Topic: Growth

What Is a Viral Loop? And Why Do You Need One?

A viral loop at its simplest is the process of a user finding your site, signing up, and then inviting their friends. Here's why viral loops are important.

The core loop will be repeated again, and again, so the first cohort of users, leads to another cohort of users. As an example, a viral loop for Uber (there are many) revolves around inviting your friends to take a ride in exchange for credits. Usually, it's in the form of give some, get some like give your friend $5 off their first ride and we'll give you $5 when they complete their first trip

Uber in Singapore actually goes one step further, and gives you a bonus if you refer the most people in a week. Here's the copy:

At Uber, we love offering driver-partners new ways to increase their profits.

You can invite friends and family to ride on Uber for free (up to $10) and get $5 per referral. What more? Win an additional $1,000 every week if you referred the most people that week!

The more people you introduce to Uber, the more requests you'll get and the more money you'll make! Refer more to increase your chances of winning the grand prize.

First Place: $1,000
Second Place: $600
Third Place: $400

By giving people a bonus when they refer the most people, Uber in incentivising its users to invite more friends. All in the that you are the top referrer of the week. Pretty smart right.

This is how one cohort of Uber riders can lead to another cohort of Uber riders – a small subset of users who sign up will refer a friend, and a small subset of the referred friends will refer friends, and so on.

The math behind it is pretty simple, so let's walk through an example of two viral loops so you can understand why a higher viral factor is much better (even a small change).

For simplicity, let's say that 30% of visitors, whether they are referred or not, sign up and the first 1,000 visitors are acquired through ads. In the below examples, each person will refer one friend and every referral will lead to a visitor. This isn't really realistic but it makes it easier to understand. I'll also round to the nearest one for simplicity.

Viral Loop 1 (75% of signups refer a friend)

  • Cycle 1: 1,000 Visitors (from ads) – 300 Signups – 225 Referrers
  • Cycle 2: 225 Visitors – 68 Signups – 51 Referrers
  • Cycle 3: 51 Visitors – 15 Signups – 11 Referrers
  • Cycle 4: 11 Visitors – 3 Signups – 2 Referrers
  • Cycle 5: 2 Visitors – 1 Signup
  • Total Signups: 387

Viral Loop 2 (80% of signups refer a friend)

  • Cycle 1: 1,000 Visitors (from ads) – 300 Signups – 240 Referrers
  • Cycle 2: 240 Visitors – 72 Signups – 58 Referrers
  • Cycle 3: 58 Visitors – 17 Signups – 14 Referrers
  • Cycle 4: 14 Visitors – 4 Signups – 3 Referrers
  • Cycle 5: 3 Visitors – 1 Signup
  • Total Signups: 394

So, if you improve your viral loop by 5%, you acquire seven more users for each 1000 visitors you get on the site through ads. This doesn't seem that impressive for a 5% lift in referrals but what if you're getting 10,000 visitors from your ads?

Viral Loop 1 (75% of signups refer a friend)

  • Cycle 1: 10,000 Visitors (from ads) – 3,000 Signups – 2,250 Referrers
  • Cycle 2: 2,250 Visitors – 675 Signups – 506 Referrers
  • Cycle 3: 506 Visitors – 152 Signups – 114 Referrers
  • Cycle 4: 114 Visitors – 34 Signups – 26 Referrers
  • Cycle 5: 26 Visitors – 8 Signups – 6 Referrers
  • Cycle 6: 6 Visitors – 2 Signups – 2 Referrers
  • Cycle 7: 2 Visitors – 1 Signup – 1 Referrer
  • Cycle 8: 1 Visitor
  • Total Signups: 3,872

Viral Loop 2: (80% of signups refer a friend)

  • Cycle 1: 10,000 Visitors (from ads) – 3,000 Signups – 2,400 Referrers
  • Cycle 2: 2,400 Visitors – 720 Signups – 576 Referrers
  • Cycle 3: 576 Visitors – 173 Signups – 138 Referrers
  • Cycle 4: 138 Visitors – 41 Signups – 33 Referrers
  • Cycle 5: 33 Visitors – 10 Signups – 8 Referrers
  • Cycle 6: 8 Visitors – 2 Signups – 2 Referrers
  • Cycle 7: 2 Visitors – 1 Signup – 1 Referrer
  • Cycle 8: 1 Visitor
  • Total Signups: 3,947

That's a difference of 75 people. As you can see as the detail in real numbers get bigger with more traffic and a small improvement in your referral rate can lead to many more users. Another way to look at it is Viral Loop 1 gives you a lift of 29% more people than you would get with no referral program and Viral Loop 2 gives you a lift of 31.5%. That's an 8.6% increase in people from Viral Loop 1 to Viral Loop 2 despite the referral rate only improving by 5%.

The key takeaway is that viral loops are the key to strong growth because they cause incremental improvements to be amplified.

A referral program where 80% of people refer one friend and 30% of referral sign up will give you 31.5% more users per 3,000 users. If you didn't have a referral program at all, you'd end up with just 3,000 users.

That 31.5% is a lot once you acquire another 3,000 users. Imagine you run Viral Loop 2 ten times. So you pay for 100,000 visitors.

You'll end up with 39,450 users rather than 30,000...
(100,000 * 30% + 100,000 * 30% * 31.5%) = 39,450 users.

So, now that I've (hopefully) convinced you about the importance of viral loops, here's how you get started:

  1. Think about how people will enter your loop, this could be ads, a blog or email. The main thing to think about is how effective the channel is. The more people you can get into the top of your funnel the more the results are amplified in real numbers.

  2. Think about how complex your sign up flow is. Ideally, you want it to be short and as easy as possible since every input field is another place that your users can fall off. As you would have guessed, the each stage of a viral loop is the more the initial cohort is amplified.

  3. Get out a pen and paper and work out the difference in outcome in the above examples if the sign up rate was 35% instead of 30%. That's how you'll learn just how much viral loops amplify small improvements.

  4. The most important thing is your product. If there is no reason for users to refer a friend your viral loop won't work. The reason Uber's viral loop works is because Uber is a great product – not because they pay you $5 to refer a friend.

That's basically it. In practice, it's a hell of a lot harder to get attribution down and actually measure your loop but I still find this sort of thinking very useful.

In my mind, an ideal loop looks like this:

  • Register –> Tell friends –> Use product

In practice, your loop will probably look more like this:

  • Register –> Use product –> Tell friends

That's basically it. :)

Oh and if you'd like to talk about viral loops or think anything in this article is wrong, please use the chat in the bottom right to get in contact with me.

I'll update this post from time to time as my thinking improves.