Albert Einstein’s theories of marketing compound interest

Albert Einstein reportedly said “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

Now, I’m sure he wasn’t thinking about marketing as he said it, but herein lies the opportunity.

Compound interest in short is interest on interest. AKA free money.

If we translate this to marketing, compound interest is the ability for your message to move from person to person in a way that gets more return from the same input. More for less, AKA free reach.

This means marketing compound interest pays twice.

A simple look at the numbers shows the impact. If one person mentions your product to two people, and those two people mention it to two people – and repeat – that’s 128 people knowing about your product in seven steps.

But the interesting bit is what happens next; thanks to something called preferential attachment.

Preferential attachment is a principle that shows how people are more likely to gravitate to something that is well known than unknown. So, the more people talking about your product the more other people will want to join in.

So how do you spot this activity, and can you do anything to help it start or accelerate it once it’s going? Yes, you can!

Let’s start with the “how do you spot it?” question. This is simple, in theory at least, and the secret is hiding in plain sight in your sales data.

If you were to plot all your sales on a map it would look random – it’s not. If you know what you’re looking for you can identify which sales are likely to have been driven by some sort of word-of-mouth activity.

Think about that for a second. In three lines we’ve just identified how to locate geographies where people are talking about your product or brand – this is your starting point.

Now on to the “how we can use this insight?” question? The secret is hiding in plain sight in your sales data.

This is where our marketing compound interest journey starts, and it begins with activating this insight. By this I mean, rather than leaving it to its own accord we use your sales and marketing activity to drive value from it.

Seeing a well-timed ad or receiving a call might tip these activated prospects over the edge into a purchase or if your brand building, reinforce the share of mind you already have.

This type of targeting – putting aside the compound growth benefits for one second – has two benefits:

  1. A quicker sales cycle – or a lower CAC
  2. A higher loyalty customer – or a higher LTV

Add in the “more for less” from marketing compound interest and we’re on to something.

So now we’ve got a growing understanding of where word of mouth is spreading we’ve just got to track it, rinse and repeat, and this ladies and gentleman – if you nurture it – is the start of marketing compound growth.

If it was good enough for Einstein, who are we to argue?

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