Growth hacking for many startups seems like a magic wand that can solve all of their problems. If you don’t have the appropriate marketing foundations for your startup (that is, market fit, positioning, sales funnel, etc.), premature growth will ruin your business and waste your resources.

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The secret behind effective growth hacking is to follow a proven framework and to implement the right strategy at the right time. Every decision that a growth hacker makes is driven by seeking measurable growth. All strategies, tactics, and tools are used in order to grow the business. But if growth is measured just by vanity metrics, these efforts are meaningless. Therefore, not every successful growth hack brings real growth.

Some of the growth hacking principles should be built into your product or your sales funnel, but some of them can be effectively used only when you have launched your product into the market. In this stage, we’ll talk about measuring your startup’s business growth, what is a viral loop and how to create it, how to choose the right engine of growth, and how to increase your profit and automate your marketing.

The main goals of this stage are to:

• Create a viral loop
• Choose the right growth engine
• Use leverages everywhere including marketing

Viral loop and key metrics

Would you like your clients to be an advertisement for you and make their friends become your new clients? If yes, create a viral loop! It might sound a bit complicated but, actually, there is nothing mystical. You just need to slightly upgrade your sales funnel, which we’ll talk about it in this post. If there is no such viral loop created, you shouldn’t expect much word-of-mouth advertising or referrals from your customers. You will have to attract each new potential customer on your own without expecting miracles to happen. It‘s much easier to scale a startup business if you have a viral loop and focus on the key metrics of your growth.

There are many metrics used by startups and even VC investors, but most of those metrics are vain. They are also known as vanity metrics and include registered users, downloads, raw page views, tweets, etc. Most of them look elaborate and logical and provide satisfaction to the founders as well as the investors about the progress of the startup’s development. But, indeed they tell nothing about your real growth. Most startups die because they try to do too many things at once. The same could be said about the vanity metrics that too many startups use to measure their progress. When things don’t work out, they can’t figure out why the strategy failed, even when their chosen metrics might have shown progress and a promising future. We’ll focus on the key metrics related to startup marketing which show you how well your startup is progressing towards achieving a profitable and scalable business.

Upgrade your sales funnel into a viral loop

If your initial sales funnel ends up with a successful sale or additional up-selling and cross-selling, you should add an additional phase in your sales funnel where your current customers recommend your product or service and attract new targeted customers into your sales funnel.

Of course, we have to admit that not all products are viral and a viral loop for some of them would be difficult to create. For example, social media and multiplayer games are highly viral because users naturally invite their friends to join. But consider, for example, medicine to cure hemorrhoids. Not many customers will be joyfully sharing their experience of such a personal matter with their friends or colleagues!

I truly hope you’ll find at least one or more aspects of how your product or service might be interesting for your customers to share. In some cases, it is wise to detach personal experience from your product to make customers more inclined to share the story. Another important condition for viral marketing is that you can start a viral loop working only when there is a customer base that can go viral. If you have at least the initial base of happy customers, plan exactly how you will create your viral loop/referral generation mechanism. Here are the top 10 recommendations from successful startups who managed to create effective viral loops:

