Quantitative Properties of Growth Loops: How much to invest and expect!

In the last couple of posts, we talked about the Customer Decision Journey and gave an intro to Growth Loops, which are made up of both Micro and Macro Growth Loops.

Micro Growth Loops are the tactical strategies you can use to grow a business. These can be anything from paid media campaigns, SEO and content efforts, to more viral strategies like referral programs.

But let’s be honest... if it were that simple, we'd all be IPO-ing, selling our companies, or you wouldn't be here, subscribe to this newsletter, trying to learn about growth.

Anyone can start a digital ad campaign on Instagram or set up a referral program, but not everyone will succeed. From my experience managing campaigns for big companies, I've noticed diminishing returns despite increased spending. The issue was not fully understanding the numbers involved, which are crucial for predicting returns, deciding investment amounts, and understanding campaign timelines.

And that's what we'll dive into in this article: how to define the quantitative properties of your Growth Loops.

Put simply, quantitative properties help you set realistic expectations for your loop's returns and timelines. No more marketing guesswork!

.3 Quantitative Properties of Micro Growth Loops… 

→ Loop Return: Think of this as your ROI (return on investment). It tells you how much growth you can expect from each loop cycle and how many cycles you can generate before it reaches its limit.

→ Loop Investment: This is about the investment required to complete one full loop cycle. How much money, time, or resources will it take?

→ Loop Scope: This refers to the minimum and maximum thresholds of your loop, helping you understand its potential and limitations.

.Loop Returns… 

Remember those ambitious New Year's resolutions?

"I'm starting my diet next Monday." "This year, I'm gonna read 52 books." "I'll invest 20% of my salary…"

Ah, New Year’s Eve. Such a magical night, right? And those first couple of weeks are pretty inspiring too! But then… reality sets in. By January 21st, that initial motivation has fizzled, and those lofty goals are gathering dust faster than last year’s gym membership.

Just like with those New Year's resolutions, setting goals for our Growth Loops is easy. The tricky part? Figuring out how much effort it'll take to achieve those results. And that starts with understanding Loop Returns.

Let’s dive into the nitty-gritty of loop returns. Essentially, loop returns measure how much output each cycle of your growth loop produces. There are two key ways to measure loop returns: Cycle Return and Growth Multiplier.

 Cycle Return: One Lap Around the Growth Track…

Cycle return focuses on the output of a single cycle of the loop. It answers the question:

“For every user I put in, how many new users do I get out at the end of one loop cycle?"

Let's break it down with a delicious example. Imagine you have a food delivery app, and every user who refers a friend gets a free pizza (because who doesn't love free pizza? 🍕).

Let's say you start with 100,000 users, and after one cycle of your referral program, you have 50,400 new users who signed up thanks to those tempting pizza rewards.

This means for every user you put in, you get 0.50 new users out through one cycle of the loop. Not too shabby!

Don't let the formula scare you! It's simply calculating how much output we get for every user we put into the loop in one cycle.

Below is an example of our pizza viral loop:

 .Growth Multiplier: The Compounding Effect…

The growth multiplier takes the analysis a step further. It looks at the total output across all cycles of the loop over time. The key question here is:

"For every X that we put in, what do we get out over multiple cycles?"

Let's say our loop runs 10 times. Based on what we discussed earlier, where each customer brings in 0.50 new customers, the results should look like this:

By the end of the loop, we will have double the number of users we started with. So, if we start with 100,000 signups, we will end up with 200,000 signups.

Here is the formula for the Growth Multiplier:

Why These Metrics Matter

Understanding Loop Returns (both Cycle Return and Growth Multiplier) is crucial for any Nerd Marketer who's serious about growth:

• They help you evaluate the effectiveness of your loops. Is your loop a sputtering engine or a growth rocket? 🚀

• You can compare different strategies. Which loop is generating the most bang for your buck?

 .Loop Investment…

Those New Year's resolutions aren't gonna achieve themselves with wishful thinking and fancy formulas. At some point, you gotta break a sweat to shed those extra pounds or invest some cold, hard cash if you wanna launch that dream business.

