A referral is any existing customer who provides contact information for a prospect to his or her sales representative. ‘Referral’ can refer to the prospect provided or to the process as a whole.

Referrals provide quality prospects to your business by engaging existing, satisfied customers. By gaining contact information — a name, some background information, and potentially even an introduction — from a referrer, a referral can immediately enter your sales funnel with some positive momentum to potentially become a customer. Referrals are oftentimes gained via promotions, refer-a-friend incentives, and also provide a crucial component in multi-level marketing (MLM), where a non-salaried workforce sells a company’s products, generating commissions which serve as the primary source of employees’ compensation (pyramid selling). 

Referrals come pre-qualified for your business and can leverage existing relationships with satisfied customers to lead to new sales. These can become cost-effective leads, utilizing little monetary investment from your organization to identify and engage quality prospects. More than simply the revenue generated, however, referrals are a vital component to the customer relationship and overall satisfaction of your client base, as both the incoming referral and the original referrer have expectations from your business.