1. Make it simple to recommend you. This is probably the best advice for creating a viral loop. If you make your customers happy by over-delivering additional value and it is easy to recommend you, at least some of your customers will do that even without any effort on your part. Just make it simple to recommend you!
2. Surprise your customers by focusing on pleasant experience. Creating a customer experience that pleasantly surprises your customers is something money can’t buy. People love when they get more than expected and they tell others about those experiences.
3. Ask for a recommendation at the right time. There’s no ideal time to ask. Instead, you should integrate a soft ask into your sales process from the very beginning and remind them throughout. Politely for referrals after you know that they are fully satisfied with your product or service.
4. Create different levels of recommendations. It is tempting to think of recommendations and referrals in strict and categorized terms. There are many different levels of engagement when it comes to personal and online reviews. Recommendations that require customers to think and write something are the most extreme and quite a few customers will agree to do that. A much simpler recommendations options could be a simple thumbs up or thumbs down, star ratings, or at least integration of social network sharing buttons.
5. Offer a benefit in exchange for a recommendation. It could be a discount, service credits, an upgrade, a free item, or some other trigger that will entice clients to provide referrals. But avoid giving money in exchange for a recommendation. Offering a double benefit is one of the most common solutions to encourage recommendations. Give a benefit to both the new customer and the one that referred him.
6. Personally, reach out to your most influential customers. Seek referrals first from your most influential customers, especially if your resources are limited or you lack official testimonials. Even if they are not your best customers, their opinion might be important for many other potential customers.
7. Use customer satisfaction surveys to identify potential advocates. This gives you the opportunity to ask customers what they really think of your service. We’ll talk about NPS (Net Promoters Score) in the next task. If you would ask your customers “How likely from 1 to 10 would you be to recommend us?” you could identify your most passionate advocates and evaluate the overall satisfaction of your customers.
8. Remember special occasions. Sending your customers a card or gift at Christmas or on their birthday builds stronger personal relationships with your brand. This doesn’t have to cost very much (an ecard is better than no card), but a handwritten card or a small symbolic gift will create a stronger Wow! effect. Everything depends on your business economy, customer lifetime value, and new customer acquisition costs.
9. Solve all problems quickly. If anything goes wrong, put all of your efforts into fixing the problem and then send regular notices regarding your progress to keep the customer updated and in contact with you. If you counter your client’s disappointment with a personal approach and exclusive service, most likely you’ll be referred as a positive example of how problems should be solved and that your company takes care of its customers.
10. Remember to say thank you for every referral. Always express your gratitude when a customer refers you. Most clients who refer you aren’t doing this to get a reward (unless you implemented a program that offers special benefit), but everyone likes to feel appreciated. A basic thank you email or a phone call can be an additional encouragement to keep your clients spreading the good word about your business.

Loyal customers who are also your advocates promote your brand, product, or service to other potential clients. Think about how you could help them to do it and express your gratitude in a respectful way.

Forget about vanity metrics and focus on traction

Many startups think that more metrics is better because it is smart to track and measure everything. Therefore, too many startups focus on vanity metrics: numbers that look good in the report and can make the founder feel awesome, but they don’t really mean anything important. Vanity metrics (for example, registered users, downloads, raw page views, tweets, etc.) can be easily manipulated and do not necessarily correlate to the numbers that really show the progress of your startup development towards becoming a profitable and scalable business. You should avoid vanity metrics and focus on measuring what really matters.

Generally, metrics can be of four types and are used for different purposes:

1. Qualitative—Mainly focuses on usability and customer’s satisfaction (for example, what visitors do on the website, what problems are most frustrating in their life, and which of your proposed solutions seems to work best).
2. Quantitative—Is mostly used to measure the engagement of target customers (for example, to evaluate visitors’ behavior on the website, track conversion and bounce rates).
3. Comparative—Helps to find improvements because it is used to compare the behavior of target customers in different scenarios (for example, website A/B testing, email campaign A/B testing).
4. Competitive—Allows evaluation of how you rank in different aspects compared to your competitors (for example, pricing comparison, distribution channel comparison, and revenue and growth comparison).

Whichever type of metrics we are talking about, it should meet the criteria known as 3A:

