The basic premise behind viral referral marketing is simple: if every one of your customers referred two customers to you - and then those new customers referred two more of their own - your business would grow exponentially.

Most business owners, seeing this, throw their hands up in the air and say, "Too bad going viral is just the luck of the draw." They believe that "going viral" is like winning the lotto; that it happens to the lucky few, and that it can't be predicted.

They're wrong. Except in the rarest of cases, the viral success stories you see didn't happen by chance. They happened because the owners of each company learned the science of viral loops and took the actions needed to increase their odds of viral success.

What are Viral Loops?

Justin Scott of the Growth Devil blog defines viral loops simply:

"The steps a user goes through between entering and inviting more users to the site is called a "viral loop," and this is the form of marketing that is responsible for businesses going from zero to million-dollar profit margins in a matter of weeks."

Broken down, a simple viral loop looks like the case mentioned in the first paragraph of this article. You get a customer. You offer that customer an incentive for referring other customers. If the incentive works, and you're referred new customers, the loop can repeat when these new users are offered and accept your incentive offer.

On paper, that sounds easy. In practice, there's a reason the few companies that have mastered this methodology are known as "unicorns."

Viral loops, as described above, are predicated on a few assumptions:

That you have customers to begin with
That your customers like your product or service enough to refer others
That the incentive you're offering is appealing
That you can afford to offer your proposed incentive
That a high enough percentage of your customers take advantage of your referral program to keep the loop executing (technically speaking, you need at least 1.1 referrals for every 1 customer).

Keep all of these factors in mind as you begin building your viral loop.

How to Create a Viral Loop

Andrew Chen, a member of Uber's growth team, proposes that constructing a viral loop requires five stages: strategizing, implementing, launching, optimizing and refining. Here, again, the process is easier to understand than it is to execute. According to Chen:

"I've come to believe that creating viral loops is akin to building a software project - at best, it still comes down to a great team, a strong understanding of the tools available, and relentless iteration. There's no recipe at the heart of it which guarantees a viral process every time, the same way that you can't guarantee that any software project will result in market success."

Don't let this discourage you. Although referral programs do fail occasionally, the reasons they do are often preventable with proper planning and iteration. It's far better to try to create a viral loop - even if it falls short of expectations - than it is to not try at all.

Since going into all of Chen's steps described above would require several articles of this length, let's dig deeper into the initial stage: strategizing. Planning your viral loop is the first step in driving viral marketing success in 2017, and the best way to do that is to review existing case studies of the successful companies that have come before you.

Case Studies: Viral Loop Success Stories

Some of these may be familiar to you, but they're worth reviewing with a closer eye if you're planning to execute your own viral loop.

Airbnb's Personalized Referrals

Airbnb grew to its current $30 billion valuation thanks to a number of savvy growth strategies, but as Rob Goehring of RewardStream points out, much of its success owes to a promotion that gave both referrers and referees rental credits when new customers booked their first stays:

"Airbnb supercharged the growth of its user base by implementing a referral loop designed to encourage new hosts, and new guests, to come on board."

What can you learn from its viral loop? For one, it's a win-win strategy. Because referral credits are given after bookings are made, Airbnb doesn't have to put any money on the line until it's sure it'll make it back through additional reservations.

What kind of incentive can you offer your customers that's similarly low-risk?

Dropbox's Free Space Promotion

Seven months after its public launch in 2011, Dropbox hit one million users, thanks in part to its viral loop. Here's how it worked:

Customers signed up for a free Dropbox account, which came equipped with 2GB of free storage
Customers were then encouraged to invite others
If these invites turned into new users, both the new user and the existing customer would receive 500MB of free storage (up to a 16GB limit)

According to some estimates, this strategy alone grew Dropbox sign-ups by 60%.

These are two classic examples, but what's important to notice is that they didn't offer excessively expensive referral bonuses, and the mechanisms they used to gather referrals were quite simple. Dropbox, in particular, is known for having spent very little on advertising in its early days.

There's nothing special about what these companies did to encourage viral growth, apart from having a product people liked and giving them a compelling reason to share it with others. And that's good news for you. If they can do it, so can you.

As you're building your viral loops in 2017, ask yourself the following questions (while keeping the factors described above in mind as well).

Do my customers like my product enough to share it with others?
What can I offer them that'll actually be compelling enough to drive referrals?
How will I measure the success of my program, apart from its ability to drive new customers?

Only after you invest time in strategizing your approach can you embark on the remaining steps described in Chen's method above.


Is your company investing in the creation of viral loops? If so, I'd love to hear about the steps you're taking and the referral schemes you're offering in the comments below:

Published on: Apr 1, 2017
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.