Top 3 Ways to Generate High-Quality Business Referrals

Check out our guide on generating and maintaining a steady stream of high-quality business referrals from customers and partners.

For many industries, referral business is what can make or break a business. Ask somebody who’s managed to stick around for a long time and make consistent gains in sales, and they’ll probably tell you that referrals are the key to longevity. So, if you want to be as successful as possible, it’s time to figure out how to generate high-quality business referrals.

Referrals are a great way to proactively acquire leads. However, it isn’t the only outbound strategy for new sales. For more information on the top prospecting strategies, read our article on sales prospecting.

What Are Business Referrals?

Business referrals are leads suggested to you by an existing or former customer recommending your business to someone they know. The benefit of referral business is that it takes little-to-no extra time to obtain, and the leads are already warmed by somebody the new prospect trusts.

Strategies to generate referral business happen at three points along the sales process:

  • Before the Sale: When selling to an initial customer, offer an onboarding discount our reward in return for warm referrals. Read more below.
  • During the Sale: Provide stellar customer service throughout the sales process to deal-close, and if you’ve built enough good will, ask for referrals. Read more below.
  • After the Sale: Continue to build trust after the sale with continued customer service, and ask for referrals after enough rapport has been built. Read more below.

Additionally, some might outline a referral agreement with another business or affiliate partner who will generate referrals instead of the customers. An optimized sales process will typically have options laid out for all of these. It’s therefore vital to know exactly what to do before, during, and after the sale to maximize the possibility of a referral. To help, we’ve laid out strategies for each point in time.

1. Generate Referrals Before the Sale

Before the initial sale, the ways that you’ll maximize referral business are primarily through referral programs. To do this, develop an incentive for new customers to refer people they know in return for some sort of benefit. There are a variety of referral programs you could try, and we’ll list the three we find most effective.

Start a Referral Discount Program

What it is: A program that gives customers a discount if somebody they refer makes a purchase.

Who Should Use it: Any business that sees a lot of repeat customers, where a discount on future products would benefit their customers.

Referral discount programs are popular in the retail industry but can be used by any business where customers typically make more than one purchase. All you have to do is include an offer that allows new customers to give a referral code to their contacts. The referral code will operate as a discount code for the referred customer, and the initial customer can be sent a discount to use on future purchases.

This works on two fronts:

  • It incentivizes customers to refer their friends and family
  • It incentivizes your customers to come back and spend more money with their discount

So, not only do you hammer down more referral business, but you also get more out of your existing customers. You get more business, and your customers get to save money on a product they want to purchase– everybody wins. The steps involved in the referral discount program are choosing your discount amount, and deciding who gets it.

Check out this example below from Soylent:

Soylent's referral discount program
Soylent's referral discount program

Choose Your Discount Amount

Because this discount program requires the customer to make a purchase from you, it can be pretty financially forgiving. You can be more liberal with discount programs than with other incentive programs, because they tend to increase repeat business as well as only work if you’re actually selling your products or services. This means that in some cases, you’re able to offer a discount that might lose you money in the short term but increases long-term sales.

So, in order to make your discount enticing, you’ll typically want to make it at least 10%. You don’t always have to pitch it as a percentage, though. You can also offer money as store credit, which can be a more tangible idea for your customer. The more money you spend on incentives, the more you’ll make back in referral revenue.

Decide How the Discount is Applied

Now, there are two types of discount incentive programs:

  • Programs that offer the original customer a discount
  • Programs that offer the original and referred customer a discount

To maximize the possibility of a successful referral, we recommend going with the latter. While it may cost more, it creates an incentive for both the original customer and the referred customer to continue purchasing and referring. It also creates an environment where both customers feel like they are “in on something” in regard to saving money on your product.

Offer a Referral Incentive Program

What it is: A program that offers an external incentive (cash prize, gift card, or merchandise) in exchange for a certain number of quality referrals.

Who Should Use it: Businesses with one-off purchases who need a steady influx of leads.

If your business doesn’t experience frequent repeat business, then a referral discount program may not incentivize customers enough. In these cases, you can offer an incentive that takes the form of a direct payout based on the number of leads someone refers. These can include little things like a free sample product for each referral, all the way to a Starbucks gift card for straight cash for a higher number of referrals.

