Viral Coefficient: Definition
Viral Coefficient is defined as the number of new consumers or customers that are generated by an existing satisfied customer. As the term suggests, this metric calculates the exponential referral cycle. This phenomenon is called the “virality”, that helps in the organization’s growth. Virality is the ingrained incentives that an existing customer receives upon referring friends, family or colleagues to a company or a brand.
Consider hypothetically, there are two clothing brands, A and B. Both these brands were launched around the same time and both are into varied clothing designs. Over a couple of months, brand B started performing extremely well, whereas brand A continued to struggle. Point to be noted here is that the quality, designs, pricing, showroom location and other similar factors for both these brands are identical.
However, brand B has a greater number of consumers than brand A. This difference is easy to explain. It’s the viral coefficient or the virality that helped brand B perform better than brand A. How? Well, marketing exists in many forms.
Consider social media for instance, you can tweet, you can post your messages on LinkedIn and Facebook, you can also use Adwords for advertising, write blogs and so forth. This list is virtually endless. However, there is one method of market research that some people might call old school, yet it brings in a significant difference in how people view your brand and that is, “word of mouth”.
This is where consumers start to view your brand differently. An existing customer recommends your brand to his/her family, friends or colleagues seems to work wonders! Imagine the kind of exponential growth a business will witness when they have the right combination of new age and traditional marketing.
That is the importance of a viral coefficient. In this blog, you will read more about how to calculate the viral coefficient, what is its importance and what are the advantages and disadvantages of a viral coefficient. But, first, let us understand how to calculate the viral coefficient.
Learn more: A complete guide on Net Promoter Score (NPS)
How to Calculate the Viral Coefficient?
Any business typically works and depends on solid numbers. Hypothesis only works when strategies need to be built. Be it sales or marketing or even production, numbers matter and that is why it is important that facts are represented in the form of numbers. Let us understand how to calculate the viral coefficient for your business using the following steps:
- Let us take the number of your current number of customers, let’s say they are 10000.
- Multiply this number by the number of invites that your current customers send to their friends, family or even colleagues. If your business is online getting this number won’t be an issue, however, if your business operates offline, some research will be required to acquire the necessary statistics. Let’s say that the number of invites is 1500.
- Next, you will need to find the percentage of those invites that got converted into your customers. Find the percentage of those invitees who became your new customers. Let’s say that’s 10%.
- So, if 10,000 of your consumers sent out even 15 invites each that becomes 150,000 invites. So 10% of 150,000 become your new customers, that becomes 15,000.
- So technically, you have acquired 15,000 new customers. That makes 25,000 customers in total for your business.
- Divide the number of new consumers acquired by the number of existing consumers and you will have calculated the viral coefficient. So, in this case, it will be: 15000/1000 = 1.5
So your current viral coefficient is 1.5
There are two important things while calculating the viral coefficient:
Acquisition– Please note in the calculations above the numbers play an important role. It is the actual number of people converting to become your customers. If each of your customers sends out 200 invites but none of the people join then your viral coefficient becomes 0. So be careful about the number of acquisitions.
Realistic numbers– It is unlikely that a customer is going to keep inviting his/her friends repeatedly. It is advisable to live in present and work on real-time numbers.
Learn more: Customer Equity and Net Promoter Score
What is the Importance of Viral Coefficient?
- The internet is a powerful network and a number of opportunities can be trapped here for new and aspiring companies. Through the internet, open communication is facilitated at a relatively low cost of putting up the content on the web at the same time it is one of the most powerful ways of communicating with your customers locally and globally and vice versa.
- The dynamic growth of social media platforms like Facebook, Twitter, LinkedIn and other similar platforms like Instagram and Tumblr can be attributed to having a positive viral coefficient and the network effects that are leveraged when current customers use the products from a particular brand and share their usage stories with their friends and family.
- As it is clear from the example above, the focus of a business should be to improve continuously their viral coefficient, this will in turn greatly improve your product and the ability to acquire new customers. Rarely do companies run out of business due to lack of products, it is the lack of customers that kill a business, more precisely the lack of a dynamic strategy to acquire new customers.
- Having a positive viral coefficient means a business is constantly acquiring new customers and is growing exponentially. Customer acquisition can be a difficult task, but by focusing on your product strategy and improving your viral coefficient, you will be able to give your business a better opportunity to grow and succeed.
Learn more: 50+ FREE Product Surveys
Advantages of Viral Coefficient
- A positive viral coefficient is a good indicator of an organization’s exponential growth and trajectory. This metric is the result of a good product itself. If a product is good, it will attract positive comments. So improving virality starts with improving the product.
- The most viral products are the ones who have not only taken the internet by surprise but also have received great reviews from the users. A positive viral coefficient is a good way for marketers to measure and predict word-of-mouth growth.
Disadvantages of Viral Coefficient
- Viral coefficient is a metric that will not change on its own. A positive viral coefficient depends solely on the product. Better the product more be will the viral coefficient.
- A positive viral coefficient can only be obtained if the viral cycle time is short. This means the time taken for customers to invite their family/friends and those referrals becoming new customers should be short and quick. Shorter the viral cycle, the sooner the company will grow.
Learn more: What is Market Research?
Also Read: Customer Lifetime Value (CLV)