AARRR Framework- Metrics That Let Your StartUp Sound Like A Pirate Ship

Let's talk about the AARRR framework, which is one of the most significant metric frameworks to follow as a startup marketer or Growth Hacker.

15+ years ago... Wow, how long ago that was.

A 5-step structure for growth was first presented to the world by venture capitalist, angel investor, creator of startup accelerator 500 Startups, and self-described creep Dave McClure more than 15+ years ago. The Pirate Metrics or AARRR was the name of that framework.

What is exactly AARRR?

The acronym AARRR, which stands for Acquisition, Activation, Retention, Referral, and Revenue, is pretty much the best out there for helping you understand your customers' journeys, optimize your sales funnel, and define useful, achievable metrics targets for your firm.

Why AARRR?

AARRR is often regarded as one of a startup's top five KPIs to pay attention to. This is because these measures, which are both straightforward and implementable, accurately reflect the progress of your business.

Let's start now without further ado.

1. Acquisition - Ask yourself, "Where Are Our Users / Customers Coming From?"The first A in the AARRR architecture, acquisition, illustrates how individuals find you and eventually become customers.In the dating scene, acquisition may mean anything from accidentally running across your future spouse through a friend to successfully persuading him/her into marriage (I'm sure your amazing dance abilities had a role in this somewhere).It's crucial to consider the acquisition component as a whole.This entails looking at more than simply the number of site visits and how they behave after they become customer. You should monitor each phase of your customer's funnel journey rather than simply focusing on the eventual conversion to a paying customer. Along the journey, every small convert is significant. To continue the dating example, it doesn't just matter when you were married; it also matters when you first told someone you loved them.Let’s see at an illustration customer journey for a SaaS business:Website visit -> email signup -> webinar participation -> call with sales team -> conversion to customer.To a) comprehend your customer's trip and b) optimize your customer's journey, all those actions before converting to a customer count as micro-conversions and should be measured. It's crucial to distinguish between a lead and a qualified lead in SaaS and any other industry that primarily depends on a productive sales staff.A lead is any website visitor whose contact information you have somehow obtained. By phone number or email address, for example. But just because someone subscribes to your emails doesn't indicate they're actually seeking to buy from you (at the moment). They may have joined up because you gave them access to an exclusive piece of content or a free e-book. Perhaps they are only interested in your goods and want to keep informed, but the time isn't quite perfect. A lead shouldn't be thought of as someone who has strong buy intentions just yet.But if a lead successfully completes the following (or subsequent) micro-conversions in your customer journey, such as seeing a webinar on how to use your product or how it addresses a certain issue, you may classify them as a qualified lead because they are actively investigating your offering. The sales team should then intervene since the lead is "hot" at that point.

In addition, I'd like to briefly discuss acquisition, which is the process of drawing visitors to your website. Many businesses, particularly those that are just starting started, struggle to get users to their website or app. Gabriel Weinberg, the creator of DuckDuckGo and the author of Traction, presented The Bullseye Framework , which I highly advise using at this point.

According to the Bullseye Framework, after considering each of the 19 channels that may be used to promote your website or product, you should choose one and evaluate its viability for your company in a small-scale version. Scale up that channel if you have success there. If not, try a different channel next. Basically, it is a test version of the acquisition channel i.e. MVP process.

Weinberg claims that one specific channel will be the primary traffic generator for any organization at various phases of growth. Therefore, locate that channel and make necessary adjustments to your communication until you experience rapid development. If every traction channel fails, your product/market fit is probably not right.

You should be asking yourself these three key questions regarding your acquisition:

Which channel (#) is generating the most traffic?

Which channel performs best (%) in terms of customer conversion and generates the most valuable traffic?

Which channel has the cheapest cost per converted client, or cost per customer acquisition, in dollars?

I want to close out by recommending The Bullseye Framework in the words of Peter Thiel, a pioneering investor in Facebook and PayPal founder:

“It is very likely that one channel is optimal. Most businesses actually get zero distribution channels to work. Poor distribution — not product — is the number one cause of failure. If you can get even a single distribution channel to work, you have great business. If you try for several but don’t nail one, you’re finished. So it’s worth thinking really hard about finding the single best distribution channel.”

1. ACTIVATION - "How good is the user's / customer's first experience?" is the activation question.

The Acquisition and Activation parts of AARRR overlap a little in how I choose to utilize them. Please be patient while I explain why I feel this way below.

The initial interaction your consumer has with your product is known as activation. If users are just going to use your app briefly before quitting, it is pointless to have them download it or even register. To ensure that your consumer has a "Aha Moment," or the first time they truly understand the value of your product, as fast as you can is essential if you want to keep them coming back. The interval from the user's sign-up and his "Holy cow, I love this", In a nutshell, that is activation.

Since someone who joins up for your service is converted as a customer, even if they aren't always utilizing it, I prefer to put customer conversion under acquisition and clearly distinguish it from activation. Every sort of business requires a different approach to this.

For an online store, activation is more crucial after a micro-conversion, such as when a customer signs up for your emails, than it is after a conversion. To improve their experience, you should consider how much and what kind of material visitors are consuming, for instance on your website. In comparison to apps and SaaS business, I would suggest that e-commerce companies place less importance on activation.

For an application, the focus should shift to activation once individuals have downloaded or signed up for it. The question arises: do they log in once and then disappear, never to return?

