What it means
The idea is that each person who sees the message passes it on to more than one other person, creating a chain that expands without paid advertising. Common examples include a video that people forward, a referral scheme that gives both sides a reward, and a product with sharing built in, such as an invoicing tool that shows its logo on every invoice sent.
For finance teams, the attraction is the effect on customer acquisition cost, the total sales and marketing spend needed to win one new customer. If existing customers bring in new ones for free, the cost per customer falls, and the payback on marketing spend improves.
This makes growth cheaper, but it is hard to predict. The key measure is the viral coefficient, often called the K factor.
It multiplies the number of invitations an average user sends by the percentage of those invitations that turn into new users. A value above 1 means each user brings in more than one new user, so growth feeds itself, while a value below 1 means growth will fade without other support.
In practice, a coefficient above 1 is rare and difficult to keep up. Most businesses see a modest viral effect that lowers their paid marketing needs, and they treat it as a bonus on top of other channels.
Plans that depend on going viral are speculative, because nobody can promise that people will share. There are also costs and risks.
Referral rewards, discounts and free trials all cost money, and the content or product has to be good enough for people to want to share it. Negative content can spread as quickly as positive content, and a poorly judged campaign can damage the brand.
A sound approach is to test small, measure the sharing rate and calculate the economics before committing a large budget. Track the cost of rewards per new customer so that the benefit is not overstated.
In practice
Real-world examples.
Example
A budgeting app offers both the person referring and the new user a free month. The finance team calculates that each referral costs $10 in lost revenue, compared with $60 for a customer won through paid advertising.
Example
A restaurant chain posts a short video of a new dish. Customers share it widely, and the marketing manager measures the effect on bookings, noting that the video cost $2,000 to make and led to roughly 800 extra bookings.
Example
A business-to-business payments company adds a line at the bottom of every receipt reading "Powered by" with a link. Recipients who run their own businesses click through, and the company records which new customers arrived this way.
Formula
Calculation
Viral coefficient (K) = invitations sent per user x conversion rate of invitations
A project management app has 1,000 users. Each user sends an average of 12 invitations, and 10% of invitations become new users. K = 12 x 0.10 = 1.2. The first wave of new users = 1,000 x 1.2 = 1,200. If each of those 1,200 behaves the same way, the second wave is 1,200 x 1.2 = 1,440. Since K is above 1, each wave is bigger than the last.Case study
Seen in the real world.
Skylark Notes is an illustrative, fictional note-taking app with 20,000 users and a customer acquisition cost of $40 through paid advertising. The founders added a feature that let users share notebooks with colleagues, who then had to create a free account to view them.
Within six months, the average user was inviting 3 people, and 20% of those invitations converted, giving a viral coefficient of 3 x 0.20 = 0.6. This was well below 1, so growth would not sustain itself, but it meant that 60 of every 100 users brought in a new one.
The finance team calculated that the sharing feature cut the blended acquisition cost from $40 to about $25. In this illustrative case, the founders did not stop advertising, but they used the savings to test new channels.
Watch out
Common mistakes.
- Building a plan around a campaign going viral, when sharing is unpredictable and cannot be guaranteed.
- Counting only the visible reach and ignoring the cost of rewards, discounts and free trials.
- Assuming a viral coefficient of 1 or more will last, when it usually falls as the most enthusiastic users are used up.
Questions
People also ask.
What is a good viral coefficient?
A value above 1 means self-sustaining growth, but most businesses see lower values, and even 0.3 to 0.5 can reduce paid marketing needs.
Is viral marketing free?
Not entirely, since content must be created, rewards must be paid and the product must be good enough to share.
How do you measure it?
Track invitations sent, the share that become customers, and the cost of any rewards, then compare the result with the cost of paid channels.
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