There are 3 steps to this strategy:

  • Choose your incentive
  • Choose your referral intervals
  • Adapt your program over time

Choose an Enticing, Affordable Incentive

Choosing an incentive is the act of deciding on the payout method and overall amount. Options include cash offerings as well as gift cards or even physical goods like an iPhone. Ultimately, choose something your customers value and stick to it. Then, set a budget for your referral campaign. 

When doing so, consider these factors:

  • Average money made on each sale
  • Cost of your incentive
  • Frequency of repeat business

If you don’t land a ton of repeat business, your referral incentive needs to cost less than what you make on your average sale. On the other hand, if your customers tend to buy frequently, you can offer a more enticing incentive since your referral will likely turn into a repeat customer. So, for businesses with a lot of repeat business, you spend money to make money.

Check out this example below from Casper Mattress:

casper referral reward
Casper's referral incentive bonus

Choose your Referral Intervals

The interval of referrals is the number of referrals it takes to get an incentive. If you want to offer a high-end incentive, it might be a good idea to make the customer have to refer three or five people before they get it. You could even offer tiers of incentives for one, three, and five referrals so you essentially create a mini commission structure for your customers.

This is a great way to save money on an incentive program people love. You can set an interval out of the gate, or you can wait until you’ve seen results from your incentive program before you dial it back by requiring more referrals. That tactic ties into our next step.

Adapt Your Program Over Time

Even the best incentive programs have to be tweaked, or even eliminated, after a while. As you start to monitor the results of your program, it’s vital to tweak things to ensure that it’s efficient.

Here are a few questions to ask yourself whenever you analyze your results:

  • Are you losing too much money from your incentive?
  • Are you seeing growth that meets or exceeds expectations?
  • Do you still need the growth that the program provides?

These answers will inform how you proceed. If you’re losing too much money, but seeing and needing growth, consider adding an interval to save some cash. If you aren’t seeing growth, then you need to change your incentive. Consider surveying your customers to see what would motivate them to refer.

Finally, if you’re losing money and seeing growth, but you’re getting to a point where growth is no longer an issue, you can end your referral program. You can also add an interval if you’d like, but if you don’t need the extra growth, don’t spend the extra money. Focus on maximizing profits from your current customer base now that your program has met your goals.

2. Generate Referrals During the Sale

Now that you’ve set up the groundwork for referral incentives, it’s time to prove to the customer that you’re worth telling people they know. Generating referrals during the sale focuses on your customer service, and ensuring that the customer has an experience worth sharing. Then, either ask for a referral directly, re-introduce your referral program from above, or continue to nurture the relationship post-sale until enough rapport is built.

Let’s look at how to do this during the sales process:

Personalize the Customer Experience

A customer is far more likely to refer when they feel respected and understood during the sales process. To accomplish this, the sales representative they deal with needs to be focused on making each sale feel personal to the customer. There are a few ways to get this done:

  • Use their name
  • Ask questions
  • Document and recall information they give you

All of these elements add to the personal side of a sale, and make it clear that you’re listening and making a personal connection. People love bringing friends together, and if you can become a friend to your customer, they are more likely to recommend you to others.

Use Their Name

This is a small detail, but it’s important. Injecting their name into the conversation and during correspondence is a great way to make your communication sound personalized. If there is anything that customers hate, it’s feeling like they are being read a script.

Including their name in the following ways can make things feel more personal:

  • Include their first name in all emails, subject and body
  • Use their name when asking the big questions (“What’s your budget?” “What do you like about the product?” “Are we good to go on this deal?”)
  • Pre-fill their name on paperwork

If these feel like no-brainers, then you’re already doing something right. For some, though, using first names frequently in conversation can feel foreign or unnatural. As a result, though, it’s very noticeable to the customer, and it will make it clear you are tailoring your speech, and your deal, just for them.

Pro Tip:

When we say “name”, we usually mean first name. While Mr./Mrs./Ms may be necessary in high-end sales, it doesn’t feel as personal as their first name. So, unless you are directed otherwise by a supervisor, use the customer’s first name whenever possible.


Ask Questions

This step doesn’t just mean prospecting questions; you should go a step further when building rapport with your customer. When they mention something they like about a product, ask them how it will help them in their day-to-day. Use the feedback they give you as an opportunity to ask questions that dive deeper into your customer’s life.

