What is viral coefficient?
Viral coefficient metric measures the number of new customers that your average existing customer generates through referrals.
The viral coefficient takes into consideration the number of referrals that convert into customers, and not just the number of referrals a customer makes.
How to calculate viral coefficient?
To calculate the viral coefficient, divide the ‘number of users gained through referrals’ by the ‘number of initial users’.
To calculate the number of users gained through referrals, multiply the ‘number of initial customers’ (I), the ‘average number of referrals per customer’ (R), and the ‘average referral conversion rate’ (CR) together, that is, I x R x CR.
Formula for calculating viral coefficient
Real-life example of viral coefficient
Let’s say you have 100 existing customers. And your average number of referrals per customer is 5, which means, one customer recommends your product to 5 of their friends. Your average conversion rate for referrals is 40%.
So now, the number of users gained through referrals will be: 100 x 5 x 40% = 200.
And finally, your viral coefficient is: 200/100 = 2
This means, that every customer you acquire will bring in 2 more customers.
What’s considered a good viral coefficient? (benchmark)
A viral coefficient of 1 is the least you should aim for. A good viral coefficient is considered 2 or more. The higher, the better.
It is often argued that anything less than one is worthless. As a result, your SaaS company will eventually die from a lack of growth.
Ways to increase your viral coefficient
- Include virality component in the product: Your product is your base. Think about how your users might share your product with their networks. The crux is to build some shareable component into your product. Dropbox did it the best!
- Build a mutually beneficial referral program: Build a referral prohram that incentivises both the parties involved, that is, the participant and their friends. This way, the invitees are more likely to be converted. Uber grew rapidly using this strategy.
- Get influencer marketing strategy in place: 61% of consumers trust the product recommendations they get from influencers. Influencer marketing is giving crazy result and you too can leverage this medium for your referral marketing campaign.
Also Read: Related Metrics
- Net Promoter Score
- Customer Churn Rate
- Customer Lifetime Value
- Customer Retention Rate
- Repeat Purchase Rate
- Customer Satisfaction Score (CSAT)
- Renewal Rate
- Customer Acquisition Cost
- First Contact Resolution Rate (FCR)
- Free Trial Conversion Rate
- Daily Active Users (DAU)
- Monthly Active Users (MAU)
- Average Revenue Per User
- Referral Program ROI
- Upsell Rate & Cross-sell Rate
- Participant Share Rate
- Invitation Conversion Rate
- Net Dollar Retention
- Product Adoption Rate
- Sessions per User