How to create acquisition loops and measure them?
Growth is defensible. This is especially true for products where network effects are strong. More the users of product, higher the value derived from the product offering. Higher the value, higher the switching costs. Higher the switching costs, higher the retention.
Acquisition is one of the key levers of growth. Some products have inherent viral factor in them. But there are ways to build acquisition loops even though products does not have intrinsic viral factor. Below, we will see some of the ways to build acquisition loops which enable product growth
Different Acquisition loops
- Organic
- Manufactured/Incentivised
1. Organic loops
A user signing up automatically enables other users to sign up.
Eg: In Dropbox, a new user signups, creates a document and invites his teammates to collaborate. Some of them join and further invite other team mates. This is an organic acquisition loop
2. Manufactured loops
Many products are not inherently social. It becomes then a task for products to manufacture an acquisition loop.
There are 2 ways in which products achieve this
a. Provide monetary/feature incentives to enable existing users to refer other users
E.g: Airtable gives monetary credits for inviting new users. These new users further invite more users. Dropbox provides additional storage space for inviting new users who in turn invite more users
b. Build entirely new features which enable organic loops
Create a feature which is different from core product offering which has intrinsic viral factor.
E.g: CRED’s core offering is to pay credit card bills online and earn rewards. CRED created a ‘Free credit score’ check feature which it used as ‘select only’ feature to acquire users. During the launch, CRED allowed users only with a high credit score to pay bills using CRED. This created bragging rights for each user and users went to share their credit score with friends. Their friends further singed up with CRED to check credit score
How to measure an acquisition loop?
The other important aspect of loop is to understand how efficiently loops are working. Loops are measured differently when compared to funnels.
While measuring a funnel, we see that every 100 users are providing us 20 new users, a funnel conversion of 20%.
Whereas in a loop these new users who signup further invite new users and hence there is a compounding effect
Hence each cycle conversion becomes the base for next cycle and so on
So, 100 existing users, lead to a total 25 new users due to compounding effect; a 25% conversion instead of 20% conversion as measured in funnel
The most important measure of a loop is its conversion factor in each cycle like the interest rate in a compounding a principal. Higher the interest rate, higher the compounding.
Total compounding effect on an infinite loop = 1/(1–r), r is conversion rate in each cycle
For example, if we increase the signups rate from 20% to 30%, total new users will be 42.
By increasing cycle conversion rate by 10%, we increased total compounding effecting by 17%. A 20% increase will give 32% increase in compounding effect. Hence product features have to be optimised for conversion rate from in cycle
Compounding factor is the key metric for any loop.
Based on the value of compounding factor, loops can be either sustainable or non-sustainable:
- Any loop with compounding factor >2, will sustain on its own once the initial impetus is given. Every 1000 users, will bring additional 1000 users and so on. To achieve, a product needs to clear a conversion for 50% in each cycle
- Any loop with compounding factor <2, will not sustain on its own and needs to given an impetus from time to time. Most loops in real word fall in this category.
Implementing loop at Porter
At Porter, we have implemented a manufactured loop. Porter is India’s largest intra-city mini truck platform. Porter provides pickup vehicles for goods movement in the last mile and caters to Micro, Small and Medium Businesses
Manufactured loop
Porter created a digital business card feature which can be used by businesses to make their own business cards and share with other businesses. Some of these businesses create their own card from the link provided inside the card
