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Growth loops explained

Article originally published in February 2024 by Stuart Brameld. Most recent update in February 2024.

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Which would you choose?

  1. Growth Initiative A:  Gives you 500 new users this week but nothing afterward.
  2. Growth Initiative B: Gives you 20 new users in week one, 22 in week 2, etc (growing 10% WoW) for every week going forward.

Initiative B will take 14 weeks to reach 500 new users. But, after 1 year, you’ll have 28,208 new users and grow by approximately 2600 per week. By the end of year 2, you have 4,035,039 new users (assuming a constant 10% growth rate).

What is a growth loop?

A growth loop is a marketing model that focuses on creating self-reinforcing cycles that aim to drive continuous growth for a business or product.

Unlike traditional linear models such as the marketing funnel, which focus on guiding potential customers through a series of stages from awareness to purchase, growth loops are designed to be circular and iterative. This means that the output of one cycle feeds into the beginning of the next, creating a loop that can potentially lead to exponential growth if executed effectively.

Growth loops v funnels

Traditionally marketers and growth marketers have used the AARRR framework as a way to understand the customer journey and growth.

https://www.gartner.com/en/digital-markets/insights/growth-loops-vs-aarrr-funnel

In recent years thinking has shifted to thinking about the customer journey and growth less as a linear funnel, and more like growth loops. Brian Balfour and The Reforge team have been instrumental in this new way of thinking.

https://www.gartner.com/en/digital-markets/insights/growth-loops-vs-aarrr-funnel

Below are some of the key differences in thinking about a growth loop and a funnel.

AspectGrowth LoopFunnel
DefinitionA model that focuses on creating self-reinforcing cycles where the output of one cycle fuels the next.A model that visualises the customer journey as a linear process from awareness to conversion.
FocusEncourages repeat engagement and virality to fuel growth.Focuses on moving potential customers through stages towards a conversion.
StructureCircular, indicating a continuous, iterative process.Linear, representing a one-directional flow.
Customer JourneyEmphasises ongoing engagement and retention.Concentrates on acquiring new customers and converting them.

Next we’ll look at the 4 main types of growth loop – the viral loop, the user-generated content loop, the paid marketing loop and the sales loop.

1 The Viral Growth Loop

A viral loop is a self-sustaining marketing strategy where each user acquired brings in more users through the natural process of sharing and referrals.

How a viral loop works:

  1. A % of users who signup invite friends
  2. A % of people who get invited click on the invites
  3. A % of people who click on the invites sign up

Companies using a viral loop: LinkedIn, Slack, Dropbox, Instagram

2 The UGC (User Generated Content) Growth Loop

A UGC (User Generated Content) Loop is a growth strategy where user-created content promotes engagement and attracts new users, thereby encouraging the creation of more content in a self-reinforcing cycle.

  1. New user signs up
  2. % of new users create content
  3. Google indexes the content
  4. % of people find this content in the search engines and become new users

Companies using a user generated content loop: Houzz, Pinterest, Moz, Yelp

3 The Paid Marketing Growth Loop

A paid marketing loop is a strategy where revenue generated from acquired customers is reinvested into paid advertising, creating a self-sustaining cycle of customer acquisition and revenue growth.

  1. User signs up
  2. % pay
  3. revenue from payment is used to buy more ads
  4. certain % act on the ad creating more ads

Companies using a paid marketing loop: Clash of Clans, Uber, SurveyMonkey, Dollar Shave Club

4 The Sales Growth Loop

A sales loop is a cyclical process where successful sales drive more customer referrals and repeat business, continuously fueling further sales and customer growth.

  1. new customer signs-up
  2. company uses profiles to create more reps
  3. more reps = more customers over time

Companies using a sales loop: HubSpot, Zendesk, box, New Relic

Growth loops and retention

Small increases in retention can have significant impacts when using growth loops as it increases the changes of existing users engaging in a growth loop.

Some examples below:

  1. Viral loops – longer retention increases the number of potential viral touchpoints and increase the likelihood a user will engage in the viral acquisition loop
  2. User generated content loops – an increase in retention results in more content created, which results in more context indexed, resulting in more new users finding that content and signing-up
  3. Paid marketing loop – increased retention results in faster reinvestment to buy more ad inventory, leading to more users
  4. Sales loop – longer retention rates result in more investment in the hiring of new sales reps, resulting in more new customers over time

B2B growth loops

Dropbox is one of the best known examples of an effective B2B growth loop – a user signs up, shares a document with a number of people, the recipients click on an email to access the document and a percentage of those viewers then become new Dropbox users.

Key takeaway

Your primary marketing efforts should not be one-off tactics but initiatives that can compound and deliver results over time.