Pirate Metrics Explained: What AARRR Means For Your Startup

If you're a startup looking for a dependable growth model, you need pirate metrics (also known as AARRR metrics). Not only will they guide you in the right direction for sustainable and profitable growth, you regularly get to shout AARRR during meetings with your team. The AARRR framework provides a structured way to track the most important metrics that drive business growth, from initial customer acquisition all the way through to revenue generation.

What are Pirate Metrics?

The pirate metrics, or AARRR metrics, are a set of five key metrics that startups should track, focus on, and analyze within their business. Fundamentally, this group of metrics provides a framework for measuring and optimizing growth at each stage of the customer journey. The name AARRR is an acronym that stands for:

While the pirate theme is fun and memorable, the real value of the AARRR framework lies in its ability to focus startups on the key drivers of sustainable growth rather than misleading 'vanity metrics.' As Dave McClure, the investor who created AARRR, explained: "I wanted to get startups concentrating on stuff that really matters, not just the number of eyeballs or the number of people coming but whether you're activating them, retaining them, having them pay you money, and having them bring their friends."

AARRR Metrics Outline the Buyer Journey

The 5 core areas within AARRR metrics fit nicely alongside the typical journey that your buyer will go through, or as a sales proposition transitions through the funnel that your business has created. Each step, when monitored and tracked accordingly, enables the marketing team to tailor their campaigns appropriately and therefore better optimize their delivery.

The AARRR metrics were originally developed and coined by Dave McClure, an entrepreneur and investor who co-founded 500 Startups, an early-stage venture fund and seed accelerator. McClure first described the AARRR framework at the Seattle Ignite Summit in 2007, in a presentation that is still available on SlideShare. The framework quickly gained popularity in the startup world as a way to cut through misleading vanity metrics and focus on the key drivers of growth.

Dave had a lot of experience in the entrepreneurial and startup world, and thanks to this knowledge he crafted a deep understanding of when, where and how startups should focus their energy to grow their business. He found that the key to success was within these 5 simple metrics. With a strong focus on each of these, founders and startups are better positioned to find solutions throughout the business journey. As McClure explained, "Most startups are doing marketing, but they're not doing user acquisition, activation, retention, revenue and referral modeling. They're missing the fundamental drivers of their business."

Imagine a typical funnel, wide at the top and getting incrementally smaller as you reach the spout at the bottom. If you were to divide this funnel into 5 steps (the customer journey) you'd find that the pirate metrics align in the same way. Acquisition at the top, through to Referral at the bottom. This means that at each step of the customer journey, you're able to track, monitor and optimize in a particular way with focus on just one metric per stage.

Acquisition: Gaining New Customers

When a potential customer makes first contact.

The acquisition step is where the customer journey begins and, therefore, is normally where many startups will pump the vast majority of their time and efforts into. Acquisition explores the many different avenues that people can take to discover your business. These are your marketing efforts that focus on lead generation, the likes of SEO, social media campaigns, cold calling, referral marketing, etc.

As Ahrefs states, "Without people learning of your existence and coming to you to discover what you offer, your business won't make any money—no matter how great it is. That's why you need to think about the marketing tactics and channels that will carry your message to your target audience." Identifying and investing in the right acquisition channels is crucial for driving new potential customers into the top of the funnel.

As acquisition is right at the top of your funnel, it naturally dictates how big the rest of your funnel is on the lower levels. Many companies fall into the trap of trying to make this part of the process as wide and large as possible (thinking that the greater the volume of potential customers the greater the chance of conversion). Instead, you should be focused on only marketing to those who are genuinely interested in your business, therefore you should be focused on their value to you as a business. Developing a user segmentation strategy for your startup is a great way to ensure top of funnel efforts aren't in vain.

In order to measure acquisition performance, you'll want to set a time frame for testing, then investigate which channel delivered the best results. This means tracking lead quantity, quality and costs. When this process is completed, you should look at the channels that are performing poorly and remove them from your strategy. Conversely, you should identify the best channels and look to scale them.

As ProductPlan recommends, "You can use tools such as Google Analytics or KISSmetrics to capture much of this [acquisition] information." Leveraging analytics tools to accurately measure and optimize acquisition channels is key.

How to Improve Acquisition

Acquisition KPIs:

Activation: Customers Reach their "A-ha!" Moment

The first time that a customer realizes the value of your product

The "A-ha!" moment happens when a customer first interacts with your business, by trying your product or service and finds that what you are offering matches what they are looking for. It might solve a problem for them, offer a solution or improve their life and habits. Just because a user has interacted with your business at this stage it does not mean that the buyer journey has come to an end, and that's a trap that a great number of businesses fall into.

As Ahrefs explains, "The activation stage is about determining, engaging, and measuring the actions you want people to take to experience your product or service. These include signing up for a free trial or a free tool, filling out a contact form, signing up for a newsletter, watching a product demo, etc." Getting users to this activation point where they can experience your core offering is critical.

