Seven Key Metrics Digital Start-Ups Need to Know
Can you measure virality? Understand this metric and watch your user base grow exponentially.
Is the Virality Coefficient Above 1 (Especially If Monetisation Of The User Base Is Not Imminent)?
The term virality coefficient (VC) is derived from viral marketing, which is an effective form of marketing and growth. The VC is the rate at which existing customers add new customers, often by users recommending a website or app to their friends. For example, Facebook grew quickly without a significant marketing budget due to its high VC. A company with a VC above 1 would see accelerating growth while those with a VC below 1 would see a slower growth in users.
For example, if a product with 1,000 customers has a VC of 1.2, it means the product can add another 1,200 (1.2 x 1,000) new customers, taking the total to 2,200. These new 1,200 customers will then help to add another 1,440 (1.2 x 1,200) taking the total to 3,640.
As a general rule, only new customers tend to invite their networks of friends, and usually this inviting is done only once. As long as the VC remains above 1, the product will continue to add increasing numbers of new customers. It will pass 200,000 customers in 20 – 21 cycles if VC remains at 1.2.
Similarly, if the VC of the product is 0.9, the company will add 900 (0.9 x 1,000) new customers. The new 900 customers will in turn help to add 810 (0.9 x 900) new customers. The number of additions to the total base will continue to decrease until it reaches 0, where the company’s total customer base hits a ceiling. In the case of the example below, the product will have a ceiling of 10,000 customers if the VC remains at a constant 0.9.
The VC is the function of two factors. Firstly, it is a function of the number of people recommended by a customer to the new product or service. And, secondly, the percentage of people who become customers from those who received such recommendations. For example, if one customer recommends the product to ten people and 20% of those become customers, the VC would be 2.
A high number of recommendations can only be achieved in the long-term if the product is useful and meets consumers’ expectations. A high adoption rate can only be achieved if the first impression of the product is good. As a result, though simplistic, the VC indirectly gives a good indication of a product’s functionality and appeal.
If the VC is less than 1, the company may have to incur higher customer acquisition costs to grow the customer base. However, if the customer base is already huge, a low VC can also be seen as an opportunity to monetise the existing customer base.
Report produced by: Asian Insights Office, DBS Group Research
Subscribe to DBS BusinessClass
Stay updated with the latest market trends and industry insights, connect with a network of entrepreneurs, and gain access to exclusive event invitations. Join Asia's fastest growing business community – get your complimentary membership here.