But for a startup? That can be your entire bank account. If it fails, your company is doomed!
What is k factor
A direct way to measure how well your customers will help your company grow is to measure their effectiveness and willingness in referring more customers.
The NPS score is a self-reported happiness index. Needless sri lanka mobile database to say, happiness is subjective, but more importantly, it does not measure actions.
A better measure is the K-factor. The K-factor is an action-based measure of happiness. It measures the ability and willingness of one customer to attract another customer to your business. One way to think about this is that the K-factor measures organic growth.
The concept is borrowed from the medical field of epidemiology to understand how viruses spread an unfortunate analogy now, I know.
So if, on average, each of your customers tells ten friends i = 10, and each of those friends has a 25% chance of also becoming one of your customers c = .25, then your k = 2.5.
The influence of k factor
The following formula will explain how the k-factor affects your unit economics and why the flywheel is a better business model than the funnel.
Back to our previous new customer growth formula.