Why Does The Participation Rate Matter? (Hint: It’s All About The Network Effect)

They say “excellence” can be defined as a lot of little things done right. You could say the same thing about achieving a high Participation Rate. There are countless “little things” that draw users into a community. Some are obvious, like making the “sign up” button front and center. Some are more subtle, like making the user interface easy to grasp. Some are more meaningful, like concentrating activity so that prospective users can be assured of a reply. Countless little things just like those mentioned add up over time and make a big difference. But aside from sheer embarrassment, why does the Participation Rate matter?

The Participation Rate matters because of the “network effect”: the bigger the network, the more valuable it becomes. But the kicker is that the value doesn’t increase linearly; it increases exponentially. To understand this concept, it makes sense to examine the value of each registered user. To quickly determine the value of a registered user, we can use the following formula:

Average Revenue Per User = Monthly Revenue / Monthly Active Users

For a forum with 500 Active Registered Users, it is reasonable to expect revenue of $200 per month. This makes the Average Revenue Per Active User $0.40.

For a forum with 1,000 Active Registered Users, it is reasonable to expect revenue of $500 per month. This makes the Average Revenue Per Active User $0.50.

For a forum with 2,000 Active Registered Users, it is reasonable to expect revenue of $1,500 per month. In this case the Average Revenue Per Active User is $0.75.

The value of each Active Registered User increases as the network grows in size. In other words, each time a user registers, the Average Revenue Per User goes up. Thus, a new user today who stays engaged long term is significantly more valuable than a user that registers later on. For starters, it makes it easier to attract more users. Plus, it enhances the value of every user who came before.

These are just “back of the envelope” calculations but they’re important because they demonstrate how improving your forum’s Participation Rate (i.e., enticing more users to register, and keeping them engaged) can lead to exponential growth fueled by the power of the network effect.

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