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How Growth Marketing Is Driving Billion Dollar Valuations

This article is more than 7 years old.

This piece was co-written with Ryan Faber, a growth marketing strategist.

For the past few years, a new discipline known as “growth marketing” or “growth hacking” has fueled the success of the world’s biggest tech companies. From Airbnb to Uber, companies that are able to grow their customer base quickly and efficiently are being rewarded with sky-high valuations.

Growth marketing places a heavy emphasis on rapid experimentation to improve performance, helping companies become less reliant on spending massive advertising budgets to achieve “unicorn status.”

On paper this sounds great, but understanding what to actually do and where to start can be challenging. To demystify this new approach to marketing, we created a guide on how companies can squeeze more value out of their advertising budgets.

Getting Started

Let’s start with the basics. You can’t drive growth without understanding its levers:

1. Growth is a product of change in traffic and change in conversion

2. Change in conversion is a product of experimental velocity and experimental quality

Traditional growth models have been reliant on funneling as much cash as possible into advertising. This model works until your cost per customer acquisition scrapes up against the ceiling of customer value. Once this ceiling is reached, the traditional growth model can’t be scaled further as it starts burning cash without improving results. In order to avoid stagnation, you must either improve conversion or virality (i.e. rate of social referral).

Enter the growth marketer.

Embrace Experimentation With The Winner-Variant-Challenger (WVC) Model

Relentless experimentation is what separates growth marketers from media buyers. Growth marketers test each piece of the product-marketing funnel, meticulously optimizing every ad, email and product page toward the pursuit of ultimate growth.

But where should you start? While it is important to accelerate experimental velocity, it’s more important to execute the right experiments. Too often marketers stay within the box of their original concept, only testing incremental changes to copy and color. Without constantly testing new concepts, advertisers will fail to identify the game-changing ideas that have the potential to drive much higher rates of conversion and virality.

We recommend instituting the WVC model since it drives experimental velocity while keeping you focused on testing the right ideas. This model involves testing every piece of your funnel in an ongoing three-way test:

• The winner is best performing version from the previous test

• The variant is the winner with a single element modified

• The challenger is an entirely new concept with multiple elements modified

When the test hits statistical significance, call the winner and create a new variant and challenger. Rinse and repeat ad infinitum for hyper-efficient growth.

Start At The Top

If you’re only experimenting casually, you’ll probably find it overwhelming to start testing everything. That’s why I always recommend that marketers prioritize experiments at the very top of the funnel.

Why? If you can improve an ad’s click-through rate, you’ll get more traffic flowing to the landing page and every subsequent stage of the funnel. This has two major benefits: (1) it increases the audience for all downstream experiments and (2) it increases your re-marketing audience which you can later target for hyper-efficient campaigns.

Continue Into The Product

If you continue disciplined testing deep into the product funnel, you will improve virality and monetization. This will allow you to break even on your customer acquisition costs faster. If you’re seeking explosive growth, you can leverage that increased efficiency to raise funding, fueling a larger budget and your ascension to market dominance.

Experiment Without Ego

Fair warning — when you start testing rapidly, you’ll inevitably prove many of your ideas wrong. But don’t equate being wrong with failure. In fact, the very opposite is true: you’ve successfully falsified a hypothesis, acquired data to hone your experimental roadmap and increased the probability of future success. When you embrace a culture of ego-less experimentation, the upside is infinite while the downside is negligible. Push the winning experiments to 100% and quickly kill (or iterate upon) the losers.

Use Exit Intent To Convert Prospects

Here’s an ugly truth: a significant portion of your first-session traffic will hit your landing page and abandon without registering. These abandoners are mostly prospective users who have yet to understand the value of your product. Why would they sacrifice their time to fill out your registration form? While these are ideal candidates for an educational email series, you’ll have no way to educate them on your value proposition without an email opt-in. If you fail to collect an opt-in during the first session, they’re unlikely to return for a second.

Enter Exit Intent.

This technology analyzes mouse patterns to predict when a visitor is about to abandon your site and allows you to trigger a high-converting opt-in form right before they move to exit. You can expect to collect email opt-in from about a fifth of abandoners with an optimized exit intent campaign. The best performing campaigns typically offer a clear value exchange—for example, you might offer a discount or premium content in exchange for email opt-in.

Use Web Push For Real-Time Messaging

Email is an incredibly effective channel for driving conversion and retention, but it is not an effective real-time communication channel. You can use push notifications if you’ve developed a mobile app, but most businesses don’t have (or need) one.

Enter Web Push.

 This is perhaps the most underutilized communication channel. Web push serves as the perfect real-time compliment to email and works for any business with a website. Upon hitting your landing page, visitors are prompted to allow push notifications through their browser.

Once you have a web push subscriber base, you’ll be able to serve up unlimited real-time push notifications based on virtually any segmentation criteria you can imagine.

The best part? Email click rates rarely break 5%, while web push click rates range between 10 - 20%.

Invest In A Double-Sided Referral Offer

The most powerful “growth hacks” involve leveraging your existing users to refer their friends. If you can get each new customer to refer two new customers, pat yourself on the back: you’re on the path to exponential growth.

There are a handful of companies fortunate enough to have viral loops built into the heart of their products, but most referral growth requires incentive. PayPal was the pioneer of the incentive-powered referral strategy, offering $5 - $20 in cash to every advocate and referral. The result? 10% daily active user growth and 100 million users.

Follow PayPal’s lead and test a double-sided offer. This structure is most conducive to virality since it incentivizes both advocate and referral. Companies like Uber, Airbnb, Seamless and Dropbox have all found success with this strategy.

Don’t be afraid to dedicate a large portion of your acquisition budget toward referral credit. As long as you’ve invested in fraud prevention, referral will typically generate new customers at a lower cost than traditional acquisition channels. Referral also has the added benefit of attracting higher value customers who are less likely to churn.

Bottom line - leave your ego at the door, embrace experimentation and walk the path to growth.