questions when you make your projections. We recommend that you be conservative with your first forecast for this period. Keep your projections within a 10 to 20% variance of the figures recorded for the reference period.

In our example, we know that 22 prospects came to us by referral in the reference period (question 2). Hence, a conservative projection would fall within the range of ( 26 ) a 20% increase and ( 18) a 20% decrease in prospects.

STEP #5 Write a Forecast Statement. After answering the questions convert each response into a forecast statement. In our example, the number of prospects increased from 35 (during the reference period) to 40 (for the forecasted period) which represents a 10 % increase. Hence, the appropriate statement for Forecast no. 1 is: The number of prospects generated will increase by 10 % compared with the reference period.

Forecast Period Questionnaire Forecast period: 1/1/06 to 6/30/06 Prospects 1. How many prospects do you expect to generate or identify from all sources? 40 Forecast no. 1: The number of prospects generated will increase by 10% compared with the reference period.

2. How many of the prospects you generate do you expect to result from referrals? 25 What percentage of all prospects will this represent? 63% Forecast no. 2: The percentage of prospects generated from referrals will increase by 12% Clients 3. How many new clients do you expect to generate from all sources? 15 Forecast no. 3: The number of clients generated will increase by 25 % compared with the reference period.

4. How many clients do you expect to generate from the referred prospects? 10 What percentage of all new clients will this represent? 66% Forecast no. 4: The percentage of clients generated from referrals will increase by 25% Sales 5. How much do you expect to generate in sales? $20,000 Forecast no. 5: Total sales will increase by 18 % compared with the reference period.

6. How much of the total sales do you expect to result from referred clients? $12,000 What percentage of total sales will this represent? 60% Forecast no. 6: Sales resulting from referrals will increase by 20% Referral Sources 7. How many sources do you expect you will need to generate the expected number of referred prospects? 6 Forecast no. 7: The number of sources needed to generate the expected referred prospects will not change.

8. What will be the average number of referred prospects per source? 7 Going for the Gold You should now know how to project the revenue you will generate from your RMC. In addition, you should know the approximate number of referrals you will receive and how many of them will become clients. Furthermore, you should know approximately, how many referrals you will need to generate the level of revenue you projected.

After you have completed one period of your RMC and compared the results with the projections based on your reference period, you'll be ready to adjust your RMC and set up new projections. Close scrutiny of how your results diverged from your expectations should help you forecast future results more accurately.

Dr. Ivan Misner is a New York Times bestselling author. He is also Sr. Partner for the Referral Institute, an international referral training company (www.referralinstitute.com). Dr. Misner is also the Founder & Chairman of BNI (www.bni.com), the world's largest referral organization with thousands of Chapters in dozens of countries around the world. His latest book, Truth or Delusion, Busting Networking's Biggest Myths can be viewed at www.truthordelusion.com . He resides in Southern California with his wife and three children and can be reached at [email protected] .

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