K-factor: Estimating your virality
K-factor is the metric for the growth rate of a product or business. A lot of people are chasing it, and chances are you are, too, if you’re reading this. But, keep in mind, K-factor without retention is worthless. Worry about your retention before you worry about K-factor. Now, assuming you’re killing it on retention, let’s talk about K-factor.
K-what
Wikipedia describes k-factor as follows:
“K-factor can be used to describe the growth rate of websites, apps, or a customer base … This usage is borrowed from the basic reproduction number in the medical field of epidemiology in which a virus having a K-factor of 1 is in a “steady” state of neither growth nor decline, while a K-factor greater than 1 indicates exponential growth and a K-factor less than 1 indicates exponential decline.”
K-factor tells the future.
There are leading indicators of growth and lagging ones. Customer Acquisition Cost (CAC), retention, and Monthly Active Users (MAU) are lagging indicators. We look to them to see how we did. K-factor is different, we can use it to see where we’re going.
Not much has actually been written about K-factor. Wherever I look online I will find the same formula.
r = i * c
r = customer referrals
i = number of invites sent by each customer (e.g. if each new customer invites five friends, i = 5)
c = percent conversion of each invite (e.g. if one in five invitees convert to new users, c = 0.2)
Here is the issue: If you take this formula literally you are just tracking the efficacy of your referral program, not your virality.
So, I asked a bunch of growth people and VCs in my network about how they calculate and define K-factor. It became clear that K-factor is currently a high-level concept, with little consensus around how to best calculate it. Here is my attempt to change that.
K-factor is the value that is used to estimate your product’s virality.
I believe pretty much every product has some K-factor, even if it doesn’t have an actual, trackable invite funnel. The issue with K-factor is attribution, being able to technically attribute customers to the correct channels, as well as having a unified understanding of which channels are responsible for the virality you’ve cracked.
Someone telling his friend about your product at the bar is as much virality as that same user using your referral system to do it.
What drives virality?
Let’s quickly get aligned on the different things that drive virality.
Invite features
These are ways to actively invite others into the platform, including referral programs, invite your friends, add your team to Slack, etc.
Relay features
These are built-in mechanisms that pass your product to others through more organic usage. Examples include sharing files via Dropbox, sending money via Venmo, syndicating your Substack to other social networks, and the like. In these cases, existing users drive growth as part of their normal actions or behaviors.
User-generated content (UGC)
UGC can drive virality in cases where people create content that they share with others, and your product so happens to be the vehicle that’s used to share it, for example, YouTube videos, Medium articles, TikToks, etc.
Hype & a damn good reputation
The word “hype” can have a lot of meanings. Here, I mean the magic that happens when a certain group of people thinks your product is the coolest thing ever and tells their friends and networks all about you. Hype is powerful because when you have hype, people will align themselves with your product out of their own self-interest: they want to appear to be innovative, smart, trendy, etc. among their peers. Because of this pull, hype can lead to free press articles, celeb shoutouts, and more.
Zeitgeist
Zeitgeist is the mood of a particular period in time. Zeitgeist drives virality when you’re able to hit a cultural nerve and your product is at the center of it. Examples include grocery delivery and at-home fitness amid shelter-in-place or virtual tools that power remote education in the era of COVID.
You can’t necessarily plan for Zeitgeist, but if you’re fortunate enough to benefit from a broader movement, how you capitalize on that moment can make or break your ability to drive virality.
How to estimate K-factor.
K-factor is free, organic user acquisition that is powered by either growth features within your product or hype around your company. If you master both in parallel, you’re executing on the highest levels of greatness and virality ✊.
Back to calculating K-factor. What we are trying to determine is: For every customer, you acquire, how many new customers are they bringing in?
A new formula:
N / T = K-factor
(N) New organic customers acquired, month 2
(T) Total new customers acquired, month 1
Internally at Public.com, we break K-factor down into two metrics:
- Overall k-factor
All acquisition that we can attribute to virality, plus all other organic acquisition that we can not attribute at all. - Attributable K-factor
All acquisition we can attribute to virality. For us, this includes our measurable referral system, sharable content that travels outside the app, etc.
Any K-factor above 1.0 is exponential.
If each new customer invites another two customers, the snowball is rolling. In reality, K-factor above 1.0 is very rare and not sustainable. However, a K-factor below 1.0 can still be very powerful, so don’t dismiss it as not being “viral enough”. Think about it this way:
K-factor >1.0 is exponential
K-factor 0.4 to 0.9 is hyper-growth
K-factor 0.1 to 0.3 is linear
K-factor typically goes down as you scale and you acquire a broader audience with less network density. Hype and invites are easier to generate in a tight audience that is connected around certain industries, values, or interests.
The drastic difference:
High K-factor means you can spend more on ads.
High K-factor enables you to spend more money on paid acquisition. K-factor acts as an accelerant, adding momentum to and optimizing all other acquisition channels. That’s because the more customers you acquire organically, the lower your blended CAC will be.
For example: If every customer you acquire for $40 on Facebook, brings in 0.5 additional customers, the effective CAC for that initial customer drops down to $27.
💡 High K-factor does not only acquire free customers but helps you scale all other channels faster.
Zap.
Everyone aspires to grow virally. Unlocking viral growth means understanding what exactly is driving virality, and how those things can be measured. In the end, this is really just growth accounting which helps you forecast your organic growth and have a clear KPI for the team that quantifies your virality and hype.
This new, very simple, formula is what we’re using at Public as we grow our community of investors. I’m sure it’s not perfect and I can’t wait to get schooled on how to do it better. ✊
Thanks for reading!
Follow me on Twitter: https://twitter.com/leifthunder
Feel free to reach out if you have questions: leif@tbd.xyz
