While apps and games have traditionally grown by having the acquisition team focus on the funnel, a recent blog post, Growth Loops are the New Funnels by growth guru Brian Balfour, shows a better strategy is to build growth loops. Rather than asking your marketing or user acquisition team to optimize user acquisition channels, growth loops has product and acquisition working holistically to build a product that will scale.
The traditional thinking
The strategy most game and app developers is create a great product, then optimize the acquisition funnel. After creating the product, they focus on optimizing the funnel below (testing different channels and strategies) to scale. This is a very KPI driven exercise, with each level of the funnel optimized through experiments and testing. The funnel consists of five categories, in this order:
- Acquisition. Helping as many users as possible discover the game. This can be discovered by visitors in the app store, downloads, app install, etc.
- Activation. Once acquiring a user, how many start playing the game (or using the app). This category can be measured by first spin (in a casino game), players who Facebook Connect, new accounts, completed tutorial, etc.
- Retention. Retention is the next, and arguably most important, category in the funnel. In games, this is often measured by how many players come by the next day (D1), return in a week (D7) or are active a month after installing (D30). Other good retention metrics are CURR (current rate of returning users) or engagement metrics (how much time spent in app).
- Referral. How many of your active players are helping bring new players. This category can be measured by actual referrals or K-score (number between 0-100 that indicates the strength of engagement between your product and your contacts, accounts, opportunities and leads).
- Revenue. The final layer of the funnel is revenue, how well you monetize the players. This metric is measured by ARPDAU (average revenue per daily active user), conversion rate (how many players spend), frequency of purchases, total lifetime spend, etc.
Successful companies would optimize the above funnel, testing different channels, creative, etc., at each step of the funnel, then optimizing spend to improve these KPIs.
The new approach
Rather than focusing on the five categories in the growth funnel, Balfour suggests a holistic approach to growth. As Balfour points out, while the growth funnel has helped many companies scale, it is over eleven years old and the industry has since evolved. Funnels lead to silos, where the product team has its own domain, growth has its empire while monetization owns its business. This strategy can lead to failure as the product is not built to optimize the channels where it will be distributed (e.g. the AppStores).
The key is building a product or game where growth is part of the core product loop, not a separate task done by a growth or acquisition or marketing team. As Balfour writes, “The fastest growing products are better represented as a system of loops, not funnels. Loops are closed systems where the inputs through some process generates more of an output that can be reinvested in the input. There are growth loops that serve different value creation including new users, returning users, defensibility, or efficiency.”
The key to a successful growth loop is the customer or player reinvesting the value of the loop to drive the initial elements of the loop Pinterest does this by investing in creating content that shows up high in search engines, users then find the content and either return to Pinterest or sign up for it, Pinterest then serves related content with the user saves, thus creating more searchable content (the beginning of the loop). SurveyMonkey has a growth loop where a user signs up, creates a survey, sends the survey out, when the recipients finish the survey the are served an opportunity to sign up with SurveyMonkey, and those sign-ups restart the loop.
Just as with your financial investments, a critical element of the power of growth loops is that they compound growth. Rather than the linear approach of the growth funnel, a growth loop continuously adds to create more output and revenue. The more output that is reinvested by the user or player, the larger the output created from the next cycle. This compounding is critical as rather than creating a multitude of growth loops, you want to measure and focus on the ones that have the greatest impact.
As growth loops are holistic systems, they are also more defensible than growth funnel. In a funnel, any element of the funnel can be attacked. Growth loops, however, integrate product, channel and monetization model specific to your game and thus harder for other companies to copy.
Why loops are better
Balfour explains that growth loops change your entire business, largely for the better. The key benefits include:
- You get away from siloes (product, marketing, etc) and work together. Growth loops force companies to build a system.
- You invest resources in systems that are more sustainable long-term, that continue to grow on their own.
- You organize your personnel and teams towards a common goal, aligning and optimizing the growth loops.
When building your company and designing your games or products, think holistically. Understand how you will create growth loops that will feed themselves and build a long-term dominant product. With games, ensure that there are loops in the game that drive the acquisition phase.
- Growth loops represent the evolution from a traditional acquisition funnel to a loop that continually creates value. Loops are closed systems where the inputs through some process generates more of an output that can be reinvested in the input.
- Rather than creating siloes, growth loops help marketing, product, monetization, analytics work holistically.
- A key value derived from growth loops is they have a compounding effect, they continually add value to the initial investment and thus perpetually grow the underlying product.