What is AARRR?
The AARRR metrics represent five categories of key metrics, created to help startups grow. The aim of these metrics is to support step by step, sustainable and fast growth.
The acronyms expand as:
A - Acquisition
A - Activation
R - Retention
R - Referral
R - Revenue
Now that we know what each letter stands for, let’s try to understand what the AARRR Pirate Metrics Framework is in its entirety.
What is AARRR Pirate Metrics Framework?
The AARRR Framework is a very popular method used by startups to grow and measure their success rate. It is also called Pirate Metrics or Pirate Framework. The framework splits the customer lifecycle into 5 distinct phases and each is matched with metrics related to that phase.
As the terms suggest, the metrics deal with everything starting from acquiring potential customers. It also covers the steps involved in actually converting these potential customers into paying customers and retaining them. Segregating the customer life cycle into different phases is meant to give the founder a clear picture of what is going well in the startup and where there is scope for growth and improvement. The ultimate goal is to improve the conversion funnel.
Who created AARRR metrics?
In 2007, David McClure introduced the AARRR metrics as a part of a talk he gave. David is the founder of Practical Venture Capital, a Silicon Valley VC firm focused on Venture Capital Secondary. He also founded the business accelerator 500 Startups.
He described this framework as a tool which is designed to enable businesses to create a model of how customer behaviour should be. Based on this model, marketing and development metrics are to be improved.
The reason it’s also called as ‘Pirate’ metrics follows from saying ‘Aarrr’ as a word, commonly associated with pirates.
So how exactly does the AARRR metrics framework work? In the below sections, we’ve explained all you need to know. Find what each phase of the framework looks over and what are the metrics you’d need to measure.
How does the AARRR Pirate Metrics Framework work?
The expanded AARRR acronym covers a very general idea of what is expected to be included in each phase. Let’s see it in detail here.
A - Acquisition
The Acquisition phase aims to answer the question, ‘where do you get customers from?’
This covers the various channels through which your potential customers can get to know about your product or service. The customers can find out about your company’s products from various sources and want to buy what you have to offer.
For this, you first need to identify who are the customers you wish to target and then focus on these buyers only.
Acquisition includes the following areas:
- SEO/ Organic Search
- Paid Search
- Content Marketing
- Word of mouth/ through networking
- Social media
- Display and social ads
- Community building events
The above are only some of the areas that you’d include under the acquisition phase of the AARRR metrics. However, depending on your firm, the ones you actually want to make use of could differ.
Acquisition, if you have a marketing website, would consider how much time visitors to your website spend on it and how quickly they bounce off. You want all of these people to become paying customers so every step forward counts as a micro-conversion. The visitor would become a lead, and then a qualified lead, then a paying customer eventually.
A - Activation
The second phase of the AARRR metrics, Activation, tries to answer how you can convert the acquired customers into active customers.
You need to understand what the prospective customer is doing when engaging with your business. The activation phase focuses on providing a great customer experience and making them realise the value in your product or service and want to try it. This is called activation conversion.
Some of the metrics under activation are:
- Number of pages a customer visits
- Amount of time spent on the app
- Signing up for a newsletter or any trial offer
- Filling up a form
These would of course, again vary based on your firm’s offering. For example, if your website has a form, then the customer filling it in and submitting shows success in the activation step for your startup. This shows that the customer likes what you had to offer in the Acquisition phase and is willing to give your firm a chance.
R - Retention
Retention, as the word itself suggests, means keeping the customers and trying to ensure that you're not losing any.
In the retention phase, you try to ensure that customers are making regular use of your services and do not unsubscribe to it. This requires you to provide value consistently. SaaS companies put a lot of emphasis on retaining customers. This is simply because retaining customers is far cheaper than winning over new ones.
Metrics that you’d normally include in your retention metrics are:
- Number of times the user visits your product in a given period of time
- Opening and responding to mails you send them (open rates and click-through rates)
- Signing up for your feed
If your retention rate is low, it means that you are doing something wrong as far as marketing your product is concerned. McClure suggests sending out well-timed, targeted emails to keep the customers engaged.
R - Referral
The fourth stage of the AARRR metrics, Referral, aims to try and find ways that your customers spread the word about your brand.
This means that the customer refers your brand to other people. In the referral phase, your customers themselves tell new potential customers about your products and services. This way, the customer acquisition cost you incur is zero. The referral metrics are also difficult to measure since the word about your company can get around in a lot of ways.
Some of the metrics to track referrals which you can measure are as follows:
- Performance of email campaigns with referral bonuses
- Performance of referral contests
- Number of people sharing your content on social media
A couple metrics that are recommended besides the above are the Viral Coefficient and the Net Promoter Score. The former is an indication of the customer satisfaction level. Viral loops comprise everything from a customer discovering your product/ service and recommending it to a friend to that friend becoming a user. The Viral coefficient is then the number of people that the first customer gets to use your service.
R - Revenue
The final phase of the AARRR pilot metrics framework, the revenue phase, checks whether your potential customers are willing to pay for your service/ product.
Basically, the user should take an action that generates revenue. What this action is would of course differ based on your product. You would of course, measure the output in currency.
Metrics that should be measured in the revenue phase:
- Minimum revenue that you achieve per customer
- Break-even revenue
- Revenue exceeding customer acquisition cost
- Number of free customers that become paying customers
One example you can consider for the above is the number of customers who were using your product’s trial version and are now making use of the paid version of the product.
Applying the AARRR metrics to your startup
As highlighted above, the metrics that work for each startup would differ. For this sake, you’d have to work with only the ones that are most suited for you. The following steps are an easy way to go about with this:
- Identify only those metrics that are most relevant to your startup by analyzing what each has to offer and comparing it with your startup’s needs. For example, if you run a startup where your product is an extension for any IDE, writing tech tutorials and marketing your product on various social media channels is what you’re going to first prefer. This is assuming that your target audience is developers
- Set up processes and tools that analyze the performance of these individual metrics for your startup. For example, if your main offering is a blog, you’d need to set up Google Analytics and Search Console to analyze the search performance and traffic to your website. You need to have some targets in mind, too.
- Make optimizations by running tests. David McClure recommends running plenty of A/B tests to identify places of improvement where you need to make tweaks to better the performance of your startup.For example, if you run a newsletter, you might experiment with several versions of subject lines and content to identify what works best and attracts the most attention.
- Refine your AARRR metrics based on your findings in the above steps. Over the steps, you’d learn what works and what doesn’t for your startup. Using this data, make changes according to your initiatives to meet your needs.