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The short answer is: it depends. The long answer... New customers come from two primary sources: 1) marketing and 2) referrals. Marketing is things like even

by rmah 9y ago

The short answer is: it depends. The long answer... New customers come from two primary sources: 1) marketing and 2) referrals. Marketing is things like events (trade shows, media hits, advertising, reviews, etc). None of those things happen without outreach on your part. Referrals are when (as you described) existing customers tell other people and a few of them try your product. This will not be constant, right after a customer buys your product/service, they may be excited and tell some friends. Best to model referrals over time with cohort analysis. At the same time, you will lose existing customers. Like referrals, this is best modeled as cohort analysis. After a customer signs up, after 1 month, x% will leave, next month, a different %, next month yet another %. Typically the churn rate declines for a given customer cohort over time (though there may be bumps along the way). So, you have customer inflow and outflow. It would be nice if there was a simple formula, but the marketing efficiency, the referral rates and churn rates will all be constantly changing. So, there is no way to know in advance if or when compound growth kicks in until you have solid data. It will vary by market, company and product.

quadcore 9y ago
Thank you, that gives some meat. Ultimately, I was focusing on the fact that if a customer brings you n new customers, n < 1 (and real number), it means you get new customers only via marketing. If n > 1, you get new customers with something else than marketing - so to speak.
- IanCal 9y ago
  Actually anything n > 0 will mean you get customers by more than just marketing by definition. n > 1 for a static n is exponential growth. Edit - though under 1 you can see a limit. For example, if n = 0.5 then you would expect to grow to twice the size. In reality it's much more complicated, but on a purely mathematical basis this should be right.
  - jaggederest 9y ago
    N is literally the percentage of your steady state customer base that comes from referral. So it's the divisor on your marketing expenditure for any given customer quantity. N > 1 never reaches a steady state, those are "viral" businesses.

by rmah 9y ago

quadcore 9y ago

Thank you, that gives some meat. Ultimately, I was focusing on the fact that if a customer brings you n new customers, n < 1 (and real number), it means you get new customers only via marketing. If n > 1, you get new customers with something else than marketing - so to speak.

IanCal 9y ago
Actually anything n > 0 will mean you get customers by more than just marketing by definition. n > 1 for a static n is exponential growth. Edit - though under 1 you can see a limit. For example, if n = 0.5 then you would expect to grow to twice the size. In reality it's much more complicated, but on a purely mathematical basis this should be right.
- jaggederest 9y ago
  N is literally the percentage of your steady state customer base that comes from referral. So it's the divisor on your marketing expenditure for any given customer quantity. N > 1 never reaches a steady state, those are "viral" businesses.