We dug deeply into what carrying capacity is in the last chapter. To summarize again quickly, in terms of growth and viral marketing, carrying capacity is when your churn rate equals your acquisition rate, and growth levels off.
If you’re only using non-viral channels, you have two choices if you want to continue growing:
- Increase your marketing spend or improve conversions to acquire more users
- Decrease churn to keep more users
However, engineering a few viral loops will not only provide a dynamically different source of traffic, it will also most likely decrease churn. This is because users acquired through viral means have been shown to stick around longer than users who have been acquired through ads or non-viral channels.
My theory is that this is due to the social proof of being invited by somebody we know and trust, AND the knowledge that those we know are using the product as well. As a result we feel more pressure to continue using a product longer than we otherwise would.
How Carrying Capacity Changes with Virality
As you’ve probably guessed, injecting virality into the boring, normal marketing machine really throws a monkey wrench in the dollars-in, dollars-out math most marketers are used to. And while the majority of marketers have no clue what carrying capacity is to begin with, the few who do likely haven’t factored in the effect of viral marketing on the traditional carrying capacity equation.
Remember, the traditional carrying capacity equation is:
CC = g / c
I’ll break this down for you a bit further:
- CC obviously signifies “carrying capacity“
- g is your average daily non-viral customer acquisition rate
- c is your average daily churn rate
This is a static measurement using non-viral acquisition channels only. Let’s now kick it up a notch by factoring virality into the equation – which is quantified most easily using our viral amplification factor.
Amplification factor is represented with the variable A. Do you remember the formula for how it’s calculated?
If not, here it is again:
A = 1/(1 – K)
And remember, K is your viral factor. (If you forget the formula, revisit our chapter on how to calculate your viral factor.)
We apply A directly to our non-viral customer acquisition rate (g) in order to get a representation of how our growth rate changes when virality is factored in. This is most helpful for the 99.99% of companies that will never achieve a K >= 1.0.
Thankfully, we’re using a lot of the same variables in our various formulas. So rather than creating something totally new, we can just multiply A right into our carrying capacity equation:
CC = (A * g) / c
CC = ((1 / (1 – K)) * g) / c
CC = g / (c * ( 1 – K))
CC = g / (c- cK)
Remember, churn (c) cannot equal 0 in this equation. (Though I can’t think of an example where it ever would in practice.) Also, since we’re using A, your K factor must be < 1.
Putting Our Equation to the Test
Here’s a quick example with real numbers:
- Let’s assume you’re product is growing by 2,000 new users per day through non-viral channels, so g = 2,000.
- Let’s also assume you lose an average of 15% of your total users each day, so c = 15%.
Given these, what’s our carrying capacity WITHOUT virality factored in?
CC = g / c = 2,000 / 0.15 = 13,333
Okay – so with only non-viral channels, this means at just over 13K users our growth levels off. And it will stay that way until something changes with either our acquisition rate or our churn rate.
Now let’s add some virality.
- For every 5 users we recruit through non-viral means, one of them will recruit a friend – meaning we have a K = 0.2.
So what’s our carrying capacity with virality factored in?
First, let’s find A.
A = (1 / 1 – K) = 1 / 0.8 = 1.25
Next, let’s add A into our carrying capacity equation:
CC = (A * g) / c = (1.25 * 2,000) / (0.15) = 16,667
Given these numbers, as soon as we hit a total user count of 16,667 users, our growth will level off until something changes.
How you doing so far? Keeping up? (If you have any questions or need further clarification hit me up in the comments below.)
We’re not done yet. Are you ready for the best part?
Virality to the Rescue
Did you check to see the percent increase in viral carrying capacity and non-viral carrying capacity?
If you didn’t, our viral carrying capacity of 16,667 is right around 1.25x our non-viral carrying capacity of 13,333 . . . and oddly enough, our A was 1.25.
Some of you math wizards out there probably already figured this out by glancing at the equation, but for everyone else, this hopefully makes things click just a bit more.
So why was this the case?
Remember how I said that your carrying capacity would stay the same unless something changed? Something did – your customer acquisition rate is now 1.25x as high thanks to your viral loop, so your carrying capacity lifted by the same amount.
In hindsight, not too difficult after all, right?
Unfortunately no matter how hard we try, we will never be able to completely stop the leaking bucket that is churn rate. That’s just a cold, hard fact all growth engineer’s must come to terms with.
However, there is good news! By knowing this, we can better predict it. And by predicting it, we can better prepare for it.
See where I’m heading? Not yet? Find out in our next chapter.
Do You Know What the Foundation of All Viral Growth Is?
The churn is coming. There’s nothing you can do to stop it. But don’t head for the hills quite yet. This doesn’t have to mean the end of your growth. By properly preparing and compensating for it you can continue an upward trajectory. See how in our next chapter.
- Cycle Time: What the Primary Defense Mechanism of Rabbits Can Teach You About Growth - March 15, 2016
- Viral Infection: How the CDC Can Make You a Viral Marketing Savant - March 4, 2016
- Viral Communication Marketing – How Apple, MailChimp and Hootsuite Used Hotmail to Inspire Explosive Growth - June 25, 2015