Understanding The 4 Types Of Small Business Referrals

Understanding The 4 Types Of Small Business Referrals

April 10, 2018
Chris Risse
Estimated Reading Time : 12 minutes

Like any business person, you want new business opportunities to fall into your lap, by everyone and their mother sending you small business referrals. However, like any seasoned professional, you understand that isn’t the case.

Small business referrals take time, through building business relationships and giving value.

In this article, I want to prepare you for success in receiving small business referrals and how to identify your referral sources and the types of referrals that are best to receive.

Referral Source

A contact that understands the value of your product/service in order to actively generate leads for you.

Having a referral source can be a major growth factor for your business, but you need to understand your prospects and customers well enough, and defined in simple terms, in order to help your referral source send you better referrals.

When your referral source can identify your prospects for you, it is time to help them focus on the types of referrals you want.

There are 4 types of referrals you can receive to your business. Take each referral you receive and identify them as one of the following types to know whether or not if you will be able to produce a sale.

Let’s rate small business referrals from frigid to steaming, starting with…

Cold Referrals
(General Contacts)

A referral source passes contact information to you, but no communication has taken place between the referral source or the contact. You can assume that the contact may not have a relationship with your referral source, nor is the contact aware of your product or service.

This type of referral seldom leads to business for quite sometime, if at all. Without an existing relationship with the contact and your referral source, you are starting out with a complete stranger.

Cold referrals are not an ideal type of business referral. In fact, you should avoid asking for these types of referrals in your business networking efforts. It is great to get new contact information when there is the potential for opportunity, but using referral sources for this type of referral is a waste of time.

You can get better qualified prospects through doing your own research or delegating the task to someone within your team. Don’t expect any type of cold referral to be valuable from referral sources.

A referred prospect can have some value, but only if the contact has been qualified…

Discovered Referrals
(Qualified Prospect)

A referral source passes contact information to you about the potential for business. The referral source has an existing relationship with the contact and is aware of their general needs and the value of your product/service.

Discovered referrals can be rewarding, but often take some time to build a relationship with the prospect. The existing relationship between the referral and your referral source will get your new relationship going, but it is up to you to keep it growing into potential new business.

Take it as a compliment from your referral source that they have began to understand the value you and your business provides, and are now attempting to connect that value with those whom they deem to need it.

It would be beneficial to you to reach out to the shared contact to begin a conversation and start a business relationship. Follow up with the contact on a semi-regular basis to facilitate and nurture the relationship over time.

Eventually, your value will have grown through communication and time that when the contact is in need of your product or services, you will be given the opportunity.

Yet, there are still better referrals you can be receiving from your referral sources…

Warm Referrals
(Warm Lead)

A referral source passes contact information to you based on previous discussion with the contact who has expressed a need for your product or service. The referral source may also share your information with the contact as well.

This is the true first type of a legitimate business referral. Up to this point, the potential for business has been very low. Because your referral source has done a great job of warming up the referral to meet with you, the opportunity is yours to create new business.

Follow up with your referral immediately, no later than 24 hours from receiving the referral. Warm referrals go cold fast, so it is in your best interest, and in the best interest of your referral and referral source, that you are active in your response and delivering on your value.

An even better referral is the contact that communicates with you first. This shows even more interest and value for your product and services with the referral. However, do not expect the referral to communication first. You must do your follow up and communicate with the referral as soon as possible.

Make sure to thank your referral source for recognizing or creating the opportunity for the referral. Your show of gratitude can lead to additional referrals in time.

There is still one more type of referral you can get and it is a HOT one!

Hot Referrals
(Hot Lead)

A referral source pitches your product/service to create a sales opportunity for you and takes it upon themselves to facilitate a relationship between you and the contact immediately to close the deal.

At this point, you can call your referral source your outside sales person. They have gone above and beyond what is expected to create a referral and brought a sale to you.

This type of referral is extremely rare, so do not expect to get this type or referral often. Even more rare than this type of referral is the type of referral source that can generate this type of referral for you.

However, you can do your best to build up your referral sources to understand your business in simple terms that are easy for the referral source to communicate with their contacts.

By taking this action, and working with your referral sources over time, you will increase the likelihood that you will receive referrals like this.

Make sure to be grateful and take your referral source out to lunch!

Identify your small business referrals and be proactive with creating them

Now that you are armed with the understanding of the different types of referrals, take it to the next level by identifying the types of customers you are looking for and teaching your referral sources how to generate warm and hot referrals for your business.

  • Be Specific

    Give names of businesses, contacts, or describe the type of person you want to do business with. This will help you know who your referral sources knows.

  • 5 Words Or Less

    When you describe a referral target, use 5 words or less to identify. Keep it simple for your referral sources to understand.

When you can be specific and concise with the type of business you would like to receive as a referral, you increase the quantity and quality of those referrals.

What type of referrals are you receiving for your small business?

Leave your answer and feedback in the comments section below.

About the Author

Chris Risse


Chris is the owner of Mediaryte, a digital commerce company working with local small businesses. He has worked with countless business owners on business mastery, systematizing processes, and quantifying results. Chris also is a competitive fat bike racer and has a fantastic sixth sense for detecting well hidden candy and treats.

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