Your Growth Equation: How to Define and Use It to Drive Growth

In today’s digital marketplace, businesses must constantly seek new ways to grow and evolve to achieve sustainable success. One method, popularized in the 2010s, is “growth marketing” (also called “growth hacking”) which, when done effectively, can be a rapid and cost-effective way to grow your online business. Growth marketing is most commonly associated with startups and small businesses because it’s a resource-lean and focused way to drive results quickly. However, it can also be applied at scale to just about any online business looking to drive growth and loyalty.

Growth Marketing is Not About Hacking

After a period of celebration, growth marketing has come under attack, being criticized (erroneously) as merely the employ of “hacks” and “shortcuts”, instead of a more disciplined marketing strategy. But growth marketing is much more than selecting from a handful of hacks. The misconception stems from the misuse of the word “hack” (nowadays, people refer to the approach as “growth marketing” as a way to shed the “hack” association). 

In truth, the methods behind the approach are not a bunch of “hacks” at all, rather, together, they are a powerful marketing discipline for driving focused growth for an online business. There is no substitute for taking the time to initially research and design a comprehensive marketing strategy. 

When effective, growth marketing is about executing and dialing in your strategy and maximizing results through a methodical process of continuous experimentation. It should be employed in tandem with a solid marketing strategy foundation. Any growth marketing pro worth his or her salt seeks to first deeply understand what the conversion funnel data metrics are telling them so they can identify the areas of friction in those funnels. He or she then makes well-informed and considered changes, in a series of iterative test and learn cycles, to drive better results incrementally over time.

What is a Growth Equation?

This brings me to the topic of “growth equations”. Once you’ve defined your marketing strategy, the next step is to design your growth strategy. That is, how you are going to drive growth. In other words, which levers will you focus on to achieve your desired results? Keep in mind, “all of them” is not a strategy. The goal is to find the right key metrics. These metrics are an essential part of your growth equation, which is basically a “simple formula that represents all of the key factors that will combine to drive your growth” (Sean Ellis, Morgan Brown, Hacking Growth (Currency, 2017), 91). These factors should be clearly defined, measurable, and have direct impacts on your desired outcome. For example, if a company wants to increase revenue, the key drivers may be the number of customers and the average purchase value. Once you identify the key drivers, you can use a quantifiable equation to represent their relationship.

Defining your Growth Equation

Defining a growth equation involves a specific process. First, businesses need to identify their desired outcome, which could be anything from increasing revenue to expanding their customer base. The next step is to identify the key drivers of growth that will lead to that outcome. These drivers should be specific and measurable. Once you have defined the key drivers, you can create a quantifiable equation representing their relationship.

Let’s look at some examples of data-driven and customer-driven growth equations. A data-driven growth equation for an e-commerce company may look like this:
Revenue Growth = Conversions x Average Order Value x Purchase Frequency

In this growth equation, the key growth drivers are conversions, average order value, and purchase frequency. By understanding the relationship between these drivers and revenue, the business can make data-driven decisions to optimize each driver and maximize revenue growth.

A customer-driven growth equation for a SaaS company may look like this:
Retention = Satisfaction x Engagement x Loyalty

With this formula, the key growth drivers are customer satisfaction, engagement, and loyalty. Increases in those three metrics drive greater customer retention.  

As mentioned, there isn’t one growth equation that works for all businesses. Startups and small businesses need to simplify decision-making so they can iterate, adapt, and move fast. Remember, simplicity is the point. Don’t overthink it.  By homing in on the basic elements of your business model, you become hyper-focused. Then, with singularity of purpose, you can experiment with well-considered improvements to those growth levers in a rapid-fire succession of test-and-learn cycles. Each lesson learned helps you drive better results over time. 

Ultimately, it’s up to you to decide what your business values most. For established companies, the most important goal may be profits. For startups, it could be the payback period for acquisition, which reflects the cost of drawing in and retaining customers. The key is to define the metrics associated with your goals.

Following your North Star

Another essential part of defining growth strategies is identifying the North Star. A North Star is a single key performance indicator (KPI) that represents the ultimate goal of the business. It’s a strategic guidepost that helps businesses to align their decisions and actions with their overall goals. It is also a way to test the validity of your growth equation, as it must be aligned with your North Star. 

The North Star should be simple, measurable, and actionable. In addition, it should be precisely aligned with your business’s mission and purpose. For example, a B2B software company may determine that its North Star is “daily active users” because it aligns with its mission to help businesses improve efficiency. 

Identifying your North Star will help you define and create a growth strategy that guides you to success. But that doesn’t mean that it won’t change over time. For most businesses, priorities and approaches shift, so you may need to reassess your North Star periodically to ensure it still aligns with your goals as your business grows and matures.

Growth Equations and North Stars Focus Your Marketing Efforts

Defining your growth equation and North Star is crucial to achieving long-term sustainable growth. Without a clear understanding of what drives growth, a company risks making decisions based on assumptions rather than data. Chasing the wrong metrics can lead to wasted resources and missed opportunities. Businesses make informed decisions and achieve long-term sustainable growth by targeting the right metrics at the right time.

How Does a Growth Equation Differ From Basic Metrics?

Metrics such as website traffic and revenue are essential to track, but they do not provide a complete understanding of how to drive growth. A growth equation looks beyond these basic metrics and identifies the underlying factors that drive those metrics. For instance, a business may determine that increasing customer loyalty and repeat purchases is the most significant driver of revenue growth. With this knowledge, they can create a strategy focusing on increasing customer loyalty rather than just trying to drive more traffic to their website. If that company is an e-commerce business, they’d probably focus on purchase frequency (i.e. increasing the average number of repeat purchases per customer). A subscription business would likely want to increase lifetime value (LTV), defined as the average number of periods (e.g. months) customers stay subscribed. Or they might want to reduce churn (probably both). Churn Rate is defined as the average % of the subscriber base that leaves or “churns” in a given period (e.g. per month). The goals of the marketing team for a subscription business would be to increase LTV and reduce churn; an increase in LTV and a reduction in churn month-to-month indicates an increase in customer loyalty.


Benefits of Growth Marketing

  • Tangible ROI: Growth marketing is about using data to inform decision-making by tracking the performance of your tests so you can definitively tell which strategies are performing and which aren’t.
  • Cost Effective: Growth marketing doesn’t have the costs associated with other traditional marketing strategies. By definition, it is efficient. Growth marketing uses tangible results as the ultimate success metric and methods that are economical by design, like Pay-per-click (PPC) advertising, SEO, and Conversion Rate Optimization (CRO), among others.
  • Resource-Lean: A growth marketing program can be developed and implemented by a small focused team person.