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Viral Growth Loops: How to Turn Your Customers into a Referral Army
Transforming Word-of-Mouth into Powerful Marketing Machines for Exponential Growth
Jojo Giuffra
July 18, 2024
Alright, Nerds, remember those Growth Loops we’ve been geeking out about? Those self-sustaining marketing engines that make customer acquisition feel like magic (okay, maybe not magic, but pretty darn close)? Well, it's time to get tactical and explore those loops you can launch right now - Viral Loops!
These bad boys leverage the power of word-of-mouth and social sharing. Think back to our Dropbox example in its early days. Users invited their friends, who invited their friends, creating a viral explosion of growth that made file-sharing history.
The Key to a Killer Viral Loop? Making it Ridiculously Easy and Rewarding for Users to Spread the Word.
But here's the secret sauce: the real magic of a Viral Loop lies in the why – the compelling reason behind those referrals. Why would someone take the time to tell their friends about your product? What's in it for them?
In the case of Dropbox, that "why" was the promise of a whopping 50MB of free cloud storage - a game-changer back in the day! That incentive made users eager to share, fueling Dropbox's meteoric rise.
Just like ice cream, Viral Loops come in a variety of delicious flavors. We've got three distinct variations, each with its unique appeal:
Financial Viral Loops: These loops reward users with cold, hard cash (or its equivalent) for spreading the word. Think referral programs like Uber or Dropbox, where you earn credits, discounts, or straight-up cash for every friend you bring on board. Cha-ching! 🤑
Social Viral Loops: These loops tap into our human need for connection and belonging. Think of those "cool kid" brands or products that make people feel like they're part of an exclusive club. The more people join, the more social capital users gain (and the more bragging rights they have!).
Personal Viral Loops: These loops are all about providing direct personal value to the user and their friends. Think social media platforms like Instagram or TikTok, or messaging apps like WhatsApp – the more people using the platform, the more useful and enjoyable it becomes for everyone.
Today, we'll delve into how Financial Viral Loops are structured, and in the next post, we'll dive deep into Social and Personal Viral Loops.
In these loops, the key is the financial incentive you give in exchange for a person referring someone they know. The user will be motivated to share your product or service because you're giving them a tangible reward!
A positive aspect of this type of viral loop is that we determine a fixed CAC, meaning if we tell a user we'll give them $20 for each new signup they bring in, we know the CPA for the strategy will be $20.
Another key is that the incentive can be linked to an actionable step that generates a habit.
I'm currently launching this type of Viral Loop at the bank where I work, and we're going to give a financial incentive if the referred user deposits into their savings account – not just for signing up. This way, I ensure that the strategy generates higher profitability.
And the best part? That incentive doesn't have to be actual money! For example, Uber and Postmates give you credit to use on the platform, and Dropbox used to give out extra storage space.
We can take advantage of offering a financial incentive to ask a bit more from users. Unlike social or personal loops, where the user's motivation comes from within, here, they act because we reward them.
Now, let's put on our detective hats and dive into the qualitative data—the "why" behind those user actions that make your loop spin.
In other words, what motivates your users to share, and why do they choose to share with specific people?
Just like with other Growth Loops, the qualitative data is broken down into three key elements:
The "What" (The Action): The specific behavior happening at each stage of the loop.
The "Who" (The Actor): The person or group driving that action.
The "Why" (The Motivation): The underlying reason behind the action.
Another important point to remember is that Financial Viral Loops (like all Growth Loops) have three main phases:
Receiving Value: This is where users are introduced to the core value proposition of your product or service.
Generating Value: This is where users actively contribute to the loop, adding fuel to the fire.
Distributing Value: This is where the value generated gets spread far and wide, attracting new users or re-engaging existing ones.
Now, let's roll up our sleeves and break down the step-by-step actions that make these Financial Viral Loops tick. It's time to dissect the 'What.'
This is the action users take at each stage of the loop. It’s what’s actually happening, the steps in the process.
Receiving Value: The referred user signs up. To boost retention, we can tie this signup to a follow-up action. For example, Uber might require the new user to take their first ride or spend a certain amount.
Generating Value: The company creates value by providing a financial incentive. This is the key to the whole Growth Loop. Remember, the incentive’s value must be greater than the friction of experiencing your core value proposition.
Distributing Value: The referrer shares a personalized link or a code with their contacts.
Some referral programs incentivize both the referrer and the referred user, while others reward only one party. For greater success, the key is to offer a benefit to both sides.
Now, let's analyze who the key players are in this action-packed Growth Loop:
Receiving Value: Both the referrer and the referral users receive value in this stage.
Generating Value: The company generates the value, which, in this case, is that sweet, sweet financial incentive. Remember, the incentive needs to outweigh the effort or friction of experiencing your core value proposition.
Distributing Value: The referrer is the one spreading the love (and their referral link!).
