How to Improve Referral Rates with Growth Loops

Wouldn’t it be great if your SaaS product could grow through virality?

While strong user acquisition metrics are traditionally the result of a blend of marketing spend, funnel optimization, and a little luck, building your user base one acquisition at a time can feel daunting—and it’s not the most sustainable way to increase user counts.

On the other end of the spectrum, traditional “sales-led” organizations don’t have to have large user counts to secure revenue. They build their roadmaps based on the needs of enterprises, let the sales team connect, and secure large contracts if all goes well. But sales motions require talent, time, and a host of mechanisms that many SaaS startups aren’t yet ready to tackle—despite the promises of high-value, multi-year contracts.

But stopping short of an enterprise motion, B2C software can struggle to find revenue. Without a way to expand existing accounts, the cost of acquisition (CAC) will remain high, finding new customers will be a pain, and your software product will never achieve the 10-15x multiples common for B2B software.

So, how do we increase revenues and lower CAC while stopping short of chasing the enterprise audience?

Enter: growth loops.

A growth loop is a compounding referral motion that leverages existing users to grow your user base through referrals. Referrals help keep marketing expenses low and increase the potential value of every new user.

In this article, we’ll explore how growth loops work and how to build them for long-term, exponential success.

The Fundamentals of Growth Loops

Growth loops (sometimes called referral loops) offer a fresh perspective on how SaaS products grow sustainably through network effects.

Growth loops work as self-sustaining systems, where the output from one cycle feeds back into the start, creating a compounding effect that drives long-term growth. It’s a repeating cycle of organic growth that creates long-term customer acquisition.

Let’s dig into what makes growth loops so effective.

What are Growth Loops?

Growth loops are self-reinforcing cycles where each action or user interaction within the product generates output that fuels the next growth cycle.

Don’t worry; it’s actually a lot less complicated than it sounds!

Think of a growth loop framework like a flywheel: Once it’s moving, it picks up speed and sustains momentum. For example, a user finds your product, interacts meaningfully, and creates content or engages in a way that attracts other users who repeat this cycle.

This is how products like Canva grow–each user has the potential to attract even more users.

Growth Loops vs. Funnels Key Differences

While marketing funnels have been a classic approach to visualizing growth, they only allow for linear growth.

Funnels break down growth into stages like acquisition, activation, and retention, but they miss reinvestment opportunities. You’re constantly pouring resources into the top, hoping that enough converts at the bottom.

In contrast, a viral growth loop leverages user actions to directly attract new users. This creates a cycle that spreads the product organically.

Let’s walk through how this works in practice with a classic example of one of the most successful growth loops: Dropbox.

1. User signs up: A user signs up for Dropbox to start storing and sharing their files.
2. Incentive to share: Dropbox offers the user an incentive – extra storage space – if they refer friends to join. This incentive not only appeals to initial users but also aligns with Dropbox’s product value (more space to store files).
3. User selects contacts: The user decides who to invite to Dropbox.
4. New user invite: Dropbox sends out referral invites via email or social media. (The platform makes this quick and easy).
5. New user signs up: The friend clicks on the invite link, creates their own Dropbox account, and gets additional storage as a sign-up reward. Now, they can share their own referral link.

Each new user has the same incentive to refer to others. Each participant drives a new cycle of user acquisition. This creates a compounding effect that leads to exponential growth.

Elena Verna, head of Growth at Dropbox, is a staunch advocate for growth loops, saying that “…failing to consider the dire need to connect [users] to a team and a company level value WILL sabotage your future growth.” To Verna, growth loops are critical for acquiring users at a scale more sustainable than selling B2C.

The beauty of a viral growth loop lies in its simplicity – it continuously fuels itself. This drastically reduces the need for costly acquisition channels like paid ads or direct marketing.

Improving Referral Rates with Growth Loops

Growth loops boost referral rates by making user acquisition part of the user journey. Each new user not only becomes a customer but also a potential referrer by making sharing a natural part of the user experience.

But this kind of experience requires three main components:

1. Incentives aligned with product value. Whatever users get in exchange for a referral must relate to the product’s primary value. Otherwise, they won’t be motivated to help.
2. Seamless sharing. Give users simple and clear buttons and links to facilitate sharing in ways that don’t interrupt their experience with the product. It must be effortless!
3. Social proof and visibility. Users need to see their friends and colleagues actively using the product. This visibility drives more referrals.

