The maths behind Product Virality and Referral Marketing

When building a consumer-facing product, virality is a key element. Virality simply converts streams of incoming customers into new streams of incoming customers, without the cost of its acquisition (or at least without part of it).

Product Virality, when done properly, allows startups to scale fast. Virality origins from the name “virus” and borrows elements like spreadability and measurable KPIs like the “K-Factor” that in Epidemiology measures the average number of people a host will contact while still infectious.

While the K-Factor is probably the most important metric when it comes to Virality, it’s still an “output” KPI that is fuelled by much more other metrics, which I’ll try to analyze in the context of this article.

Let’s start with the basics; K-Factor.

K-Factor is simply calculated by the following formula:

K -factor= i * c

stands for the number of outgoing invitations that occurred by one existing customer and declares the average conversion from receiving an invitation to the desired conversion (e.g. sign-up or user activation).

Although this formula is quite simple to calculate and understand, it doesn’t always tell the truth. Imagine the following edge cases:

  • The invitations happen off-line (word of mouth) and cannot be tracked
  • The product doesn’t run a traceable invitation mechanism
  • The invitations occur somewhere within the basic functionality of the product that wasn’t designed for virality (e.g. transactional emails)

There’s no perfect way, but I believe that there are two ways of calculating the K-factor more accurately to understand whether you achieve Viral Growth or not.

First one, would be to isolate the invitation activity into a traceable, identifiable mechanism. Implement tracking on invitation mechanisms (even if they don’t run incentives). Secondly, include tracking events within your product whenever the activities leak out of your echosystem. Thirdly, reverse engineer attribution and calculate potential entries to your system by word-of-mouth. Combine these three metrics into one i metric and you ‘ll have a more accurate picture

Broad Virality metrics

Active Users Sending Invites

Not all active customers behave similarly when it comes to outgoing number of invitations to prospects. There’s always a small powerful cohort that invites the majority of the referrals and wider, bigger cohort of referees that refer with ambiguous results. Tracking the size of Active Users Sending Invites is a major health-check to understand whether product changes affected or not the virality of your product.

CAC – Customer Acquisition Cost

As all traffic channels, your viral growth channel involves expenses to run as well as expenses in the form of user incentivization.

CAC = All expenses (product, marketing) involved in virality / number of new customers via referral

CLTV – Customer Life Time Value

CLTV helps us understand the quality and the value of users that are being acquired (overall or via a specific channel.

CLTV (for Referrals) = average value of a conversion x average # of conversions in a time frame x average customer lifetime

Loyal Customer Value

Customers who tend to refer more users than others are classified as loyal ones. The Loyal Customer Value should not be conflicted with the CLTV

Loyal Customer Value = Net Promoter Score/ Referrals

Customer Retention Rate (via Referrals)

Weekly, monthly or annual analysis of customers acquired via viral growth

Customer Retention Rate = ((CE-CN)/CS)) X 100

  • CE = number of users acquired via referrals at the end of a specified period
  • CN = number of users acquired via referrals during the period
  • CS = number of users acquired via referrals at the start of the period

CRR reveals churn. If CRR = 80% , Churn = 20% (and vice-versa)

Startups: Why You Will Never Drive your CAC Close to Zero

We can’t hide it, it’s every early-stage startup Founder’s dream. Every CEO nowadays in the startup scene wants to have a very low Cost of Customer Acquisition via a scalable traffic source. That’s the ultimate dream, that’s how you build a cash cow, how you raise big funding rounds and how you get lots of press attention through your unbeatable growth rates. But very few startups succeed on doing that, and there are reasons behind it.

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Optimize your Dynamic Search Ads with Schema.org mark-up

Dynamic Search Ads (or DSAs) is a powerful tool that helps you scale and boost your PPC account, when things become sluggish. They ‘re mainly and best used when promoting products via paid search, and more specific on Google Shopping.

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The bona fide value of Technical SEO

I’ve been surfing around the web tonight and I bumped into an article on LinkedIn written by Clayburn Griffin, who is coincidentally the owner of a Digital Marketing agency based in NYC.

The specific article for me is part of the vice circle of poorly written marketing material which aims to attract visitors that probably will convert into leads, and literally says nothing. Well done @ClayburnI lost three minutes of my life on this. Although, this article gives me an opportunity to touch the topic of the real value of the technicalities in search engine optimization.

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23 Things to consider when building a referral program

building-referral-program

Referral programs have shown their value over the last few years and there are many multi-billion dollar companies out there that based their efforts for growth on referral schemes. Uber, Airbnb and Dropbox are just a few examples.

Building a referral program from scratch is a quite intense process since it requires to take many things in consideration. In this article, I’ll try to summarize the most important things to consider in the process of building a referral program. Examples will be highlighted of companies that do things in the right way and cases of products that don’t do things well.

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Growth Hacking SEO for 2015

Growth Hacking SEO for 2015
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In a Growth Hacker’s everyday life, user acquisition is one of the KPIs that are always in mind and continuous effort is been done in order to optimize the various traffic channels in order to bring the best results. In many industries, many businesses rely a lot on organic traffic for user acquisition, since as a channel it is quite stable (as long as you avoid manipulation), efficient and cheap. Instead of re-capping the search engine changes and trends for the current year, this article will focus on a few things that a Growth Hacker should focus on SEO for 2015 in order to retain and improve rankings, to have a competitive advantage versus the tough competition and improve the user experience plus fuel conversions.

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How to hide part of your backlink profile from your competitors

How to hide part of your backlink profile from your competitors

In the SEO world, one of the first things that marketeers do in order to push their offsite efforts is the analysis of the backlink profile of the competitor(s). There are several tools in the market, although the two best tools are Ahrefs and MajesticSEO. The majority of the rest of the tools have either smaller indexes than these too or base their data on these two indexes. Since data from Google Webmaster Tools is private and exclusive to the website owner, most SEOs base their competitor analysis on these two tools.

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How to build hreflang XML Sitemaps with Excel

Building hreflang sitemaps with Excel

When someone is internationalizing his organic acquisition efforts, hreflang sitemaps are a great way to indicate to Google the various available languages of a website and spread the SEO visibility across the different markets. Continue reading “How to build hreflang XML Sitemaps with Excel”

Video SEO: The only guide you need

Many SEOs around the globe try to rank their videos online and apply video SEO tactics. The most common web spaces that digital marketers try to rank their videos online are the two largest search engines in the world, Google and Youtube. For this reason, this guide is going to be split into two parts, since the methodologies differ and will help you understand better the difference between ranking a video for Continue reading “Video SEO: The only guide you need”