• Actionable—Each metric should help you make a decision. If you can’t make a decision based on the metric, why should you waste your time collecting the data? Feeling awesome about great numbers and having the illusion of progress doesn’t count. For example, what decision you can make if you know that the number of your website visitors has changed from 10,000 last month to 20,000 this month? You could say, “That’s awesome! We have two times more potential customers coming to us!” But the truth is that this metric doesn’t allow you to make any decisions, because you don’t know what made those additional visitors come to your website or who those visitors are (for example, it’s easy to buy fake traffic like 1000 visits for just $5, so the increase of 10,000 visitors might be worth just $50 but will bring you no value at all). Instead, if you run an A/B test of the landing page, track how many visitors are activated (for example, signups, downloads, registers to a free trial, etc.). Knowing that landing page A had 17% conversion and landing page B had 22% conversions, you can set B as your default landing page and you’ll increase your conversion.
• Accessible—It’s obvious that you must have the opportunity to access all the data needed to calculate the metric. Let’s say a book is put on Amazon.com for free or heavy discounted download for a limited time. Amazon provides extensive data how many users have downloaded or ordered the printed book. But that’s just another vanity metric. Why? Because we don’t know how many of those people read the book or even opened it. So far, it’s impossible to get that kind of data from Amazon. We can’t measure how many actual readers the book had, especially because it was given for free or as a heavy discounted download. Anybody—even those without any interest in the topic of the book—might have downloaded it just because it was listed for free. Instead, if there is an invitation and special link at the beginning of the book to visit a particular website and download additional bonuses, it becomes very easy to calculate how many people have opened the book, read at least the first few pages and become interested, because they’ve downloaded the bonuses.
• Auditable—You must be able to validate the data any time you have the need. If you get data only once and have no repeat access to double-check it, the reliability of the metric might activated (for example, signups, downloads, registers to a free trial, etc.). Knowing that landing page A had 17% conversion and landing page B had 22% conversions, you can set B as your default landing page and you’ll increase your conversion.
• Accessible—It’s obvious that you must have the opportunity to access all the data needed to calculate the metric. Let’s say a book is put on Amazon.com for free or heavy discounted download for a limited time. Amazon provides extensive data how many users have downloaded or ordered the printed book. But that’s just another vanity metric. Why? Because we don’t know how many of those people read the book or even opened it. So far, it’s impossible to get that kind of data from Amazon. We can’t measure how many actual readers the book had, especially because it was given for free or as a heavy discounted download. Anybody—even those without any interest in the topic of the book—might have downloaded it just because it was listed for free. Instead, if there is an invitation and special link at the beginning of the book to visit a particular website and download additional bonuses, it becomes very easy to calculate how many people have opened the book, read at least the first few pages and become interested, because they’ve downloaded the bonuses.
• Auditable—You must be able to validate the data any time you have the need. If you get data only once and have no repeat access to double-check it, the reliability of the metric might registered users with a repurchase rate of more than 60% in a two-week time span, that provides us with quite a good indication of their real traction. I’m sure Francesco Lanzi and the other co-founders of Mercadoni track additional metrics that help to calculate the monetizable value of customer traction, but I am not in a position to share these details publically.

Define your sales funnel performance metrics

1. Acquisition—Users come to the website or physical store from various channels.
2. Activation— Users enjoy their first visit and have a happy experience.
3. Retention— Users come back, visit the website or store multiple times, and open emails, etc.
4. Referral— Users like the product or service and refer others.
5. Revenue— Users conduct some monetization behavior.

These are very good for understanding the main idea of important metrics, but you should focus on more detailed metrics specific to your sales funnel. Pay attention to how effectively you generate leads and convert them into paying customers.

