Viral coefficient and viral cycle
The recommendations customers make to other people so they also become customers, popularly known as word of mouth, are a key aspect for many businesses. Without those recommendations, their acquisition costs would skyrocket and the business would stop making sense.
There are two fundamental metrics to keep in mind:
- Viral coefficient: the number of people each customer recommends.
- Viral cycle: the time it takes for that recommendation to happen.
When working with referrals, it is quite common not to take the cycle into account, which is a major mistake. The referral cycle has a strong influence on the growth rate, as shown in the following chart. With the same coefficient of 2, there is a big difference in growth depending on whether recommendations happen after 5, 6, 10, or more days.
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Series: Fundamental Metrics for Startups and SMEs
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