Think of Loop Investment as the cost required to keep your growth engine humming. It's the price tag on each spin of that beautiful growth flywheel.

Now, before you start sweating about your marketing budget, chill out! Not all loops are created equal when it comes to cost. Some are lean, mean, growth machines, while others guzzle resources like a monster truck.

Here are the three "flavors" of Loop Investments:

1. Time: The one resource even the smartest marketer can't create more of. How much time will your team need to manage and optimize your loop? A few hours a week, or a full-blown marketing marathon?

2. Money: Let’s be honest, Nerds, most marketing efforts need some cold, hard cash. Think of ad spend, referral bonuses, influencer partnerships, fancy tools, or even the investment of those killer blog posts and videos.

3. People: Sometimes you need more than time and money—you need people power! How many brilliant minds are needed to keep your loop running? A solo marketing ninja or a full-fledged growth team?

But here's the catch: different loops have different cost profiles. It’s like those personality quizzes—every loop has its unique blend of traits.

• Viral Loops: Light on the wallet (think free referrals), but they can be time-intensive. Building a community and encouraging sharing takes effort.

• Content Loops: Creating high-quality content? That takes time. Content Loops can be time-consuming, but lighter on the budget (especially if you’re a content-creating rockstar!).

• Paid Loops: No surprise—these often require the biggest chunk of change. Think targeted ads, influencers, and sponsored content. But, they can be more time-efficient, especially if you’ve mastered targeting and automation.

 .Loop Scope…

I'm from Uruguay, a small country nestled between two giants, Argentina and Brazil. We Uruguayans are serious about our asado – we're a nation of 3 million people but with 15 million cows!

Think of Loop Scope like firing up a barbecue. At the start, you need a certain amount of kindling to get those flames going, but even the hottest fire eventually burns out. The same goes for your growth loops!

Here’s how to break it down:

• Minimum Scope: How much effort (those initial sparks) is needed to get your loop churning and producing meaningful results? Some loops need a lot of effort at the start (like using a blowtorch to light coals), while others start easily with just a match. In the picture above, this is shown by where each line starts to rise. The blue line (Personal Viral Loop) starts quickly with little effort. The green line (Financial Viral Loop) needs more effort to get started.

• Speed: Once your loop starts, how quickly does it speed up and produce good results? It's like cooking meat to perfection—what we call "brasas" in Uruguay (those glowing embers). Think of Speed as how fast those embers get hot enough to cook a steak. In the image, the steeper the line, the faster the loop is speeding up. Notice how the blue line starts off steeper than the green line.

• Maximum Scope: Every barbecue (and every cycle) has a limit where benefits decrease and progress levels off, similar to overcooking meat. The Maximum Scope is the point where growth levels off. The blue line has a higher Maximum Scope than the green line, indicating greater growth potential.

Understanding Loop Scope is crucial for setting realistic expectations, comparing different growth strategies, and allocating your resources wisely.

 .Recap…

Not all loops are meant to scale to millions of users. Some might be perfect for a niche audience (a small, intimate gathering), while others have the potential to become massive, all-you-can-eat feasts of growth.

We’ve covered a lot of ground today! You’ve now got a solid understanding of the quantitative properties that drive Growth Loop success:

• Loop Returns: Those sweet, sweet metrics that tell us how much growth we’re getting from each cycle of our loop (both in the short term with Cycle Return and over the long haul with the Growth Multiplier).

• Loop Costs: The investment (time, money, and people power) needed to fuel our growth engine. Remember, different loops have different costs, so find that balance that works for you.

• Loop Scope: Understanding the limits and potential of your loop—are you aiming for a quick spark or a roaring bonfire of growth?

.Other newsletters that I am reading…

• B2B Growth: Every Friday, they study a successful content creator... then share what we learn with B2B content marketers.

• simple.ai: Join 100,000+ others and learn how to use Agent AI to grow your career or business.

• Growth Archive: Get real-world marketing examples every week from successful B2B projects that you can replicate for your own business

That is all for today friends.

Keep measuring, keep optimizing, and keep growing!

Jojo