Examples of good times to ask questions to ask are:

  • When your customer expresses a specific interest in your product
  • When they share something about themselves voluntarily
  • When they have a comment or complaint about your business

Now, you don’t want to go too far. Ask questions that give you an idea of their day-to-day. You’re trying to tap into their experiences, and you can get that far without overreaching. By asking questions in these specific circumstances, you ensure that they feel connected to the matter-at-hand, and their scope is limited enough to avoid making the customer uncomfortable.

Document & Recall Customer Information

Asking a question means nothing if you don’t do anything with the answer. When the customer starts to talk, you should be taking mental notes of the personal details they give you. Once the correspondence is over, write the important things down so that you can make it clear to them that you remember what they chose to share with you. Write down details like these:

  • If they have kids, how many, and their names
  • Their partner’s name, if they have one
  • What they do for a living
  • Parts of their life that they have said your product will benefit

Now that you have them written down, you can recall this information in future conversations with them. This is the step that really seals the deal, and shows them that you’re listening. This isn’t a trick, or a tactic; you sound like you’re understanding them because you are. If you only learn one thing from being a salesman, it should be the power of listening to your customer.

Introduce Customer Support Tools

This one is pretty straightforward: Make sure your customers know how to get help if they need it. One of the easiest ways for a happy customer to become a disgruntled one is to make them feel like they are stuck with a broken or unsatisfactory product. Here are the things your customer needs to know before walking out of the door:

  • The phone number and email for customer/tech support
  • The hours they can be reached
  • Any troubleshooting resources you have, either hardcopy or online

Get all of that information written down on a piece of paper, a sticky note, or on the back of your business card. Give it to them to keep so that they have the information handy if they run into any issues, and stress the fact that your company is happy to help. Products and services can sometimes fall short of expectations, and it’s forgivable if the customer knows you will rectify it.

Pro Tip:

We mentioned using the back of the business card for this step, and that is definitely the recommended way to do it. Let the customer know they can reach out to you personally with any issues, and they are more likely to trust and recommend you.


Ask Directly for Referrals

If you feel you’ve developed enough good will with your customer, ask directly for referrals. This is best done toward the end of the sales process, after all other steps have taken place. You’re basically asking right as they walk out the door.

Here are some professional ways to ask a customer for referrals:

  • “Thanks for your business, if you had a good experience, I just ask that you refer any friends or family that may be in the market and I’ll help them out.”
  • “Thanks for your business, and if you have any friends or family that need help, let them know I’m your guy.”
  • “Thanks for your business. Most of my business comes from referrals, so please don’t hesitate to send friends and family my way if they are in the market.”

Each has a different “flavor” depending on your circumstance and personality. Some people like to make it more casual, while others feel that the more direct route is a more effective way to drive home the point. It’s okay to let the customer in on some inside baseball and clarify exactly why referrals are helpful to you and your business.

If you aren’t sure if you’ve built enough rapport, continue doing so with our “after the sale” strategies. However, if you have an existing referral program, you should at minimum mention this to the prospect before the deal is done in case they have someone in mind.

One of the best ways to generate passive referral business it to provide stellar customer service to your existing customers. If you focus on 10x service throughout the sales process as well as post-sale, you'll naturally set yourself apart from your competition who typically focus on providing marginally better service at most. Then, so when the contacts of your existing customers ask for a referral suggestion, your brand will be top of mind.

tyler barr headshot
Tyler barr
Controller & Director, Punch Financial

3. Generate Referrals After the Sale

Now that we’ve set up a great referral generation framework before the sale, and given the customer an experience worth recommending during the sale, it’s time to keep ourselves on the customer’s mind. The way we ensure that the customer continues to care about us and our business after the sale, is to show them that we care about them after the sale. We do this by receiving their feedback through a survey, and sending them a branded card on their birthday.

Send a Customer Experience Survey

Customer surveys are commonplace in sales for a reason: They let you know what to work on, and make the customer feel heard. If you’re implementing a few of these referral generation strategies, and you aren’t getting results, the survey will probably tell you why. You’ll want to send this directly to the customer within a week of the sale, and ask these questions:

  • How easy did the process feel?
  • How friendly was the salesperson?
  • How knowledgeable did the salesperson seem to be?
  • Were they aware of all the customer support and tech troubleshooting tools?
  • Would they recommend this service to a friend?

These questions focus on the customer experience and make sure the sales staff is doing all the things we’re asking of them here. The survey gives the customer a chance to be heard, reminds them that you’re listening, and keeps salespeople accountable. Creating an incentive structure for salespeople based on these surveys can help amplify that effect. This helps gain referrals by ensuring a quality service experience that is worth referring.

