For a long time, the most common approach for a business is to build a great product, test multiple marketing channels and tactics to see what drives business most efficiently, then optimize towards those top-performing strategies. The funnel is straight out of Business 101. But what if there was a better, more efficient way? Getting in front of your audience will always require a cost, whether it’s money, resources, or time. What if there was a way to design your product in such a way that it essentially promotes itself? Enter acquisition loops.
What are Acquisition Loops?
The process of an acquisition loop (also known as a growth loop) is perhaps best defined by growth expert, Brian Balfour:
“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.”
What he’s describing is a system where you can leverage your existing user base to ensure your product or service is consistently exposed to a new audience, and at no additional costs.
What’s he’s describing is the future of growth marketing.
Current Funnel Model
The model that most growth marketers have been utilizing for the last 10+ years is commonly known as the Pirate Funnel (named because the acronym of each step spells out “AAARRR”).
- Awareness – how are you building your brand and getting in front of potential customers?
- Acquisition – how are you getting users to engage with your brand and getting permission to message them going forward?
- Activation – how are you getting users to take their first significant action (sign up for a free trial, download an app, etc.)?
- Retention – how are you getting users to come back to your product or service?
- Revenue – how are you closing sales, and how can you upsell?
- Referral – how are you convincing users to invite their friends to try your product or service?
This funnel is a solid framework for marketers to get started when devising their strategy, as it keeps focus on the metrics that drive business. Each step has its own metrics of success, and today’s marketers have more than enough data to determine where their process needs refining.
When viewed as a linear process, data-driven marketers can easily see where bottlenecks are in the user journey, and work to optimize those areas.
Issues with the Current Funnel
Unfortunately, the current funnel model has the unintended consequence of creating silos among departments, where marketing owns acquisition, product owns retention, and sales owns revenue, and so on. With these different areas of ownership, each department also has its own KPIs. However, without perfect alignment, these departments often find themselves competing against each other, where success in one metric/step in the funnel can be detrimental to another.
For example, let’s say that a business ran a funnel analysis and saw that the bottom-funnel metrics were converting well, so, in order to grow, marketing was responsible for driving more leads. With that as their primary KPI, they’d implement strategies to drive up that number, but could likely be bringing in low-quality leads, which in turn tanks the bottom-funnel metrics. Then, like a game of Whack-A-Mole, now it’s up to product or sales to make modifications to their strategy to get the conversion rate back up.
The other issue with the current funnel is that it only moves in one direction. Even in a perfect world where all departments are aligned, that means the only path to growth is to pour more into the top of the funnel – money, tactics, channels, etc. – all while knowing the majority of users won’t make it all the way through. This strategy is simply unsustainable.
Why Acquisition Loops Are A Better Alternative
Acquisition loops solve the sustainability problem in two ways.
First, acquisition loops are like the compound interest of marketing. Instead of continually having to pour more resources into the top of the funnel to increase the output at the bottom, the product is designed to grow itself as more users convert. The more users you have, the more users are brought in. This exponential growth also doesn’t require additional costs each time you want to expand brand awareness, making it more sustainable from a cost perspective.
Additionally, since acquisition loops are built into the product, they’re harder for another brand to replicate because the loop is, in many ways, custom to your product. It’s pretty easy for a competitor brand to replicate an advertising tactic, which will either result in increased costs or decreased effectiveness. It’s much more difficult for a brand to redesign its product in the exact way your brand loops, making it more sustainable in the long run.
Hooked Framework + Acquisition Loop = Magic
The idea of creating loops for your customers isn’t an entirely new concept, particularly if you’re familiar with Nir Eyal’s “Hooked” model. For a company to build a habit-forming product (ie, products that bring users back again and again without relying on additional marketing or messaging), he outlines a four-step process:
- Trigger – an internal or external cue that prompts the user to take action
- Action – the simplest behavior in anticipation of a reward
- Variable Reward – sustain user interest by satisfying their needs while leaving them wanting to re-engage with the product
- Investment – the anticipation of rewards in the future
Now, there are some apparent differences between loops and hooks. The former is a strategy to bring in new users, and the latter is a strategy to ensure existing users keep using your product. However, there are many similarities with regards to how to engineer an intended response from your users.