• Customer Lifetime Value shows the revenues generated by customers compared to the costs associated with acquiring them. Basically, it means how much you will earn per customer on average during the whole time they remain a customer.
• Customer Acquisition Costs shows how much it costs on average for you to get a new client. All costs to acquire customers over a given time are divided by the number of customers you acquire in that given time. Complexities arise when you take into account different variables that may be included in the formula, such as sales, support, and marketing staff compensation.
• Duration of Sales Funnel Cycle is the average time (usually in days) needed to transform a lead into a paying customer. The shorter the cycle, the faster you create new paying customers.
• Metrics related to sales funnel specifics:
  • Click Through Rate and Website visitors shows how many times the content or a link was displayed and how many times the link was clicked and you received a visitor. Without additional context, this might become one of the vanity metrics that we talked about earlier. By running A/B experiments with different channels, messages, and visuals, this metric allows you to easily evaluate which one was more effective.
  • Social Media Engagement estimates not just how much time the content was displayed, but also what actions it provoked (for example, clicked Like, click on the link, comment, re-share). You might have a great reach on social networks, but that’s just another one of the vanity metrics if there is no engagement.
  • Content Downloads should be measured if you are driving leads to your website with lead magnets (apps, videos, articles, e-books, templates, if and resources available for download in exchange for a particular action, for example, sign up or sharing on social networks). Comparing which lead magnet generates more downloads (higher rate of lead activation) helps to improve the conversion of your landing page.
  • Subscribers (to your blog, newsletter, discount program, etc.) indicates how many people have opted in to receive communication directly from you. Is your list of subscribers growing? Are you actively engaging your subscribers (most interested audiences) with relevant content?
  • Sales conversion rate shows how many leads became paying customers after they were exposed to your sales offer. If you gave an offer to 1000 potential clients and only 20 of them bought from you, your conversion rate is 2%.
  • Revenue per sale (average order size) shows how much revenue on average your one sale generates. This metric is highly important for companies with many products that might be sold to the same customer (for example, e-commerce business with multiple products) and almost useless for single-product companies, especially if they are only sold to the same customer a single time.
  • Up-sell and cross-sell conversion rate is a similar metric to sales conversion rate. It shows what percentage of customers to whom you proposed additional offers (up-sell or cross-sell) took that order and bought from you. Let’s say you decide to offer something additionally to those 20 customers who already purchased your product. If 5 of them take the deal, you’ll have a 25% Up-sell conversion rate. Not bad!
  • Revenue per up-sale and cross-sale show how much revenue is generated due to up-sell and cross-sell offers. It is the same as average order size but calculated just for up-sales and cross-sales. This metric together with the upsell conversion rate tells you how well the upsell strategy is working. Experimenting with different offers and different ways of communicating them can help increase one or even both metrics and bring you significant additional revenue.
  • Customer Retention Rate (CRR) indicates how effectively your efforts are aimed to engage and nurture existing customers to start the sales cycle over again. Tracking this metric could help you to make decisions on how to improve customer loyalty, marketing communication, sales and customer service.
  • Number of Opt-Outs shows the number of people who elected to opt-out of your communications or closed their accounts for any reason. If you notice an increase in the opt-out, it might be a signal that your marketing communication is too pushy or you are targeting wrong leads and your offers are not relevant to them.
  • Referral Metrics are important because recommendations from existing customers are the most cost-effective source of new customers. Therefore it might be wise to track the number and percentage of users referred, referral acceptance rate, and etc.

Estimate possible virality effect with three key metrics

Once you’ve established what’s to be measured in your sales funnel, it’s time to measure virality if you want to achieve really good growth. Viral loop, viral effect, virality…let’s keep it simple. If you want to estimate how widely your marketing message could be spread through the word of mouth or user references (virality effect) there are three main metrics you should know and use in practice:

• Net Promoter Score—Reflects customer’s satisfaction and the likelihood that they will recommend you to someone. This does not indicate any actions but just the customers’ satisfaction with your product or service at the moment.
• Copulation Rate—Indicates how actively customers are spreading your message. It takes into account just spreading the message or sharing your content, but doesn’t estimate whether the message is forwarded to your target customers or not, nor the effect on sales or conversions.
• Viral Coefficient—Shows how many new active users your current customers bring. It is you who define who should be counted as a user (for example, trial user, free account user, paid user) because you decide at which stage of the sales funnel you will measure the conversion.

