We dug deeply into what carrying capacity is in the last chapter.
To summarize again quickly, regarding 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, but 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.
While most marketers have no clue what carrying capacity is, 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.
Your amplification factor is represented with the variable A. Do you remember the formula for calculating it?
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 calculating your viral factor.)
We apply A directly to our non-viral customer acquisition rate (g) 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 many of the same variables in our various formulas.
So rather than creating something totally new, we can 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 daily, 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 to 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 are you doing so far? Keeping up?
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 a bit more.
So why was this the case?
Remember how I said your carrying capacity would stay unchanged 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?
What’s Next
Unfortunately, no matter how hard we try, we will never be able to completely stop the leaking bucket that is your churn rate.
That’s a cold, hard fact all growth engineers 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.
In the meantime, hit me up on Twitter, Instagram, and LinkedIn!
SHOW ME HOW
