From my history of launching a number of start-ups, start-up accelerators, and even incubators, it has always been a foregone conclusion that the AARRR metrics foundation is a great way for young companies to start growth hacking. Yet, many of the start-ups that praise these “Pirate” metrics are not able to implement them into practice. The reason behind this inability to implement pirate metrics is a result of information data overload in which start-up founders become overwhelmed with the process of setting up their Pirate Metrics structure. From my experience, you need a rudimentary understanding of different digital data collection tools (ie Google Analytics) and an understanding of the forces driving your own business in order to take full advantage of the AARRR framework. This guide was created to help you build your own Pirate Metrics spreadsheet in order to help you growth hack your way into millions of users.
The Goal Behind Pirate Metrics:
First things first, AARRR metrics were coined by Dave McClure of 500 Startups as a way to understand the path(s) customers (current and potential) take when they interact with a company or brand. As a seasoned investor, co-founder, and successful entrepreneur, Dave outlined a data tracking pattern that he attributed to successful startup CEOs. This pattern revolves around understanding five key customer funnel stages he dubbed: AARRR or “Pirate” Metrics. With a clear focus on these five stages, he suggests, any CEO could be effective in directing their company using a quantitative (and sometimes qualitative) data approach that leads to better informed decisions. Pirate metrics consists of the following:
A – Acquisition
A – Activation
R – Referral
R – Revenue
Think of the first time you heard about a product which made you either click on its website, video, or even search for reviews. The acquisition stage refers to that first contact point between an organization and a potential customer. This stage is most commonly attributed to top-of-the-funnel marketing efforts which, if successful, will guide a potential consumer into a relationship with a brand by either providing brand awareness, consumer engagment, or even social media community engagement.
Why are Acquisition metrics important? Let’s assume that you’ve invested some serious marketing time on your product and you see a lot of website visitors (100000+). Great! Not really though… In reality visitors can mean nothing to you or your business if you don’t understand the meaning behind why they want to talk with you in the first place. Do you know exactly how they got to you? Why did they interact with you? Who are they? Did they come from a particular post or search for you directly? Could you have reached an even greater audience by simply talking about one topic instead of many?
Your acquisition numbers should be the starting point from which you begin to analyze whether your marketing investment (time and money) is worthwhile. You will only arrive to this conclusion by measuring the success of each individual blog, post, email, and marketing task.
So what could these KPIs look like and how do I start tracking them?
At Factivate, we understand that each interaction a customer has with us (whether they buy our product or not) needs to be measurable. As a result, we label all of our Acquisition-related KPIs as “micro-conversions”. Micro-conversions are points of interaction that our customers have with us which we can measure and attribute to a specific marketing task. We set these up in our Google Analytics as goals with funnels in order to measure and track them (click here to learn how to set Google Analytics Goals and Funnels). As a company standard, before we begin any new marketing task, we take time to outline how we’re going to measure its success, and add it as a micro conversion into our spreadsheet like the one you see below:
Note: One column you don’t see in the above spreadsheet is what we call the associated economic value to each micro conversion because it’s exceedingly relative to our company. That being said, typically you can assign values to each micro-conversion based on the perceived possibility that someone who undertakes that micro-conversion is more likely to become a marketing qualified lead. For example, from the list above, we would assign a higher value to a demo signup than a ebook download because we know that a customer who has spent time in a demo will likely be ready to have a sales conversation shortly afterwards, whereas an ebook download is attributed to someone who might be seeking to begin a conversation with our brand.
Our micro-conversions are tracked on a daily, weekly, and monthly basis. The second we see a spike in a particular micro-conversion, we dig deeper into the data to understand what/where/who/why led to the data spike and then focus on replicating the behavior on our side to get more of those micro-conversions (with a specific target demographic) over and over until our data indicates a slow down, stagnant, or downward trend. Micro-conversions aren’t necessarily limited to URL hits like the ones you see above. These can include social media campaign interactions, email clicks, etc…
At Factivate, we continuously evaluate these KPIs within context of our overall Acquisition KPIs in order to measure our overall marketing (or advertising) campaign success. This, in turn, helps us determine our marketing budget and direction for the following week (or month/quarter). Below is an example of how we break down the data on a weekly basis:
So now that we’ve got a better understanding of how a user came to our brand and engaged with us, how do we make sure that this wasn’t a one off experience and keep them coming back?
Activation refers to the stage in your customer funnel where people will start using your company’s product. We call these Macro-conversions. In this stage, bad trial periods, no customer support, difficult user experience, critical bugs, or even lack of product understanding can all lead your new customers to leave your product as quickly as they signed up. Measuring the Key Performance Indicators for each of these sections will help you determine where customers are bouncing off and where you should prioritize your product development or support efforts. Below is an example of some of the Activation KPIs you could track:
For our company, we break down Activation into two main stages; 1) Creating an account and 2)Repeat visits to the app or product. In doing so, we include the KPIs we’re continuously testing (on our spreadsheet) and monitor them on a daily and weekly basis to make sure that we’re not seeing customers drop off. We’re so obsessed about customers dropping off that any time this happens, our spreadsheet even sends us an automated SMS to call them right away. We then come up with a Customer Acquisition Cost (making sure we targeted the right customer), compare it to our overall cost of sales, and come up with a data analysis story that takes all the data from Acquisition and Activation into context.
