Entrepreneurs need to ask the right questions: how can I measure and optimize each step of my funnel to grow quickly and expand my customer base? One simple answer is: AARRR.
AARRR is a wonderful framework to help you better understand your consumers. It’ll help you measure your funnel and enable you to optimize it for the better.
Since AARRR are very simple and actionable metrics, you’ll be able to quickly understand & implement them. That’s why the framework is so powerful: it doesn’t require any technical knowledge.
AARRR is the perfect tool to help you to make more informed data-driven decision, at the foundation of some of the most powerful startups.
The 5 Steps: AARRR
The AARRR framework is divided in 5 steps. The aim being to make people move from one step to another. People will move from signing up to your product (Acquisition), to giving you money (Revenue).
You want people to signup for something. In a SaaS product, you generally want people to register for a Free Trial.
In case you have micro-conversions (e.g. Newsletter signup), you can breakdown Acquisition in different chunks measuring each of your conversion (micro & macro).
Your funnel is only as good as the user you’ll acquire at the first step. If you convert very bad leads at the top of the funnel, you’ll get very few customers.
The best here is to work on Traffic Acquisition to ensure that you can bring a lot of qualified lead to your website. On the other hand, you can also work on Conversion Rate Optimization.
Disclaimer: you don’t need huge volume to acquire customers. If you only have a few hundred of very targeted visitors every month, it’s perfectly fine!
Having someone to signup on your website is only the first step. Many people will just signup and never use your product.
People who Activated, are using your product. They logged in and started to use your product.
The goal here is to work on your onboarding so that people who log in your product can quickly understand your value proposition and realize how your product might be able to help them in their job.
You can send email to people who never log on or try to call directly these “cold” prospects to remind them of your offering and make them come back.
Now that people started using your product, you want them to come back regularly to use your product. They’ll input more data and truly realize your Value Proposition. At that point, they’ll consider buying it.
Many people will only use your product once and will never come back. The problem with them is that you waste ton of money trying to get them to use your product just to never see them again.
Retention measurement will vary between different apps. People will not use Facebook as much as they use their accounting app. Some apps may only expect 2 logins each month.
If you fail to retain people, try to stay in touch with them in order to keep showing the value of your product and to let them know you still exist.
If you can easily get people to talk about your product and to refer some of their peers, it’s a big win.
The aim of this part is to count the number of people who are talking about your product and invite their friends. It’s the perfect step to drive organic growth.
Startups that can drive organic growth generally win big. They acquire users who are going to become advocates and talk to other people. Once they get the wheel going, the company will grow very quickly…
People are now using your product, they fully understand the value and pay for it. This is basically counting the number of customer that you have.
Although the number of customer you have is primary, they’re not representative of your business’ health. Counting your number of customer is not enough and you should also rely on other more advanced metrics.
To do so, you should have a look at metrics like MRR, ARPU and LTV. These are all explained in SaaS Metrics 2.0.
The infographic below will walk you through all the steps and give you some tactics to move prospects from one stage to another.
To embed this infographic, just use the code below:
<a href="http://www.pierrelechelle.com/aarrr-pirate-metrics"><img src="http://www.pierrelechelle.com/files/2014/05/aarrr-pirate-metrics-infographic.png" alt="AARRR & Pirate Metrics Infographic by Pierre Lechelle" /></a>
To better understand the framework, you can check out the following video from Dave McClure:
Let’s think about an Accounting software:
- Acquisition: people come to the website and sign-up for a free trial
- Activation: users add their first Quote / Invoice
- Retention: users came back 4 times this month
- Referral: users invite 3 co-workers / collaborators
- Revenue: customers subscribed for a monthly / yearly subscription
Every business needs Metrics. They allow you to understand how you are performing. Those KPIs allow you to pivot and to keep iterating quickly. Without them, you would have no way of knowing how you are doing.
Pirate Metrics (AARRR) are great because they’re simple. Simple to understand. Simple to implement. Simple to measure and impact. In one word, actionnable.
What is awesome with AARRR is that you can make hypothesis, test them and see immediately if there is any result. You’ll be able to interpret the results very easily and to know if your hypothesis works or not.
AARRR allows you to take quick decisions, based on real data, extracted directly from your customers.
Acquisition vs Activation
Activation is often confused with people subscribing to the product. This is wrong in most cases.
Acquisition refers to people coming to your website and signing up for your product. While Activation refers to people actually using your product. They input their data, install a tracking code, or invite colleagues.
You can have many Activation steps and you’ll often take into account your CCAs (actions completed by free trial users that lead to a conversion).
Don’t confuse Acquisition & Activation. Acquisition, people discover and subscribe for your product. Activation, people are using it.
There are plenty of ways to implement Pirate Metrics and you should definitely do so. Keep in mind that the implementation should be simple. You should not spend 25 minutes gathering metrics everywhere to use it.
All those solution are viable. Some will be easier to implement and to use.
Besides measuring the health of your business, metrics become primary in order to optimize your funnel.
After implementing AARRR, the best way to optimize your metrics is to make use of Lean Analytics. Have a look at the presentation below:
The idea is that you’ll design hypothesis, test them and measure results. The overall goal being to improve your funnel and bottom line trough ongoing iterations.
If you only measure metrics just for the sake of measuring them, you’re not in the right mindset. You should gather metrics in the aim of continuously optimizing them.
If you’re in the SaaS industry, you are in the Relationship business. You want people to use your software over and over. If you acquire customers who churn after a few weeks, chances are, you won’t be very profitable.
AARRR fails to depict the creation of a long-term relationship that is so important to SaaS vendors. If you only care about your AARRR metrics, you are endangering your profitability.
To put this in other words, AARRR is perfect to understand the Customer Lifecycle leading to the purchase. However, it fails to understand what is truly happening after the purchase.
If you want to be successful in SaaS, you have to retain customers over time. You can’t just stop when you start making revenue. Don’t leave money on the table.
On the other AARRR is a very simple framework. It only counts the number of people at each stage. You need to measure other more advanced metrics if you want to keep control of your performance.
Relying solely on AARRR will lead in a lack of understanding of your long-term performance and will lead you to take wrong decision over your post-purchase experience.
In SaaS the pre-purchase and post-purchase experiences are equally important. If you delight customer pre-purchase and let them down in the post-purchase, they’ll churn, which will limit your growth and profitability.
Finally, it’s easy to look at your metrics every day and to keep doing what you’ve always been doing. However, if you want to move the needle and start seing results, it’s primary that you start optimizing your funnel.
No framework will give you an optimization mindset, however, the sooner you get there, the better your business will be. Measure. Optimize. Rinse and repeat.
Pirate Metrics / AARRR are great for Entrepreneurs, CEOs and Marketers looking at the health of their business & funnel.
It’s a super-simple framework that you could implement just in a few minutes. Optimizing your funnel is now at your fingertips.
However, don’t rely solely on AARRR and measure other metrics as AARRR fails to depict the post-purchase experience that is so important to the SaaS industry.
It’s your turn now, what techniques have you used in order to move each customer from one step to another? How did you implement the framework?
I’m Pierre Lechelle and I’ve been working in the tech ecosystem building businesses for about 10 years. I’m now focused on helping MadKudu to reach $100M in ARR. Connect with me on LinkedIn.