What is a Viral Product?

As a marketer, you’re probably acquiring users through a variety of channels; press, direct traffic, inbound marketing, paid advertising, search engines, celebrity endorsement, bribing your little cousins, and anything else I may have missed. The most interesting channel, however, may be your own customers (little cousins optional).

A viral product attributes its tremendous growth to existing customers recruiting new ones. Plenty of e-commerce and SAAS sites build this option into their user experience.
For example:

Instacart prompts users to share with friends and family for $$$

Uber gives you plenty of options to share your invite code:

One of the best examples of virality is Dropbox. The storage service boasts staggering numbers: 100k registered users to 4M registered users in just 15 months. That’s a 3900% growth over 15 months! They certainly aren’t the originators of the referral program (founder and CEO, Drew Houston admits it was inspired by Paypal’s refer-a-friend program), but their overwhelmingly successful implementation easily makes Dropbox the icon of incentive referral programs.
Just as PayPal incentivized referrers with cash, Dropbox further invested its users by rewarding both referrer and referees the lifeblood of their product: storage space. When a user ran out of space, they would repeat the cycle and invite more friends–simultaneously amplifying brand awareness and effectively recruiting users. Round and round this “viral loop” went until Dropbox looked like this:

Why is Virality Important?

Virality is important for the same reason marketers must consider all other aspects of user acquisition as they plan a product launch: cost. In a previous post, we showed you how to calculate the value of a customer. Customer lifetime value helps marketers properly budget spend. If costs to acquire a user (online and offline) are greater than customer LTV…well, I hope your users are nice enough to foot the bills because you won’t be able to do it for much longer.

Virality is like unlocking the secret bonus ending in Super Mario World…sort of. If your CPA (Cost per Acquisition) was originally $5, meaning you paid $5 to acquire a customer, and they recruited a friend, you are now effectively paying $2.50 to acquire a customer. “Bonus” is dependent on how you look at it–in any case, you’re paying less per customer whether you meant to or not. This means your budget can now acquire more users, or inadvertently you can afford to increase your budget.

What does all of this have to do with influence marketing? Influence marketing relies on the foundations of virality–influencers convert other users. So how do we predict the viral growth it’s capable of generating? How long will it take to acquire 10,000 customers? 100,000? What about 1,000,000 customers?

To find the answer, we need to do a little math.

How to Calculate Your Viral Coefficient

For this post, we will examine the most simple virality model. To start, you’ll need to know how many new users your existing users can recruit. This is your viral coefficient, or K-factor. Follow these steps to calculate your viral coefficient:

1. What is your current number of users? (For easier calculating, we assume 100)
2. Multiply your existing users by the average number of referrals each will send out. In this case, we’ll say 10. (100 x 10 = 1000)
3. What is the percentage of referrals who performed the desired action. For example, they signed up for your service. (We’ll say 20%)
4. If 20% of 1000 referees signed up for your service you would have 200 new users.
5. You started with 100 users and you gained 200 users. Divide the number of new users by the number of existing users to find your viral coefficient (200 / 100 = 2).

Congratulations! Your viral coefficient is 2. In order to grow virally, your product needs to have a viral coefficient greater than 1. The resulting model will look like this:

Feel free to adjust the model with your own numbers in the highlighted cells. See what the model looks like when K-factor is less than 1.

 

A quick calculation will reveal a good rule of thumb:
When we have x initial users, and K < 1, we acquire users at a decreasing rate until we have x/(1-K) users. When we have x initial users, and K > 1, we acquire users at an ever increasing rate.

This means the success of your business depends on maintaining a coefficient greater than 1! Simple!

Not quite…

Fully predicting your product’s potential to go viral is a bit more complicated than simply calculating K-factor alone. Some users will like your product, while others may not. Just as some customers will invite many people, and others will not invite a soul. Some customers may invite others after a day, whereas some may take weeks.

Using an influence marketing platform to run your campaigns can take out a chunk of the guess work because your influencers, the ones recruiting new users, are only activated after assessment by an algorithm proves they can drive conversions. During the span of an average campaign, we’ve found each influencer can convert 3 users.

As easy as I make driving virality with influence marketing sound, every good marketer knows not to place all their eggs in one basket. Influencers can make your product viral, but it’s your job to make products they love. It’s important to continually track, measure, and optimize the different levers that affect your strategy. The experiments and iterations should be endless. After all, even modeling virality on its own will span more than this post and simple model. Perhaps it calls for a future post on renderings that consider retention, alternate acquisition channels, viral cycle times, and LTV ;).

Source:
http://www.referralsaasquatch.com/dropbox-customer-referral-program-by-the-numbers/#ixzz3PZ2LqZTa