Growth Loops: The New Sustainable Customer Acquisition Strategy

Have you heard the term “growth loops” knocking around in the marketing world and are unsure what it’s all about? Or perhaps you know what it is, but you don’t see how it could help your business grow? You’re in the right place!

This article looks at growth loops, how they work, and how to step away from funnel marketing and implement growth loops into your own strategy. And, of course, we’ll analyze a couple of examples along the way.

For companies that want to grow strategically and ramp up their conversions, funnel marketing has been the dominant lead acquisition framework over the last decade.

And while funnels were a great starting point to demonstrate how prospects move from one stage of the sales lifecycle to the next, it’s a limited framework that doesn’t connect the output to the input.

Let’s look at that more closely.

Ask a marketer how they grow their business, and you’ll usually hear things like paid ads, affiliate marketing, sales, etc. These are all traditional models that help with customer acquisition. But each of these methods is a “put more in, get more out” strategy, which is not only expensive but much more complex than customer acquisition needs to be.

Why traditional funnels are not sufficient for lead acquisition

Here’s an image of a typical marketing funnel. At the top of the funnel, we have the marketing team responsible for generating awareness for the brand. In the middle, we have the product itself, and at the bottom of the funnel, we have the sales team responsible for driving conversions.

Funnels simplified the customer journey and helped many businesses grow, but this model isn’t without its limitations. Marketing has evolved exponentially in the last decade, and we’ve adopted more innovative, sustainable ways to bring in quality leads and convert them to customers. So let’s look at why the traditional funnel marketing falls flat in 2022:

Marketing funnels create undeniable silos in the business

What happens if the marketing team tries to drive as much brand awareness as possible by bringing in poor leads? It won’t be their job to try and retain them because that’s the responsibility of the sales and product teams.

So we’ve got marketing teams incentivized to bring in new leads and create new users without the knowledge or responsibility of determining how you can retain those leads in the long term.

The result? Low-quality and misqualified leads coming down from the marketing teams and a lower retention rate for product/sales teams. In an article for Fast Company, Wordsmiths Inc. founder Andrew Miller breaks it down:

“The funnel concept breaks down growth into layers, and a single team owns each layer… for instance, marketers could bring in poor leads to maximize brand awareness, but this makes it hard for the sales teams to drive conversions further down the growth funnel.”

Marketing funnels work in a linear process

The very nature of a funnel promotes a start and an end. Because of this, the reliance on a steady input flow means that growth will also be linear.

And while that may help short-term growth, it tends to put a cap on long-term growth success.

Linear funnels are relatively straightforward to understand. A user searches for a keyword on Google, for example, “lead acquisition.” They find a PPC ad, click on it, and go to a landing page where they find the main call to action. The CTA button takes them to a lead capture page where they trade personal details in exchange for something. A sales representative attempts to convert them into a customer.

Simple enough, right?

But the reality is that the actual customer journey is much more complex than that. After visiting the landing page, the user can take endless possibilities and routes before making a purchasing decision.

She might read a few reviews or social media to see what other customers say about the purchase. She might go into the office the next day and get a second opinion from coworkers. She might sign up for a newsletter and download a lead magnet to learn more about the company or product. She might email the support team and ask for clarification on one or two features that stood out to her.

The possible routes before making the purchase are endless!

An increasing number of factors contribute to a user’s final buying decision, so we need a strategy that acknowledges and can accommodate.

Marketing funnels are expensive

Traditional funnel marketing is expensive. In the same Fast Company article, Andrew describes this as a one-way operation, where marketers assume that the output will be greater by pouring more resources, time, and energy into the top of the funnel.

There’s just one problem, though. This isn’t a sustainable way of approaching demand generation! This kind of one-directional operation means you’ll forever need to put more and more resources into your strategy to feed the funnel and see success.

But customer acquisition is expensive,  and this excessive time and money investment simply limit how many users can move through the funnel.

Enter Growth Loops: What are they?