To send an effective survey, use Google Forms. This free option is a great way to create and send custom surveys that allow for multiple-choice as well as write-in questions. You can send one link to all your customers for aggregated feedback.

Send Professional Birthday Cards

This one may seem kind of cheesy, but trust me, it works. All you have to do here is print some black cards with your company logo on them, and then have the salesperson fill out a short message for customers’ birthdays. This is best leveraged in industries like car sales, or any market wherein the customers and salespeople don’t see each other often.

Keep the message short, kind, and respectful. You’d be surprised how big of an impact a handwritten card can make, regardless of how short the message inside. Set reminders in your CRM a week out from your customers’ birthdays, and set aside 10 minutes to fill out and send them. This is a great way to make your name stand out when the customer is referring friends.

If applicable, continue to remind your customer about your referral program if you have one. Creating an effective referral program and then providing stellar customer service is a great way to organically entice your existing customers to refer people they know.

4. Create a Referral Agreement

Another way to get referrals is to create a referral agreement with a referral partner. A referral agreement is a contract between your company and somebody else (usually another business) where one business agrees to compensate the other in exchange for business referrals. This is commonly seen in the car business, with dealerships referring customers to different paint and body shops in exchange for kickbacks.

Referral Agreement Template

Since referral agreements are legal documents, we can’t tell you exactly how they need to be written. So, we have decided to offer a referral agreement template for you, and encourage you to use it as a reference, and consult a lawyer before finalizing any agreement. Below the template, we outline the common sections and how to approach them.

Click to view download
Click to view/download

There are a few steps that need to take place in order to create an official, legal referral agreement. You’ll need to cover the basic legal stuff like company names and relationship, what constitutes a lead, and how/when compensation will take place.

Here is what you must include in a referral agreement:

Start With Basic Legal Information

Just like any other legal document, you need to put down all pertinent identification information. This includes:

  • Names of both parties involved (business names if applicable)
  • Date of the agreement
  • Who is the “holder of equity” aka the company receiving the referrals
  • Who is the “external agent” aka the party sending referrals
  • Term of Agreement (when will it end)

All of this will be right at the top of the agreement. It makes clear who is involved, and what function they provide in the agreement.

Define Parameters for Leads

This is where the contract specifies what kind of leads the equity holder will pay for. Not all referral agreements are as simple as “send someone over, and we will pay you.” Each agreement has its own qualification for a “lead” in terms of compensation.

There are two choices here:

  • Any referral that shows up or contacts the equity holder will count
  • Only referrals that convert to customers will count

Obviously, the choice you go with will affect the value of compensation. If you’re paying for any referral that shows up or contacts you, you don’t want to pay as much per lead. If you only pay for leads that convert, then the external party will demand a higher price. If the lead must convert, decide on a timeframe within which they must convert in order to be counted.

Outline Compensation Agreement

There are a few different compensation details that need to be hammered out on the referral agreement. Both parties need to know how the external party will be paid, how much they will be paid, and when they will be paid. Additionally, there is the question of recurring conversions.

Determine the Method & Value of Compensation

You’ll need to figure out how the external party will be paid. Are you paying with products and services, or are you paying with cash? Once you decide how the external party’s paid, you need to decide how much. The value of products and services vary widely, but payment in cash is usually either a flat rate per lead, or a percentage of what that lead spends with the equity holder.

Outline a Compensation Window

Now that we have figured out what will be paid, we have to decide when it will be paid. This one is pretty simple, how long after the lead reaches out or makes a purchase will the external party be paid? You should also determine whether the external party will be paid again for recurring purchases, which would incentivize more lucrative leads.

Cover Exclusivity and Confidentiality

As with any financial agreement, it’s important to mark down whether the agreement is exclusive or not. This is a major deal breaker for a lot of these agreements. You want to make sure, as the equity holder, that you are getting the highest-quality leads possible.

A confidentiality/privacy statement is more of a “dotting i’s, crossing t’s” section of the document. Basically, you are covering yourself legally from any sensitive details being shared, or any intellectual property theft.

Bottom Line: Referrals

Referrals are a vital aspect of sustaining any business through outbound lead generation. With these strategies, you’ll be able to generate and maintain a steady stream of referrals that will keep income for you and/or your business consistent. Put the work in before, during, and after the sale, and people will want to share their experience with their friends and family.

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