Viral Coefficient Definition
Viral coefficient is the number that signifies how many new customers each existing one generates. This metric calculates the so-called „virality“ of a business – meaning how fast does a company’s referring cycle spread.
It is rather simple to explain why this is one of the most important metrics. Nowadays there are numerous ways in which marketing departments try to reach their potential customers. Social media have opened a whole new world of opportunities and technical advantages make it possible for companies to leave an unforgettable impression on their consumers.
But there is one method of marketing which holds the throne – and that is „word of mouth“. No matter how well you present your brand our product, nothing beats a personal recommendation from somebody close. And these leads generate many new loyal customers.
Picture 1. Getting a recommendation is the best form of marketing
How to Calculate the Viral Coefficient?
You can calculate your viral coefficient in just a few steps.
- Take the number of your current customers. (e.g. 100)
- Multiply this number with the number of invites they send to their friends. This shouldn’t be a problem if you have an online business. If your business is offline, you will need to do some research to acquire these numbers. (e.g. 10)
- Check how many percent of these invites became your customers. (e.g. 15%)
- If 15% of 1000 potential customers signed up for your product or service, this means that you’ve gained 150 new customers.
- Finally divide the number of new users with the initial, current user base (100). You will get a viral coefficient of 1.5.
What is a Good Viral Coefficient?
If you’d like your business to go viral, you’ll need a bit more than just 1 or 2. These numbers represent a rather modest growth. Aim for 20 or more – this designates an explosive growth in your user base.
Why Is This Important?
Viral Coefficient is a clear indicator of a company’s growth. But remember that this result depends highly on your product/service. So if you are looking to improve the numbers, you’ll have to start from what you’re selling. The better the product/service, the higher your chance for a high viral coefficient.
Keep in mind that attracting new users through referrals is extremely cost-effective since the company doesn’t have any customer acquisition costs.
It is also worth mentioning that this metric is highly unpredictable and that it shouldn’t be the only metric you should base your business on. Achieving exponential growth only through customer recommendations is almost impossible. And in addition, this growth is extremely slow within the B2B business model.
In the end, companies need to be prepared for an exponential growth. If this is your ultimate goal, then make sure you have the necessary resources to meet the increased number of demands.
As mentioned before, this is not the only metric that should be taken into concern while creating a marketing and sales strategy for your business. For example Net Promoter Score gives a bit different perspective from this one – it shows how willing a customer is to recommend your business to other people.
What do pirates and metrics have in common? Check out in our blog post AARRR – Pirate Metrics.
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