Why Viral Loops are so Effective
“Going viral” is a commonly used phrase these days. For something to be “viral” it means to be highly shared and spread, similar to a virus. What if your company was very shareable and spread quickly, wouldn’t that be ideal? Well, you can fabricate virality, and that’s where viral loops come in.
What is a viral loop?
Simply put, a viral loop is a mechanism that incentivizes referrals leading to continuous growth. Ideally, your users refer your products and services to their network organically. Unless you have a truly remarkable product or business, that is unlikely to happen organically. However, there are many ways you can incentivize your users and customers to share with others. This is most commonly seen in the form of referral codes, but it can take many different forms as well.
How much should I pay for referrals?
Theoretically, as long as you’re paying less than the value of that acquired customer, you’ll be good. Heck, in early stages it can even make sense to pay more than the value of the customer. However, the value of a customer can be difficult to quantify and varies based on the quality of that specific customer. Ideally, you should aim to reduce your customer acquisition costs, and in many cases you can provide customers with things that don’t cost you any money. You can reward referrals by unlocking features within the platform. Tesla offered 1000 free miles of supercharging for every friend who purchased a Tesla vehicle using your code. Obviously the profit margin on a new Tesla is substantially more than the cost of those 1000 free supercharge miles. Regardless, this referral program was highly successful in acquiring new customers.
Successful Referral Program Examples
It might even be worth it to pay for users even if the users aren’t customers! Morning Brew is a finance newsletter that is completely free. They have an insanely successful referral program that has earned them millions of newsletter subscribers. The cool part about their referral program is that they send the referrers physical products such as mugs, sweatshirts, and stickers. Their newsletter subscribers share with their friends because they want to earn goodies and they don’t have to feel bad about recommending the newsletter because it is completely free to sign up for. So how do they make money? Morning brew has advertisements on their newsletters. Essentially, the newsletter subscribers are the product and every time someone shares it with their friends, their product becomes more valuable. Morning brew has invested significantly into their referral program and it has paid out tremendously. Tyler Denk has an extensive medium article talking about how Morning Brew’s referral program built their audience of millions of subscribers.
Perhaps the most famous referral program of all time is what Dropbox did to rapidly and inexpensively acquire new users. When Dropbox came out, the idea of cloud storage was new and not everyone saw the advantage over hardware storage. With hardware, you could store significantly more information and access it all online. However, Dropbox predicted internet access would rapidly increase in the future creating a need for cloud storage. Initially, Dropbox offered new users a bit of free space on the cloud. This was enough to store a couple documents, but users would quickly run out if they wanted to store images and videos. Sure, Dropbox could’ve done some paid advertising to acquire new users. However, they decided to create a referral program where their free users could unlock more storage space for each new referral they received. This created an incentive for users to share and invite with all of their friends. The users could’ve just paid for additional storage, but knowing that they could earn more storage for free made them a lot more likely to share with their friends. After launching the referral program, Dropbox’s user base grew from 100,000 to several millions in just 18 months without any marketing-spend. This viral loop is what made Dropbox the world’s largest B2C cloud storage provider. You should definitely check out Drew Houston’s slides on how this was achieved.
Core Components of a Good Viral Loop
Good viral loops will always be centered around sharing. Design your product in a way that users are incentivized to share with their peers. Think about what you can provide to your users in exchange for their support. Product-related incentives, such as unlocking more cloud storage, works great, but you can also think outside the box and give your users exclusive merchandise like Morning Brew. It is incredibly valuable to have your users share and talk about your products or service, so think about ways you can encourage that behavior and it will pay back immensely!