How to Improve Activation

Activation KPIs:

Revenue: Customers Pay for Your Product

Show me the money!

Arguably the easiest of the AARRR metrics to track, revenue happens when a customer parts with money in exchange for your product or service. Revenue is simple to track but easily the most important metric. Without revenue there is no business, meaning it should be a no-brainer in your tracking, analysis and optimization.

However, as Ahrefs cautions, "Originally, referral is placed before revenue in the pirate metrics, i.e., before a user becomes a customer. But in reality, referrals also happen (and can be influenced) after a user becomes a customer. One could even argue these types of referrals are more important to business growth." So while revenue is critical, don't overlook the importance of driving referrals from existing customers as well.

When you reach the point of a customer giving you money, it means that you can begin to balance the price it costs to acquire them and, hopefully, begin to show that you're making a profit from the interaction. However, Ahrefs emphasizes, "Revenue is an outcome of all of the previous stages of the funnel. The more visitors you attract and effectively activate, the more sales you get in the end." So while tracking revenue and LTV:CAC ratios is crucial, it's also important to optimize the entire funnel leading up to that revenue.

A common pitfall here is to track only the first of the purchases and then leave it there, revenue should instead consider the revenue the business is making as a whole rather than on individual purchase levels. The simple equation to always keep in mind is that customer acquisition cost (CAC) should never outweigh (and in fact should be considerably lower than) the lifetime value of a customer (LTV or CTV). If you don't follow this process then your business is doomed to fail.

How to Increase Revenue

Revenue KPIs:

Retention: Customers Make Repeat Purchases

Once you’ve got them, hold them tight

Retention is shown through those customers who have made a purchase continuing to both interact and purchase from you again, or even come back to you after trialing your product or service. It is the beginning of building brand affinity.

As ProductPlan notes, "After you've 'activated' new users by persuading them to take action, you'll want to monitor how many of these users are continuing to show interest in your product." Retention is all about keeping users engaged and coming back repeatedly, which is crucial for driving revenue growth over time.

There are various ways to measure retention and it depends entirely on your business model and monetization model. If you’re selling products, it is how often someone returns to repurchase or purchase different products from you. If you’re offering a service, it is how often they return for the same service. If you’re offering a subscription, it is how long that subscription lasts for.

Ahrefs recommends, "For example, you can track how many users log in at least three times in a seven-day period. (You can use tools like Mixpanel or Heap.)". Identifying key engagement metrics like this can help measure retention and identify which users are most likely to stick around long-term.

In this instance, we can also measure the counter-metric to retention which is referred to as churn. Churn are those customers who purchase once, sign up once or subscribe for a short period of time and then stop using your service thereafter. A high churn rate can indicate that there is a gap between what the customer was expecting and what they experienced. By identifying where and why churn is happening the product, your message or your offer can be altered and optimized to minimize it.

ProductPlan states, "You'll want to know, for example, how to define users who are generating: Minimum revenue, Break-even revenue, Revenue that exceeds the customer acquisition cost." Tracking churn alongside revenue metrics is key for optimizing retention and profitability.

How to Improve Retention

Retention KPIs:

Referral: Customers Bring You New Leads

Sharing the love

The best way to drive more business your way is when your user base and loyal customers are doing your marketing for you. Referral marketing works for all the right reasons, not least because people are far more likely to listen to their friend’s opinions than they are to yours. No matter how good your content writers are.

Referrals are just one of many acquisition channels, but if someone likes your product enough to tell their friends, that is a significant sign that you've created something incredibly valuable and people are willing to pay for it. Driving referrals from happy customers is a powerful signal of product-market fit.

Referral marketing has been found to be one of the most effective ways to grow a business and so it only makes sense to track your referral metrics. That said, getting referrals is no easy task, and creating an efficient and cost effective referral marketing program is a process worth getting right. As Ahrefs advises, "You can look for signs of positive (and negative) word of mouth about your product or service in: Social media shares and conversations, Industry surveys, Review sites, Communities in your market segment." Monitoring these channels can provide valuable insights into how to optimize your referral engine.

Thankfully there are companies, like us at GrowSurf, that take out the hard work and offer simple solutions for referral programs, especially for startups. Yes, there is some legwork in getting the system in place but after that the numbers speak for themselves:

How to Increase Referrals

Referral KPIs:

Key Takeaways

Ensuring the AARRR metrics are measured, tracked, analyzed and optimized makes absolute sense for any startup business. They, put simply, measure how many people know about you, how many people are interacting with you, how much money you're making, how often your customers are coming back, and, vitally, how much they're willing to share your business with others.

Pirate metrics are not just for marketers. Founders, executives, and product managers can also take advantage of them. The AARRR framework provides a holistic lens for the entire business to rally around optimizing sustainable growth.