Eyal’s “trigger” mirrors the initial input of a growth loop, as both are the first step in getting a user engaged and driving them towards an intended action. The “action” step is also pretty similar; in both cases, you want to encourage the desired behavior. To execute this, the product must be designed so that it’s clear what the user is supposed to do next, it’s easy to complete, and the user is properly motivated to do so.
Where they differ is after the action step – the growth loop requires an external action designed to expose the brand to potential new users. In contrast, the Hooked model is an internal action designed to establish a habit.
However, these two loops can both exist within the same product because of these variances in end goals. A hook to ensure your product becomes part of a consumer’s daily habit, and a growth loop to ensure that your existing users are helping you to grow.
Driving consistent engagement and growth without investing additional resources is a recipe for explosive growth.
Examples of Acquisition Loops Done Right
In its simplest form, word of mouth is probably the most simple acquisition loop. You create an awesome product, introduce it to your audience, they love it, and tell their friends about it.
However, while this is great when it happens, as growth marketers, we’re focused more on areas where we can control. Relying on word of mouth to grow your brand is unreliable, unpredictable, and can’t really be measured. Creating an acquisition loop is more about how to engineer your product so you can test and know these loops will happen.
Referral programs can be considered an acquisition loop as well. Countless companies have leveraged this tactic, typically offering users some kind of bonus for referring their friends. Examples of this include how Dropbox famously offers additional storage space for referrals, or how companies like GrubHub or Uber will offer their users free credits to use on their respective platforms.
However, replicable tactics seem to have a shelf life of effectiveness. Once brands start to notice something working for another brand, they’ll attempt to use it for their own product, and as users begin to see the same strategy repeatedly, it starts to lose its effectiveness.
Growth marketers need to be agile. There needs to be a deep understanding of who is using their product, how they are using it, and how all of that can be leveraged in a way that’s specific to the business.
For example, without relying on paid advertising, TikTok is the fastest growing platform on the planet right now with over 1 Billion global downloads. Their users are also highly engaged, with the average user spending 52 minutes/day in the app. They were able to achieve this by leveraging their own users to get the word out themselves, and creating hooks to keep their audience consistently returning to the platform.
TikTok Acquisition Loop:
- The user sees viral TikTok content and is driven to download the app.
- The user opens TikTok, sees the latest viral challenge, and creates content to join the community.
- This content is sent out to the TikTok community, and easily findable/sortable via specific hashtags.
- Content is downloaded off the app (a feature made intentionally by TikTok) and re-packaged into YouTube compilations where it’s more accessible to non-TikTok users. New users watch and enjoy the content and want to see what TikTok is all about and download it.
TikTok Hooked Model:
- Trigger – TikTok’s external trigger is its viral content that engages new users. Once they’re signed up, similar to many social networks, the internal triggers are often boredom or social validation.
- Action – TikTok’s desired action is for the user to create and post a video, which they make not only easy, but fun, with a wide variety of music, filters, and other effects that allow the user to be as creative as possible.
- Variable Reward – For viewers, the variable reward is the constant mix of different content that starts playing as soon as the app is opened. For creators, the variable reward is the alluring desire to make videos that get the most views, likes, and comments.
- Investment – While anyone can download the app and watch videos, an account needs to be made to follow friends or popular creators. In doing so, their feed becomes more customized to the viewers’ preferences, keeping them hooked on the content. For creators, the content they create allows them to build a reputation and fan base on the platform, which will make them a lot more likely to continue using TikTok.
Peloton’s explosive growth is another excellent example of a company that has leveraged both growth loops and the hook model, driving the company from launch to an $8 billion IPO in just seven years.
Peloton Acquisition Loop:
- Users are pulled in via word of mouth or seeing friends workout results on social media.
