I was talking to a business owner who has built a very successful business completely by referral. One person has referred half a million dollars’ worth of business to her! But she recently had someone tell her that building a business by referral is dead – that she needed to be doing online marketing, social media, blogging, etc.

Clearly, my friend isn’t alone in her success: generating referrals is still a proven way to build a lucrative business.  Certainly there are other ways as well; online marketing is a powerful force (especially when combined with referrals).  And depending on the business model, one or the other may be more or less effective.

For example, my friend is interested in adding an evergreen/recurring income stream to her business, which will be fueled with online marketing. But rather than abandon the referrals, she will adjust her model to include both strategies.

My philosophy is, if it’s working, why not nurture that more? The key is to understand how to generate referrals in your business; there are some fundamental practices to have in place to tap into this profitable method of business building.

We’ve rounded up the best of the best tips for generating referrals. Read through the following list to identify where you can make changes in your business to make referral generation a strong income producer, along with (not in place of) online marketing.

1.  We’ll start with the obvious: Ask. In fact, Forbes insists that you should ask constantly.  It’s easy to forget to ask, and some business owners are shy, making it even more difficult.  But if you don’t ask, you miss out on a staggering number of potential customers.

When should you ask?  Kern Lewis, contributing Forbes writer, says you should ask, “In the midst of delivering excellent service, and regularly thereafter.”

Which leads us to the next tip…

2.  Give them a reason to refer you. “People won’t give you referrals unless you deserve them” (Ray Silverstein, Entrepreneur.com). If your products and services aren’t dazzling people, they will not be inclined to speak favorably about you to others.

However, if you are intentional about your relationship with your customers, being empathetic, efficient, and trustworthy, they will want to help you (by sending business your way).

Do a quick audit of your current customer relations process by asking yourself these questions: “What does my customer expect of me?  Am I delivering that?”  The idea is to determine what they consider excellence, and then give it to them.

3.  Make it easy for your clients to refer you. You can do this by providing a template they can use to pass along information about your business.

Hubspot offers a sample email template here, but you can easily write your own to send to your clients.  All it takes is a few sentences that your client can quickly personalize and email out to their friends and business partners.  The idea is to do the heavy lifting for them, making it more likely that they will actually carry through with the referral.

4.  Finally, offer an incentive. There’s no shame in offering something in return for profitable referrals. Some incentive ideas from Duct Tape Marketing include a discount, upgrade or something free. Test out different offerings on your current client base to determine which idea works the best.

Using referral generation to add additional income to your business doesn’t have to be a mystery; use these 4 tips to do it right.