Net Promoter Score (NPS) is based on one simple question: “How likely from 0 to 10 is it that you would recommend us to your friends or colleagues?.” The NPS is a simple and effective alternative to traditional customer satisfaction research to measure customers’ loyalty to a brand. Users answer by scoring on a 0 to 10 scale and are divided into three groups:

• Promoters (scores 9 to 10) are likely to buy more, remain as customers longer, and make positive referrals
• Passives (scores 7 to 8) behavior falls between Promoters and Detractors, therefore, their answers are excluded from further analysis
• Detractors (scores 0 to 6) are less likely to exhibit value-creating behaviors and they will probably express their dissatisfaction with the brand

Which NPS rating is good depends on the industry and other factors. But one thing is clear: it’s not enough to have just a positive NPS. Several agencies publish annual industry NPS benchmarks. Customers in some industries are more likely to recommend companies due to industry specifics. Therefore, if your NPS is lower than 60, in certain industries it might be a warning sign that you are doing something wrong. On the other hand, customers in other industries by nature are more reserved and don’t like sharing recommendations. Therefore having the NPS score be higher than 30 might be a great achievement in these types of industries.

Take your customer touchpoint scheme and find those touchpoints where you could ask your customer how likely they are to recommend you. It would be even better if you could combine this one question survey with asking them to provide an actual recommendation via social networks or even to give a personal testimonial or endorsement.

Copulation is measured in periods of time. For example, it can be a 10-day Copulation Rate or a 30-day Copulation Rate.

This metric shows for each person who sees your message, how many people they will refer it to. Basically, if your Copulation Rate is higher than 1.0, it meant that your marketing message has a built-in virus and the pool of people talking about your business and carrying your message would progressively get larger and larger. If your 10-Day Copulation Rate is 1.1, it means that at the end of 10 days, 100 people who saw your message would spread the word to 110 new people, and these will share your messages with additional 121 people within 10 days, and so on. By contrast, if your Copulation rate is lower than 1.0, you’ll still have a viral effect, but it will get less and less powerful (it won’t spread like a virus). As for example, if your 10-day Copulation rate is 0.8, it means, that 100 people who saw your message will share it with 80 people, and those within 10 days will share this message just with 64 people. So, you will constantly have to boost your marketing campaign with other communication channels. If your Copulation Rate is 0, nobody is sharing and forwarding your message and you have to reach each new potential customer by putting forth your own efforts.

If you want to measure your marketing message’s Copulation Rate, you already know what to do: run an experiment! Create a message and spread it to a certain number of people. Do nothing more except counting how many additional people were reached (social networks are probably the easiest way to test your messages because you can see the statistics of how many times your messages were viewed). Once you have your 10-day Copulation Rate, you can estimate the viral effect of your message and how many people potentially could be reached.

But, take note. Copulation Rate is not permanent and depends on a number of variables. First of all, the initial calculation is based on your short term estimation, therefore, it might change dramatically later. Even though the message is being shared by other people, the newly reached people might not be your targeted customers and the communication effectiveness might decrease. Furthermore, messages get old and become less relevant (for example, even an incredibly funny video becomes less interesting after viewing it a number of times).

Viral Coefficient, helps to measure the number of activated users referred by your current customers. If a customer invites ten friends (copulation rate is 10.0) but only one of them actually activates and buys from you, your viral coefficient is 1.0. It doesn’t matter how many visitors were generated by the reference. One customer generated only one activated new customer. This is the minimum for real viral growth. If at least two people who were invited by one customer would signup and become your new active customers, the viral coefficient would be 2.0. That would give you an opportunity for exponential growth: every customer gets two new customers! Just imagine the growth speed! In just ten referrals cycles, your first 10 customers would become more than 5,000 customers (10 ? 20 ? 40 ? 80 ? 160 ? 320 ? 640 ? 1,280 ? 2,560 ? 5,120). That would be an amazing viral loop and a great growth hack.

The formula for the Viral Coefficient is:
Viral Coefficient =Invitation Rate ×Conversion Rate

Invitation Rate—invites sent per user
Conversion Rate—% invited users who take the action

Cycle time is also important to keep in mind because it shows how long it takes long from sending an invite to taking action. The shorter the cycle time, the faster your message is spread. We recommend trying to achieve a viral coefficient greater than 1.2 or 1.3, which is closer to linear or modest growth. If the viral coefficient is below 1.0, there won’t be any viral growth (cycle time become meaningless) and you’ll definitely have to find additional channels to get more new clients.