In the case of a Software as a Service (SaaS) business, the pivotal moment to assess is when people begin using the platform. This moment can be likened to the point of acquisition, such as when they sign up for a trial or the full-service offering. Subsequent efforts should be dedicated to effectively activating the customer. SaaS enterprises commonly offer robust onboarding support and assign an account manager or customer success manager (or any preferred title) to guide users through the platform, demonstrating standard solutions to get them started.

In essence, an activated customer is someone who consistently returns to utilize your product. Facebook recognized early on that a user's "Aha Moment" occurs when they acquire seven friends within ten days. This realization prompted the synchronization of email accounts with Facebook to suggest friends.

Twitter, too, understood that once users followed 30 accounts, they were more likely to return, leading to the recommendation of popular accounts during the sign-up process. Similarly, Dropbox observed that users who uploaded at least one file were substantially more likely to use the service again, resulting in encouragement to upload a file during the signup phase.

To expedite users' attainment of this "Aha Moment," it is crucial to ensure that the onboarding process is both seamless and enjoyable. Furthermore, rigorous testing is essential. Just as Twitter, Dropbox, and Facebook did, discovering your magic metric and structuring the onboarding process around it is vital.

To transform "cold customers" into actively engaged ones, consider segmenting and targeting these users with tailored onboarding emails. Additionally, conducting customer interviews with these "cold customers" can provide insights into why they signed up but are not actively using your product.

1. Retention — "How Many Customers Are You Retaining, and Why Are You Losing Others?"

If there were a "church of marketing," retention would certainly be my preaching point. When evaluating a company's performance, I prioritize customer retention, encompassing not only marketing efforts but also overall product success.

Retention entails the consistent return of users to engage with your product. In the case of e-commerce, it means not just a one-time purchase but multiple transactions. For applications, it involves users returning and regularly utilizing the app. For SaaS businesses, it signifies subscribers continuously using the software and maintaining their subscriptions.

On the flip side of customer retention lies customer churn, a metric of paramount importance. Measuring your customer churn rate is crucial for several reasons.

Firstly, your churn rate serves as an indicator of whether you have achieved a sound product/market fit. If a substantial number of users discontinue using your product shortly after adoption, this signals potential issues with either your product or messaging. In the wise words of Bill Gates, "Your most unhappy customers are your greatest source of learning."

Secondly, it is imperative to ensure that your customer churn rate is significantly lower than your customer acquisition rate. A substantial difference is vital because it is the only path to achieving growth. Consider it akin to a leaky bucket: no matter how much water (customers) you pour in, the bucket won't fill (your company won't grow) if it is leaking water at the bottom (your customers are churning).

Customer Acquisition Rate > Customer Churn Rate = Growth Customer Churn Rate > Customer Acquisition Rate = Burning a lot of money

Third, according to Harvard Business Review, acquiring a new client is 5 to 25 times more expensive than keeping an existing one. Additionally, since you two already share a certain level of trust, selling to a previous customer is simpler. Consequently, selling to an existing consumer rather than a "stranger" is more cheaper and simpler.

How then can you improve client retention?

The simplest method is to stay in touch with your consumers and maintain a positive share of mind.

1. Retention — "How Many Customers Are You Retaining and Why Are You Losing Others?" Customer retention, the heart of marketing success, ensures that users keep coming back to use your product. Monitoring your churn rate, the rate at which customers stop using your product, is crucial. A high churn rate indicates potential product or messaging issues. Retaining customers should exceed customer acquisition to achieve growth.

Retention efforts can involve staying in touch with customers through email automation, as it's cheaper to sell to existing customers who trust your brand. Segmenting and targeting cold customers with onboarding emails is also valuable.

1. Referral — "How Can You Turn Your Customers into Advocates?" Referral is the most effective growth driver. Implementing a systematic referral process that incentivizes and consistently generates referrals is vital. Successful referral programs, like Dropbox's, can lead to substantial growth.

Without the customer even being aware of it, Hotmail effectively created its own referral program by inserting the phrase "Get a free e-mail account with Hotmail" in every email sent from a Hotmail address.

Metrics like Net Promoter Score and Viral Coefficient help measure referral success.

the Net Promoter Score (NPS), an index that ranges from -100 to 100 and measures how willing customers are to recommend your company’s products or services. It lets you know how satisfied and loyal your customers are to the brand.

The Viral Coefficient is a different measure that deserves your attention. The number of users a client recommends to you is known as the viral coefficient. One consumer often suggests two other customers to you, according to a viral coefficient of two. For growth to occur, your viral coefficient must be greater than 1. The following graph illustrates how your viral coefficient, or the number of individuals one client recommends to you, may affect the exponential expansion of your user base.

It's huge, to use the president's terms! You can see that an incremental increase in K from 1 to 1.1 already has a very positive effect on your growth and is the main cause of virality. And isn't going viral what every company wants?

1. Revenue — "How Can You Increase Revenue?"

Increasing revenue is vital for any startup. Boosting Customer Lifetime Value (CLV) while reducing Customer Acquisition Cost (CAC) is the key. CLV is the revenue earned from a customer during their association with your company, while CAC encompasses the costs involved in acquiring a customer. A favorable CLV to CAC ratio is 3:1.

Optimizing your sales funnel is essential to reducing CAC. In summary, the AARRR framework simplifies business optimization and growth measurement, with each metric offering further layers for exploration and enhancement."