- The user buys the bike and monthly workout plan and participates in their first workout.
- The user joins the Peloton community and posts photos of their bike or results of milestone workouts or personal bests. Peloton is also able to gather data on its users, both on their workout preferences and user experience.
- Peloton uses this data to guide its content strategy, which they push out to engage future users. The new users are also now a part of the Peloton community and will likely engage non-Peloton users either via word of mouth or sharing their post-workout results on social, restarting the loop.
Peloton Hooked Model:
- Trigger – Peloton’s external and internal triggers both stem from a person’s desire to improve physical fitness in a ways that’s both convenient and social. Externally, a first time user may be looped in by either word of mouth or engaging with a friend’s social post about their workout.
- Action – The action for Peloton is rather straight-forward – getting a user to participate in one of their many workout options.
- Variable Reward – Peloton offers a wide variety of different workouts and instructors, plus several different variable rewards to keep things interesting for their users. Some are driven by a users desire to improve their results, while others are driven by the social validation of a Peloton instructor shoutout. Additionally, after the ride is done, Pelton recommends a variety of different exercises after, whether it’s meditation, stretching, or yoga. All of these combine to make each ride a new experience.
- Investment – The price point itself keeps users invested in the product, many of whom are paying for the bike on a 39-month financing plan (plus the monthly subscription fee). Once this commitment has been made, users stay invested because the Peloton bike is their path to reaching their fitness goals. But perhaps most importantly, the users feel connected to a community, resulting in a retention rate of 95%.
What Products/Brands are Acquisition Loops Right For
The acquisition loop model is still relatively new, so it will continue to evolve and become more refined as marketers learn and test. As of now, there seem to be two areas for loops to have the biggest impact.
- Businesses where the output is User Generated Content. As we’ve seen with the rise of social media, people have an innate desire for social rewards and connectedness. If you invest time to create something, you’re going to want to be rewarded for your effort somehow, meaning you’re going to want to share your creation. This ensures that for each new user your product gains, the more people will see their output, thus restarting the loop.
- Businesses with a network effect. The network effect occurs when increasing the number of people or participants will improve the value of a good or service. A platform like Facebook doesn’t mean much if you’re the only one with a profile, but if all of your friends and family use it as well, it becomes a much more valuable communication tool. This effect can also be seen with B2B products like Slack. Suppose Slack is your preferred method of business communication. In that case, you’ll become an unofficial ambassador for the brand, because everyone that wants/needs to communicate with you will need to download Slack as well, thus restarting the loop without any investment on the part of Slack.
How to Implement Acquisition Loops Today
To get started, Brian Balfour recommends a simple exercise: go around your company and ask five different people (ideally you’ll have representation across product, marketing, sales, and management) to draw a visual picture to answer a seemingly simple question.
How does your product grow?
While this seems like a simple question, the results typically aren’t totally aligned. Answers will often differ or show only a small piece of the puzzle. This can also be a significant problem for a business. If internal priorities aren’t in sync, how can there be an apples to apples discussion on strategy, metrics, priorities, or even what success looks like?
First and foremost, this audit should serve as a wake-up call to the importance of growth loops. This overall goal of this discussion is to get everyone aligned on a high-level consumer journey map.
The next step is to identify what Balfour calls your “point(s) of leverage.” What are the most impactful areas of that map? What can be improved that could have the most significant impact?
Once these are identified, you’ll be able to recognize the money and resources going towards initiatives outside your point of leverage, and should look towards defining the most important metrics and revising overall strategy.
It’s also worth noting that these can change over time, so it’s essential to review the above exercises and questions regularly. The first review may result in a new roadmap, but after implementing, there will undoubtedly be more learnings as a result, so maybe the map needs another revision. But no matter what, the takeaways from these audits should be both actionable and measurable.
As with all things in marketing, review the data, and optimize constantly. But if you follow the steps above with a deep understanding of how and why to create acquisition loops, you’ll be on your way to real, sustainable growth.