We know that traditional, linear marketing funnels are outdated, and marketers are moving toward more sustainable methods for strategic growth. But what exactly is a growth loop, and how can you implement them?

Growth loops are closed systems where the input generates output that you can reinvest into the input. Let’s look at a few examples of successful growth loops to see how it works in practice.

Netflix growth loop

To the average user, Netflix recommendations are just part of the service. Still, marketers know that an intelligent, complex growth loop is happening in the background to give us that ultimate Netflix and chill experience.

Here’s what Netflix’s growth loop looks like:

1. The customer makes an account and starts consuming content.
2. Based on the customer’s choices, Netflix learns their content preferences.
3. Netflix tailors  hyper-personalized recommendations and provides content aligned with the majority of watching patterns (think, top 10 movies, newly released seasons of popular shows, etc.)
4. Netflix brings those recommendations to the forefront of the user experience.

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Pinterest’s growth loop

Create a similar image to Netflix, add the Pinterest logo in the middle of the growth loop and change the text to the following:

User finds content via search engines/social media and signs up

Pinterest shares relevant content

User repins or saves content

Netflix indexes the content for search engines, and the following user

Just like Netflix, Pinterest has its very own growth loop. Here’s what it looks like:

1. The user discovers free content usually via search engines or social media
2. The user signs up for the platform, where they receive precise, relevant content based on their previous search
3. Pinterest prompts the user to share or ‘repin’ the content
4. The user shares/repins a piece of content picked up by search engines, appearing as high-quality content for the following user to discover. And the cycle repeats!

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LinkedIn’s growth loop

We can’t talk about growth loops without mentioning LinkedIn! Here’s how the job platform uses growth loops to acquire more leads:

1. The user creates an account
2. LinkedIn suggests synchronizing the user’s contact list
3. Based on the user’s contact list and completed profile, LinkedIn suggests connections
4. LinkedIn prompts the user to invite people from their personal contact list onto the platform

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Types of growth loops

Marketers tend to use three main types of growth loops for lead acquisition: the viral loop, UCC loop, and paid loop. Let’s explore each one.

Viral loop

The aim of the viral loop is in the name, for a platform, service, or product to go viral. So in this type of growth loop, a user signs up, interacts with the offering (or a simple piece of content), and is prompted to invite other users to join. The output (a user inviting others to join) creates the input (new users entering), so the cycle continues.

UGC loop

In a UGC loop, users sign up and create their own content. Pinterest is a perfect example of this; you can refer to the growth loop example we mentioned earlier in this post.

Users create their own content, and search engines index it as a high-quality piece of content.

Paid loop

In a paid growth loop, businesses acquire new users through paid marketing activities, such as paid social ads. Once a user makes a transaction or signs up, companies use the money to pay for more paid marketing activities to acquire more users.

How to implement growth loops

A great way to start with growth loops is by looking at your existing funnel and identifying how you turn it into a cycle where the output generates input. Here are a few questions to get you thinking about what your growth loop can look like:

1. How do potential customers find your product?
2. What do you do to you retain users?
3. How do users share your product with others?
4. Look at your existing funnel. Where are the friction points that get users to point A to B?
5. Do users have an incentive to share your product/content?
6. How can you make it easier for users to share your product/content? (eg. Pre-prepared messages the user can use when sharing a link to your product)
7. How are users interacting with your content?
8. What psychological triggers can you address as a way to improve incentives?

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Final thoughts

The growth loop model has drastically improved how we approach acquisition marketing and has taken us from a siloed system to a self-sustaining model that results in a compound growth effect.

Traditional, linear marketing funnels are outdated, but by implementing a successful growth loop, you can cater to the complicated, multi-faceted customer journey in a way that pays for itself tenfold.

However, implementing a successful growth loop requires a certain amount of trial and error.

“There’s no silver bullet in marketing,” Wordsmiths Inc. Founder Andrew Miller says. It’s up to marketers to dive into their existing funnels with a magnifying glass and identify areas that can be improved and tailored to suit your market.