UPDATE: Go and download the ‘Growth Pirate’ eBook here
At trak.io we use Pirate Metrics as a simple metrics and analytics foundation for startups. Based on the assumption that every startup needs to get customers through 5 key stages, Acquisition, Activation, Retention, Referral & Revenue. AARRR!
We’ve made this structure tightly integrated with our upcoming Metrics product, so I wanted to give a full explanation of why and also write a beginners guide for startup founders who have never come across AARRR before, or, for those who have heard about it but are unsure as to how it actually translates into actions they can take in their day-to-day of growing their startup.
As the cofounder of 500Startups and active investor, Dave comes across a lot of startups, as well as being a successful entrepreneur himself. He argues that for a founder/CEO to be successful, one should only focus on 5 key metrics, or KPIs (sometimes expanded to 10 to allow for multiple conversion criterial within each stage).
By focussing on only these 5 key stages, the CEO can be effective in directing their team (or their own time) towards solving a distinct and actionable stage of their business/product.
Acquisition is the first contact point with a customer and your product or website. Your marketing has worked and you’ve successfully pulled the user from what they were originally doing and now you have their attention. They have viewed your homepage, and perhaps some of them clicked around and maybe even read a blog post.
Acquisition is often misused as a vanity metric “We have 10,000 visitors a month!” but unless you’re in the publishing business of selling pageviews to advertisers for CPM rates, saying those things just makes you sound like a massive tool.
Your acquisition numbers should be the starting point to analyse which of your marketing channels are working. Where are the big spikes coming from, where are the slow and steady streams. And at this point, low volume isn’t always a bad thing – we’ll follow acquisition sources throughout the whole AARRR funnel and low volume can often surprise you by being the most profitable!
Check this blog post for where trak.io acquires most of it’s users. We break down acquisition into these 2 stages:
- Subscribed to our blog mailing list
- Signed up to our private Beta waiting list
Most importantly, you should be checking how engaged the Acquired visitors were, otherwise known as bounce rates. Many people break down Acquisition into 2 general stages: landed and engaged.
Once a user has viewed multiple pages, or reads more than one blog post, or visits for 20+ seconds, they could be said to now be engaged. Importantly, this might happen in multiple visits: a visitor reads one blog post after a tweet, but then bounces. However, they return a week later to read a second blog post. You could choose to classify these users as engaged. Until a visitor has completed your engaged criteria or Activation criteria, they’re stuck in the landed category.
If you’re a SaaS startup, you might classify subscribing to your blog (via email) as an advanced stage of acquisition. If you’re an online magazine, you might consider this event as a user in the Activation stage. Your call.
Activation is the stage where people actually use your product. It might sound like a trivial detail to new entrepreneurs, “Of course everyone who fills in our registration form will then use the product!” but you’d be surprised how often it happens that startups have <25% Activation rate.
Poor onboarding, no beginner walkthrough, a complex UI… these can all lead to your newly acquired users from bouncing as soon as they see the inside of your app.
For many SaaS startups, Activation is usually broken into stages. Creating their first campaign, integrating the embed code, generating their first report… It’s easy to get lost in all the different stages of the funnel. Try and choose just 1 – 2 activation stages and then stick to these KPIs.
In the case of trak.io, we track Activation as:
- Users have embedded their tracking code and sent event & people data
- A user has run a custom report on the People or Metrics dashboard
It’s important to focus on your Activation performance long before you invest heavily into any further acquisition, and especially before you start spending valuable developer hours on new features or rock-solid account subscription and payment integrations.
A user is unlikely to enter credit info and subscribe to your product if they haven’t activated yet. This is because they need to appreciate the full value of your product first, and need to be confident that the value is greater the cost.
Value > Cost = $$ + Time + Focus
Once users have invested their time and focus into your product, they will have gained a perception of the value of your product and will be willing to (hopefully) part with cash to continue experiencing that value.
Once you’ve acquired a bunch of users, and they’ve all used your product (Generated their first invoice, created their first project, opened the app and played 1 game) you need to focus on getting those users coming back regularly.
Don’t be tempted to start throwing payment forms or in-app purchases (IAP) in front of these users just because they’ve tried it out. It’s too early still. Regardless of your chiseled jaw line, perfect veneers and olympian abs, it’s still going to be easier to get a woman into bed if you take her on more than one date. (Note, insert alternative anecdote here for sexual equality)
Measuring retention might be as simple as signing back into your dashboard 2x within 30 days. Or opening your app a second time and playing at least 1 level. Depending on your SaaS app (or mobile app) the concept of retention is relative. Some products require daily use, others weekly or monthly.
