Ever since Slack and Dropbox took off with their low acquisition cost model of virality, Product Owners have been looking for ways to create a strong network effect in their products to gain new users.
The more technical term of virality or viral marketing is the K-factor. Merely the K-factor measures the growth rate of your product through ‘sharing’ channels instead of traditional channels like paid ads, inbound marketing or outbound business development.
The formula for the K-factor is
i= the number of invites sent by each customer
c= the conversation rate for invitees acquired this way
So if your current clients can invite on average eight people to your platform, and those five people convert to sign up at a rate of 20%, then your K-factor is 1.6. This K-factor lets you know that each customer you bring in will lead to another 1.6 customers added through viral sharing. Using the K-factor, we can show virality (so long as the K-factor is above a factor of 1 that will lead to exponential growth. Here’s a graph to illustrate the impact virality can have in your business.
As you can see in the above graph, the new user growth is rapidly expanding, while the total user growth is taking off. We’re making some assumptions, like new users doing their invitations in their first month, and those sign ups happening imminently, in practice the K-factor should also include a period which can impact the acceleration of growth more so than variables k or i. When you’re building your model, make sure your time periods are correct; otherwise, the projections will be off.
For the context of this article, I’m only referring to viral marketing in the sense of users inviting new users from their network. The other type of low-cost, high growth marketing is guerrilla marketing where influencers and grassroots marketing are used to spread information about the product via word of mouth and social media.
This type of marketing is a very valid and compelling way to grow your userbase. We often see this more on the B2C side of marketing, where influencer and word of mouth marketing are used to get the word out about a new product or service.
The main technical difference is that guerilla marketing is a one time boom versus the more sustained growth you’d expect from viral marketing. Shark Tank is an excellent example of guerrilla marketing. After appearing on the show, entrepreneurs get a major short-term boom of sales and new users which quiets down after the airing date.
The best way to determine if your product has virality potential is to see if users will be collaborating with other users to use the product. A group task management software has high potential because your users will need to invite others to get the most out of the service.
When you’re assessing the ability to grow your user base via virality, be honest with your team about the use case of your product and if it is even possible for you to achieve somewhere the K-factor is above 1. I’ve been a part of more than one marketing team where the executives wanted to force virality to happen, but the product and use case didn’t support it.
If sharing is easy, if the investment needed to start using the product is low, if the product includes a lot of collaboration or team features then you’ve got the potential to grow your user base using network effects.
Usage frequency is an important element of virality. For example, Realtors often depend on referrals, but as any Realtor know, the vast majority of people are not in the market for a new home at any given time. So, unless their client has an immediate referral, it is difficult for a Realtor to grow their business by solely relying on word of mouth. Your product will face the same challenge, if there isn’t a persistent need, then many of the invitations will end up reaching the user at a time when they are not ready to use, and they'll never end up converting.
Freemium business models tend to lend themselves better to viral growth. The reason is simple; freemium products make it easy for new users to sign up and get started. In the B2B setting, you also have the advantage of getting users into the platform without needing to purchase something.
Again, think of Slack, a freemium business model here means that anyone, in any organization can start using Slack and invite team members to do the same. There’s no need for any purchase approval. Just sign up and begin asking colleagues.
Asana is another product where freemium plus group dynamics makes it easy to get new users for free and expose others to the platform. Similarly to Slack Asana is free for the first 15 users, letting anyone sign up, invite colleagues all without having to get a company credit card or purchase approval.
Uber has done a terrific job of using incentives to create virality in their product. By offering refers and referees a free ride (which costs Uber very little) Uber was quickly able to grow their user base. People were sharing their Uber sign up code all over the internet, sending it to family members and friends. Once Uber launched in a new city they could count on users to spread the word instead of more expensive ad campaigns and other marketing.
The lesson is simple. If you offer users an incentive to share your product they’ll be much more likely to do so.
The best incentive to offer is 1 unit of your product. In Uber's case, it was one free ride. Small price discounts say $5 or $10 tend to be less effective because they are less exciting for the end user, and more difficult to conceptualize. How much Ubering does $5 get? How many months of Spotify does $15 get me? By offering a ‘cash’ incentive, the user faces additional friction in the form of figuring out what tangible product they are getting. That’s why when possible it’s always better to offer a unit of value they can directly relate to the product. Five free templates, two free weeks, one free ride, half of your order, etc.…
Once you’ve ironed out if your product actually can support viral growth, and how best to incentive new customers, you’ll need to build something fun and engaging in the product, plus the proper instrumentation to track (no UTMs are not a long-term solution).
You’ll want to bump the sharing feature to the top of the menu. Typeform does a great job of this utilizing a heart symbol to encourage people to share. If you bury the menu in an account setting page.
You’ll also want to ensure that proper instrumentation is done to track sign-ups. If you cannot instrument the signup sources, then coupon codes could be used as an alternative. As anyone who done attribution knows, it’s a messy game and something where results can be inaccurate given issues in tracking.
The sharing mechanisms also need to be evident to the invitees. You should allow the user to personalize their invite, and make it clear from why they are receiving an invite.
The last thing you want is newly referred users to have to contact support to get their discount or benefit.
This is tricky. It’s hard to build virality into a product where usage is intermittent, or it caters to a smaller niche. The best thing you can do is try and understand a user action which is taken every day within a given field, or something where people need to collaborate. If that fails, you can always try and use an uber style referral program. Many companies have some success, although not exponential growth, leveraging a ‘share with friends and you both get a reward’ model.
The main difficulty in building for virality is either the share number will be too low, or more likely, the conversion number will be meager. An engineering software that allows for sharing with project stakeholders who may only mock up the plans won't lead to new users who will convert to paying customers.
To wrap up this article, I’d say that virality cannot be forced. If your product doesn’t have a broad appeal, collaborative aspect, or a low friction way to get new customers into the platform, then it will always be an uphill battle regarding getting users to share with others. Uber benefits from mass appeal; likewise with Dropbox, Slack is only a collaborative tool with very low sign up friction.