That being said, growth loops aren’t one-size-fits-all. Each growth loop serves different growth goals for your marketing strategy, and the most successful SaaS companies often identify and build around one or two loops depending on their needs. Here are some examples.

3 Examples of Growth Loops

1. Substack

Substack’s growth loop centers around content creation and subscriber engagement. It’s a highly scalable email marketing system where each subscriber is a method of attracting new subscribers.

Here’s how it works:

1. A writer creates and publishes a newsletter on Substack, either as free or paid content.
2. Active users read, engage with, share, and forward the newsletter to friends.
3. Shared content introduces new readers to the newsletter and to Substack itself. Interested readers subscribe to the newsletter. This grows the subscriber base and generates new opportunities for sharing.
4. As more subscribers engage and share, each user becomes a tool to attract new users.

2. DocuSign

DocuSign’s growth loop leverages the need for digital document signing. Every document sent for a signature serves as an introduction to the platform.

Here’s how it works:

1. A user uploads a document to DocuSign and sends it to recipients for signature.
2. Recipients receive an email with a link to the document. They review and sign without needing an account. This helps them experience the platform’s convenience.
3. Impressed, recipients often sign up for their own accounts to send and manage their own documents, especially if they frequently need to get things signed.
4. As new users send their own documents for signatures, they introduce even more users to the platform. Each document sent by a new user brings in additional recipients.

3. Canva

Here’s how it works:

1. After adding payment information, Canva asks ‘who is on your team?’
2. The user adds members to their team by entering their email address. The user is reminded they can have five users on their team for the price that they will already be paying, with the option to add extra members for $7.00 per person per month.
3. Asking for team members early in the signup increases the subscribers’ dependence on the tool and also introduces new users to Canva.

These three are just a sample of example growth loops in action, but you can see how these referral mechanisms naturally drive new users to the tool through the day-to-day actions of current users.

How to Implement Growth Loops

Building a strong growth loop that works consistently and scales with your company requires careful planning. Let’s take a high-level walk through the process.

1. Identify Your Value Proposition

Growth loops work best when they’re aligned with what makes your product compelling, so your first step is to clarify your offer.

Ask yourself: What core action do users find most valuable? What helps them realize the most value from your product?

2. Define Key User Actions and Outcomes

Next, outline the specific user actions that will drive your loop. These actions should lead to clear outcomes that benefit both the user and the growth loop. Map out each step in the loop to create a natural pathway to more engagement.

For instance, if your loop relies on collaboration, the primary action might be “inviting others to collaborate.” This action clearly benefits both the user and the potential user.

3. Build Incentives for Engagement and Sharing

Incorporate incentives that encourage users to take actions that reinforce the loop. These don’t have to be financial rewards. Sometimes, the product’s value is plenty, like in the case of Dropbox where users get more storage (the product’s primary value) for sharing. Closer alignment to the value will encourage more sharing.

4. Make Sharing Simple and Seamless

One of the most important factors in any growth loop is ease of use. If you want users to invite others or share content, it’s important to simplify the process as much as possible.

Integrate one-click invitations, social sharing options, or personalized links directly within the product. The goal is to reduce friction in the sharing process so it feels like a natural part of the customer journey.

5. Track, Measure, and Optimize

Growth loops seem simple, but they aren’t set-it-and-forget-it systems. They need to be monitored and optimized.

Start by defining your key metrics of the loop, such as referral rates or user activation. Monitor these metrics to identify bottlenecks and opportunities to improve. If a specific action isn’t driving the desired results, you may need to adjust the loop structure, incentives, or user experience.

Sustainable Growth Through Growth Loops

Growth loops aren’t just a trendy framework. They’re the key to creating a solid foundation of continuous growth. Unlike traditional funnel frameworks, growth loops turn each interaction into a chance to draw in new users. They can boost engagement and deepen retention in one continuous cycle.

Most importantly, they can fuel growth without constantly pouring money into acquisition.

Achieving the power of growth loops effectively, however, takes thoughtful planning and optimization. That’s where The Good’s Digital Experience Optimization Program™ comes in.

With our expertise in growth strategy and user behavior, we can help you identify, build, and fine-tune growth loops that are tailored to your product’s unique strengths and user base. Connect with us, and we’ll help you grow sustainably.