If you’re a startup looking for a dependable growth model, you need pirate 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.
What are Pirate Metrics?
The pirate metrics, or AARRR metrics, are the best and most valuable metrics for startups to have tracked, focused on and analysed within their business. Fundamentally, this group of metrics measure the growth of a business, whilst being straightforward to understand and bring into the company model. The name AARRR is actually an acronym for the metrics that are tracked:
- Acquisition
- Activation
- Revenue
- Retention
- Referral
Furthermore, you can’t not love these metrics for the simple reason that they make you sound like a pirate when talking about them. AARRR!!
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. McClure, who co-founded 500 Startups (an early-stage venture fund and seed accelerator) and is also a regular private investor, first described the AARRR metrics at the Seattle Ignite Summit during his presentation. In fact, the presentation was so well received it can still be viewed today on SlideShare.
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.
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 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 this 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.
How to Improve Acquisition
- Landing Pages: Improving conversion rate on landing pages will naturally increase those making it further towards the lower parts of your funnel
- Content Marketing: Widening your reach will allow you to have a bigger funnel, focus this on the best propositions to increase value
- Live Chat: Simply having people visit your business website isn’t enough for improving acquisition, you have to also support any questions and concerns customers have
Acquisition KPIs:
- New Website Visitors: Total (new) website traffic is a good measure of growth but be wary that it is useful traffic
- Bounce Rate: Is your content useful to your customer or do they leave right away?
- Total Leads: Building traffic is pointless if visitors don’t convert to leads / customers
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.
How to Improve Activation
- Customer Success: What do users need assistance with to reach their ‘A-ha!’ moment?
- Onboarding Emails: What information is crucial for a new signup to get started?
- UX : How can you make the onboarding experience smoother?
Activation KPIs:
- New Trial s: How can you turn email subscribers into people that try your product?
- Total Trials that Convert to Paid Users: How can you improve the conversion rate of free to paid?
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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.
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. 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
- Product: How can you improve your product to attract more customers?
- Customer Experience: Can your website, app or customer service be improved?
- Purchase Process: Are there any points in the purchase process where people drop off?
Revenue KPIs:
- CAC: Managing a sustainable CAC is crucial to scaling a startup.
- CR of Free to Paid Users: Optimizing the conversion rate of free to paid users at this stage of the funnel can increase revenue in a big way.
- LTV: Improving customer lifetime value will naturally increase profitability and business revenue.
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.
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.
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.
How to Improve Retention
- Customer Service: Provide
- Product: What don’t people like about us and how do we fix it?
- Loyalty Program: Incentivize people to stay with you beyond the initial purchase with rewards and exclusive offers.
Retention KPIs:
- LTV: Lifetime value of a customer will naturally increase the longer that person remains a customer
- NPS Score: Net Promoter Score is a benchmark of customer satisfaction.
- Retention Rate vs Churn Rate: Analyze both, measure what is making people stay and use that to encourage others to do the same. Conversely, measure why there is an element of churn and adapt accordingly to combat it.
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.
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. 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:
- 84% of consumers trust the recommendations of others over other forms of marketing (Nielson)
- The churn rate of referred customers is 18% lower than other channels (Wharton)
- Referred customers generate 16% more in profit than non-referred customers (Harvard Business Review)
How to Increase Referrals
- Referral Programs: Ensure that your referral program is optimized , otherwise you’re missing out on some of the most easily convertible users out there.
Referral KPIs:
- Participation Rate: The number of customers who are actively taking part in your referral program
- Share Rate: The rate at which your participants are sharing their offer
- Total Number of Referrals: This could measure the number of customers referred or revenue generated through referrals.
- LTV of Referred Customers: Measuring this separately from your overall LTV will give you insight on how effective your referral program is.
Key Takeaways
Ensuring the AARRR metrics are measured, tracked, analysed 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.
- Ensure that you’re focusing on the metrics that matter rather than simple vanity metrics
- Analyse the data you find and, importantly, act and adapt accordingly. Don’t waste the opportunity to improve and grow the business.
- How do pirates know they exist? They think, therefore they AARRR!
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