This is the most important part, which relates to the incentive being greater than the friction of using your product or service's core value proposition.
Using the Uber example, a user needs to download the app, create an account, and take a ride costing at least $20 to experience Uber's main benefits. After that, they can join the referral program, which offers $70 in credits for referring a friend. Many Uber users probably find this referral program appealing.
However, if we consider a B2B company like Salesforce, where there’s a tedious sales process and closing a big deal of, say, $10K a year, the company adopting Salesforce would likely need to migrate all their contacts and undergo onboarding. Even offering a $1K financial incentive might not generate much traction in such a case.
Alright, Nerds, it's time to get numerical! 🤓 Quantitative data is crucial for understanding what to expect from our Financial Viral Loops, how much to invest, and how long it'll take to see those sweet, sweet results.
Think of it like this: Quantitative data is our marketing crystal ball—it helps us predict the future (or at least make some educated guesses).
Remember, quantitative data breaks down into three key metrics:
Minimum Scope: The effort required to get our loop up and running.
Speed: How quickly our loop will scale and those referrals will start rolling in.
Maximum Return: The maximum growth we can realistically expect from our loop.
The minimum scope for a Financial Viral Loop is usually pretty low. We don't need a ton of kindling to get this fire going, thanks to those juicy financial incentives!
The key here is to decide who can participate in your loop. Should it be open to all users, or only those who meet certain criteria? Think about our Uber example:
Option 1: Everyone's Invited! All users, whether they're active, inactive, paid, or free, can refer their friends.
Option 2: The VIP Treatment. Only users who have taken a ride or are highly active can participate in the referral program.
Pro Tip: Segmenting Financial Viral Loops to target users who have already spent money (even just $1!) is a growth-hacking goldmine! This encourages those freebie-loving users to make their first purchase and incentivizes paying customers to stick around.
.Quantitative Data: Speed…
Financial Viral Loops can scale fast! That economic incentive is like pouring gasoline on those referral embers—it gets things heating up quickly!
One of the best things about Viral Loops is that they don't require a huge investment in people power. The only downside here is that you do need to invest some cash for those incentives (unlike with Social or Organic Viral Loops).
Example Metric: Companies like Uber have seen referral program participation rates as high as 25%, significantly boosting their user base in a short period.
.Quantitative Data: Maximum Return…
Now, here's the catch: Maximum Scope is the one area where Financial Viral Loops might fall a little short. Why? Because the motivation is purely external—that sweet, sweet financial incentive.
Unlike Personal or Social Viral Loops, where the product inherently gets better as more people join, or users gain social status by sharing, a Financial Viral Loop relies solely on that external reward.
For the Maximum Return, we should analyze the Cycle Return and the Growth Multiplier.
Let's start with the Growth Multiplier. 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:
Now, going into the growth multiplier, this 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:
Qualitative Data:
Value Receiver: Both the referrer and the referred user.
Value Distributor: The referrer.
Value Generator: The company (that's you!).
Quantitative Data:
Minimum Scope: Low (thanks to those irresistible incentives!).
Speed: High (we're talking growth on fast-forward!).
Maximum Scope: Potentially lower compared to Personal or Social Viral Loops.
Here is also an expectation of a Referral Program of the results that could drive:
Okay, I could end this chapter here and send you off to create your first referral program, but I've learned a few things along the way that I'm itching to share!
Think Beyond Cash
The "financial" in "Financial Viral Loops" doesn't always have to mean actual dollars. Think outside the bank! You can offer incentives in the form of:
Credits: Give users credits to use on your platform (like Uber or Postmates do).
Product Upgrades: Offer free upgrades or premium features to those who refer new customers. (Remember how Dropbox used to give extra storage space?).
Exclusive Content or Access: Give referrers access to special content, events, or community features.
Habit-Forming Actions
Instead of rewarding users for a simple signup, tie that incentive to an action that creates a habit or deepens their engagement with your product. For example:
Instead of rewarding a referral just for signing up for your food delivery app, give them that free pizza after they've completed a certain number of orders.
Add a time constraint: Those orders must be completed within the first 30 days of signing up.
The Price is Right (But Test It!)
The attractiveness of your incentive plays a huge role in determining your loop’s success. The bigger the reward, the higher your conversion rates and the more growth cycles you'll see. But here’s the nerdy part: You can test different incentive amounts to find the sweet spot that maximizes your ROI.
Example: Uber's referral rewards and requirements vary by city, based on factors like competition, user behavior, and market dynamics.
Financial Viral Loops are a powerful tool for driving rapid growth, but they require a strategic approach. By understanding the "why" behind user behavior, the quantitative properties that influence your loop's performance, and those extra pro tips I've shared, you can create a referral program that's a win-win for you and your customers!
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That is all for today friends.
Keep measuring, keep optimizing, and keep growing!
Jojo
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