A consulting team, who raise 5 invoices a year at $75,000 each, may log into their accounting app those 5 times, plus once at the end of each month to update expense receipts, and again once each quarter to print reports for their partners meeting. Just because they don’t log in every day or even every week, doesn’t mean they aren’t retained successfully.
Choose a metric or two that seems appropriate for your app. At trak.io we monitor retention as:
- User returned to view their dashboard
Word of mouth marketing is the best performing ROI you will ever have. Referrals, particularly between 2 people who know each other, are the highest conversion rates you will get in your app and have the potential to grow your userbase exponentially.
Getting users into the referral stages means they not only like your product, but they think that their contacts and friends could also benefit from that value.
They want to be the person responsible for them discovering that value. When their contact, colleague or friend is raving about how good your product is in 6 months, they’ll finish the story with “Yeah, and it’s all thanks to Sandra, she told me about it”.
There are other drivers for referral’s too – they can be more transactional. Dropbox are a great example of this: refer a friend and we’ll give you more storage space on your account for free. Direct transactional rewards work great in consumer products.
Once you start looking at the referral stages, it’s important to ensure you have some viral mechanisms in place. Share buttons, promo codes, affiliate links, “powered by”, invite a colleague… etc. Once you have a few of these, you can start A/B testing and monitor the performance of your referrals.
You can break your referral metric into 2 stages:
- How many eyeballs did they bring to our product
- How many customers did they bring to our product
If they post on twitter and 200 people click their link and view your landing page, thats great. But if only 1 person creates an account, that’s not so great. Compare that to if they invite a client to collaborate on a project within your app, and then that client is so impressed that they create their own account for their own company to use. That’s a lot more valuable, particularly if they convert to paid.
Generally, lots of eyeballs is great for exposure, brand and PR, but be sure to track how those referrals actually end up as paying customers.
Another great tip is to add “referred_by” properties to users on registration, and then breakdown all your metrics by this property later if you really want to identify your key influencers and evangelists.
Monitoring revenue is the crucial part of avoiding vanity metrics in your startup. It’s also important that you place the other 4 stages before revenue, as without them you’re just wasting your time throwing prices in front of people.
Once you’re tracking transactions, it allows you to follow certain events such as subscribing to the blog, or opening a particular email, or clicking on a particular tweet, and seeing how those actions translate to the bottom line.
It’s also crazy valuable to be able to dissect the results of an A/B test that doubled the price of your product. Yes, conversion rate was down, the number of transactions was down, but MRR (Monthly Recurring Revenue) and LTV (Life Time Value) have both increased.
It can be really dangerous if you get tempted by revenue to early. Not only can integrating revenue functionality be expensive (relative to your total MVP effort cost) but also can distract you from properly achieving prouct market fit.
If you manage to land an early customer, who happens to be much bigger than your intended customer, and they pay you £1,000 a month (when your regular product is only £29 /mo) then suddenly you’re at the risk of letting that one customer dictate your product.
“They paid us £1,000 a month, of course the product must be amazing. Lets launch a £10,000 pay per click campaign!”
Things like this can cripple and early startup. Skipping stages out in AARRR just doesn’t work. You need to be confident you’ve solved your value proposition, got users enjoying it and repeatedly using it, and got them so passionate about it that they want to tell all of their colleagues. Then, and only then, do you focus on revenue growth.
Why Should Startups Use AARRR As A Framework?
AARRR is quite possibly the simplest growth model you will ever come across. There are far more complex models with much, much more academic and clever methods. Huge complex customer funnels, flow charts to fill a whiteboard, business dashboards with 30 KPI’s that can predict next quarters revenue.
But the chances are, you will use those models when it really, really hurts. Usually when something has gone wrong. And even worse, you might need to employ a consultant, or a full time data-analyst in your team who just runs those daily and weekly reports for you.
But the power of AARRR comes from it’s simplicity.
The more simple a model, or a dashboard, or a procedure – the more likely you are to use it. And use it daily. It’s no use having a wonderful set of reports 8 pages long, produced every week, if no one is taking action on them.
AARRR is for founders who want to take action on their metrics.
AARRR is also incredibly easy to understand. Out of the 50 or so entrepreneurs I have explained AARRR to during 1-to-1 consulting, I’ve never had a single entrepreneur not understand it.
We chose AARRR as the inspiration for trak.io because we wanted a way for founders to grow their startups. We needed a model that any entrepreneur can understand, and that every entrepreneur could use to take action, without spending hours every week obsessing over reports.
Whether it’s with trak.io or another Analytics platform, go and setup an AARRR funnel and then get out of your data and into your business.
UPDATE: Go and download the ‘Growth Pirate’ eBook here