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As a consumer-focused company, you understand the significance of incentives for customer acquisition and retention. However, creating a growth loop is even more crucial than just offering incentives for sales. A growth loop helps drive continuous customer engagement, fosters brand loyalty and fuels sustainable business growth.
It's about creating a mutually beneficial cycle of value creation, where satisfied customers become brand advocates and contribute to long-term success.
In this article, we'll explore growth loops that fuel business growth, cost differentials, and the added advantages of rewards and incentives. Prepare to be pleasantly surprised!
AARRR and growth loops: the basics
AARRR funnel framework (Acquisition, Activation, Retention, Revenue, and Referral) is a framework that many use within their incentive program — it looks at the customer journey from acquisition to conversion and helps you understand how users interact with your product.
While the AARRR funnel is an effective strategy for understanding consumer behavior and attracting new customers, another system may work better. Incentive growth loops are an alternative acquisition and incentive strategy offering ongoing benefits for your marketing campaign.
Growth loops are a compounding growth strategy encouraging users to provide inputs that generate greater outputs, which the company can reinvest into future inputs. While the AARRR framework has a linear output, growth loops create compounding effects that drive sustainable growth and beneficial outcomes.
Consider exploring different frameworks to achieve long-term success in understanding consumer behavior and attracting new customers.
Different types of incentive growth loops
Growth loops have three main elements: input, action, and output. With these, growth loops can come in many forms and achieve many goals for SaaS and retail organizations. When implemented correctly, the reward pays for itself and is cheaper than generating new leads, providing ongoing benefits for organizations.
With that knowledge, let’s look at the numerous growth loop strategies in the SaaS and Retail industries that could work for your organization, depending on your business goals, type of product or service, and consumer base.
1. Financial viral loop
First, a viral loop is a mechanism that entices your existing users to refer your product to others. Second, a financial viral loop gives consumers a monetary or social incentive to engage with a company or make a sale.
Here's how the two combined can provide a successful financial viral loop:
- A new user tries out your awesome product and loves it; maybe it’s a demo!
- You offer that user a reward to share the product invite with friends.
- Excited about the incentive, the user sends invites to others.
- A friend accepts the invite, completes the action, and becomes a new user.
- Repeat from step 1, and the cycle keeps going (it's called a "loop," after all).
Rewarding prospects to book demos or set up meetings with sales team members are great examples of financial loops, as is providing discounts off a product to refer a new user. By offering these incentives, your company invests in future returns. When prospects transition into paying customers, the value you gain far surpasses the initial costs.
2. Sales growth loop
Sales loops are most valuable within sales-driven organizations, such as retail and SaaS. These types of incentive growth loops involve affiliate marketing or referral programs that give incentives to existing customers. Their main goal is to acquire new customers by incentivizing current ones.
Successful sales loops produce networks of customers who are continually referring new prospects, creating a strong loop of sustainable growth. Offering rewards as part of these incentive programs can increase their effectiveness.
For example: Dropbox’s referral program is a leading example of a sales loop. Users gain extra storage space by referring friends, which leads to new user acquisition and further referrals.
"What made Dropbox's approach exemplary was its deep understanding of user incentives and its seamless integration of the referral process into the user experience."
Dan Dalton | Head of Product at Flock
Source: 16 Experts share their favorite growth loop examples & advice
3. Referral program growth loop
When it comes to Dropbox and their highly successful referral program growth loop, it becomes clear how this particular type of sales loop fosters customer acquisition on an individual basis, while simultaneously cultivating advocates for your organization.
A referral program growth loop follows this basic pattern: .png?width=509&height=321&name=Untitled%20(2794%20%C3%97%201916%20px).png)
- A customer refers a friend.
- That friend becomes a customer.
- The new customer refers a friend.
- That friend also becomes a customer.
- Well, you get the idea …
While it is true that referral programs do not guarantee a 100% success rate, their effectiveness can be greatly amplified when implemented at a larger scale within a product and integrated into well-designed incentive programs.
By leveraging strategic incentives, referral programs can play a pivotal role in driving customer acquisition, fostering business growth, and creating brand loyalty, trust, and advocates.
Why the shift from funnels to growth loops?
Many companies are adjusting their incentive programs to focus on the growth loop model rather than the AARRR funnel. But is this shift necessary in your organization? Here are a few reasons sales companies have shifted from funnels to growth loops:
Growth loops allow for reinvestment
Funnels have their place in marketing and growth strategies, but growth loops offer a significant advantage that funnels do not: the potential for reinvestment. While AARRR funnels are linear systems, growth loops generate new inputs by design. For instance, within a referral program, the new customer (output) can then refer their own friends (input) to keep the growth cycle moving.
Funnels are one-directional
AARRR funnels only flow in one direction, meaning companies must constantly pour in more inputs. While the outputs can be rewarding in terms of new customer acquisition and user engagement, they don’t leave room for the reinvestment of outputs into new inputs. Meanwhile, growth loops are cyclical, attracting more users into the growth cycle, on an ongoing basis.
Funnels are expensive and tiresome
Lead generation is a time-consuming task. While the leads you bring into your company can turn into high-value customers, the process of getting them takes a significant amount of time and resources, subtracting from the value the customer brings. You must keep spending more money on marketing to draw in these leads.
Meanwhile, the output from incentive growth loops automatically pours into new leads and inputs. For example, consider the role of social recognition in platforms like LinkedIn. When users join LinkedIn, they want to be socially recognized within their networks. As a result, the more people who join, the more social value the platform holds, leading to even greater user acquisition.
The growth loop continuously spirals out, bringing in new leads for much lower marketing costs.
How growth loops drive rewards programs
Incentives and rewards programs offer effective ways to attract new customers to your SaaS or retail company, but they have some downsides. These reward systems can be expensive, time-consuming, and challenging to perfect. But incorporating growth loops into the product and your rewards program may remove these barriers.
Consider the following benefits of using growth loops in customer loyalty and incentive programs:
Incentivize prospects and current customers
The foundation of any good rewards program is an incentive that prospects, customers, or others you’re trying to engage actually want. With a growth loop, you can afford to provide better incentives upfront because you know the payout from the program will be significant.
As mentioned in the example before, Dropbox has a referral program that provides extra storage space to both the referrer and the referee. Without the growth loop model of the referral program, this type of offer would be too expensive for companies to sustain long-term.
However, because referral programs invite further customer acquisition, this high-value incentive makes sense. Dropbox experienced 3900% growth through this model!
Increase user engagement
Users must be engaged with your incentive program to provide any benefits for your company. But finding incentives users actually want and offering them in an attractive way while maintaining your bottom line can be challenging.
Growth loops give your company more room in its budget to provide engaging incentives your target audience is actually interested in. The way you structure your growth loop can also increase engagement; for example, when users are motivated to tell their friends about your company, they’ll feel more involved in the growth and success of your company, increasing their engagement as well.
Lower customer acquisition costs
You may not feel you have the budget for a full-scale incentive program, but incentive growth loops are more affordable than linear programs. With growth loops, you’ll gain capital and resources you can pour back into future incentives. Alternatively, when sales growth loops are structured correctly, they’ll foster growth without the need for additional incentives.
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Adding incentive growth loops to your retail or SaaS growth strategy could prove highly beneficial, and Giftbit can streamline the process. Giftbit lets you automate customer rewards by integrating them directly into your current CRM system. Sign up for Giftbit for free today to learn more.