Why is Activation important? We focus on our Activation KPI data in order to determine whether or not we should continue to invest in further user acquisition or if we need to focus on improving (or fixing) the product. Once we see that customers are staying with us beyond the trial period at a healthy rate, learn more about why they like it, and learn about their perceived value of the product, we then move on to answering how we can keep our users consistently accessing the app (including how long they access it) and loving it.
For many SaaS companies, this is where they start up-selling different in-app purchases to customers. This is wrong and it’s too early to do so. Think about how many times you’ve deleted an app within 30 days (heck even 10 minutes) because you keep getting more sales notifications than the last time you went car shopping.
Your retention KPIs will depend on the nature of your business. If you pay for an accounting software, think about how often you sign in to submit your expenses (1 per month anyone?). This doesn’t mean that they didn’t retain you does it? In Factivate’s case, we have a our own way of measuring our retention KPIs but these are relative to the business. Some products require daily, weekly, or monthly data to measure a retention KPI. That’s why, instead of using some other data analytics service, we measure these numbers in our spreadsheet for the sheer fact that we can customize it to our needs. Below is an example of how you might track your Retention KPIs in case you need a little more insight:
As with the previous sections, we analyze the retention data within the AARRR context. Think about your service and consider adding as many important KPIs to track whether your users are getting value from your product or service.
Once a user is happy with your product and has experienced how it has improved his/her life, you want them to share it with the world! Word of mouth is the best performing ROI you will ever have and you need to consider how to enable this practice throughout a customer’s lifetime. Can you imagine how often you’ve actually watched a movie because your friend thought it was interesting? This was free marketing for the movie that lead to a conversion from you. That’s exactly the type of behavior you want to entice.
In our SaaS company, we quickly realized that a user referral not only benefits us. You can’t imagine how many times an analyst has been perceived as an absolute GENIUS to upper management because they implemented Factivate on their own, shared it with their colleagues, and saved the company hundreds of thousands of dollars. In a lot of these cases, these employees have even been promoted! Based on these learnings, we try to ensure that someone who referred us gets all the credit whenever we can and this, in turn, leads to yet another referral.
There are a number of referral tactics that continue to evolve in our industry. Companies have used the: tweet about us and get an extended free trial, or, refer us and get 2GB of free storage. Once you start looking at referral techniques, it’s important that you consider viral referral strategies and consider how you will track them (shares, affiliate links, etc). Make sure you A/B test each of these referral strategies continuously and push the techniques that have the highest conversion rates. We track these referral KPIs on a daily, weekly, and monthly basis to measure the extent of our campaign. Then, we consider our conclusions within the context of our AARRR framework to learn whether any other activities also impacted our referral conversions, up-sells, or activation kpis. While most of our referral tactics change over time, here’s an example of some of the Facebook KPIs we tracked (once upon a time) when we implemented a new Facebook referral strategy:
Ultimately, you will want to measure how much brand exposure one current user was able to bring in and how many customers converted from that exposure. A great tip is to add a referral code for new users or a “referred-by” property to your registration page in order to help you track the referral. When you do that, you are able to track your best “cheerleaders” and further reward and entice them to continue sharing and even become your own brand ambassadors; all for a minimal investment.
Money money money. This is favorite KPI for entrepreneurs and investors:) That being said, it’s important to consider your revenue metrics (within the context of AARRR) and contemplate the other four stages before your own revenue metrics.
When SaaS companies are tracking financial transactions you will start seeing a direct correlation between your financial transaction and the path that users took to buy your product – thereby giving you an ROI (return on investment). For revenue metrics in a SaaS company, we typically track these on a daily, weekly, and monthly basis. Below is an example with some fake data for you if you need help structuring some form of revenue KPIs based on Pirate Metrics practices:
In our case, we get very detailed about this data and have a completely different spreadsheet that helps us track our revenue analytics (this section simply sums it up on the same page). If you’re curious to see what that looks like, you can click here to view our SaaS metrics spreadsheet template.
It is tempting to let early revenue dictate the direction of your product even though it can keep you from achieving product market fit. Be sure to always review your revenue metrics through the eyes of your AARRR metrics and let your quantitative data support your revenue metrics conclusions; not the other way around.
AARRR structure and usage
We like Pirate metrics for the simplicity and elegance that these provide, especially when you focus on the right data. By keeping these metrics at the forefront of our team’s minds, we can make better decisions (in the right timeframe!) that move our company forward based off of real, actionable data – not hypotheses or assumptions. If you’re ready start tracking your own growth metrics, you can get started by using our pirate metrics spreadsheet template. To do so, click on the button below:
Are you using any metrics that have been valuable to your company when tracking your AARRR? Share with us in the comments below!