The Growth Framework - A Deep Dive On The Pirate Metrics (Acquisition, Activation, Referral, and Revenue)

This is a fairly long post, I would suggest saving this post and breaking this up. We cover a ton, there's even a small fun history lesson. Grab a pot of coffee and let's go.

If you want to talk more about growth/sales, schedule a chat with us.

First, growth combines operations, product, marketing, engineering, and data. Second, it focuses on the whole funnel, instead of just the first two stages, awareness and acquisition, as typically seen in traditional marketing.

With this in mind and the fact that technology and consumer habits keep evolving over the years, we can create and evaluate effective strategies for growth marketing in 2022 and beyond. But, before we discuss how each step of the funnel works, let’s familiarize ourselves with the framework.

What's Unique About the Growth Marketing Approach vs Traditional?

The mainstream sales funnel, also referred to as the marketing funnel or the purchase funnel, was developed by E. St. Elmo Lewis in 1898. He created a theoretical model that mapped out the customer journey in 4 steps toward buying a product or service. In his original idea, the 4 stages were: awareness, interest, desire, and action (AIDA framework).

People like Mr. Lewis are the real Don Drapers before it was cool. There is so much fascinating history that marketers often forget.

In the next 120 years, marketers and researchers have tweaked and modified the model countless times trying to make it more accurate, and more insightful.

In reality, the approach is timeless and requires little change.

Still, if you Google “marketing funnel”, you’ll see that aside from maybe adding one more stage for loyalty, the original AIDAL framework hasn’t changed too much - even though the market and customer behavior have changed.

How does this approach connect to the current state of growth?

Growth hacking redefined the marketing funnel through a data-driven point of view and gave companies a way to troubleshoot ongoing issues with a lot of transparency. To achieve this, it uses a practical framework of five steps that together spell out “AARRR,” which is why this model was cheekily named the Pirate Funnel.

But, what exactly is different about the funnel that growth marketing adheres to? Let’s see.

The Pirate Funnel (AARRR) - The foundation of growth

The framework that growth hacking adopted is the AARRR framework, also known as the Pirate Funnel or the Pirate Metrics, developed in 2007 by Dave McClure . It originally stood for acquisition, activation, retention, referral, and revenue.

We all owe Dave a big thank you. Whenever we at Redwhale work with companies we approach strategic growth through this lens.

There are several new videos but this five-minute video by Dave himself accomplishes setting the stage for growth. Watch this video and send this to your entire team.

However, in recent years, growth hacking is under criticism for ignoring the position of the brand, so another A is sometimes added to the framework for Awareness.

Pretty rare though, AARRR is the one that you should memorize. In this article, we’ll stick to the original idea and share 5 key strategies for improving each of the 5 steps in the framework - acquisition, activation, retention, referral, and revenue.

My take is brand/design is fundamental to all spectrums of growth and must be thought of in an integrated way across the vectors of growth. By bringing griwh

The unique thing about the Pirate Funnel framework is that it cuts growth strategy into pieces and shows teams where they need to focus their attention. The AAARRR model helped a lot of enterprises grow and remain successful.

Today, the Pirate Metrics framework is considered one of the greatest growth tools out there and an excellent blueprint for developing a growth strategy. Expect it to ensure for centuries years.

Here’s what each step in the Pirate Funnel (AARRR framework) means and how you can put them in practice with the key strategies explained in detail in the next section.

Acquisition

How do people find you? / How many people visit your website?

The acquisition stage is a gathering and extensive tracking stage where marketers try to obtain as much information as possible from their users - typically visitors who’ve interacted with the brand in some way. This includes demographic details such as names, emails, location, age, background, interests, and more.

Based on this information, marketers improve their target personas and evaluate whether they use the right acquisition channels for growth. The ultimate goal of the acquisition is to drive users. For enterprise/saas this means top and middle-of-funnel conversions.

A better understanding of visitors ---> more precise targeting ---> increased traffic.

Activation

How many people take the first important step? / How many customers reach the “aha” moment and how quickly?

Activation is the stage that begins the moment a visitor makes an action toward becoming a customer. In other words, they sign up for a free trial, use a promo code, create an account, and so on.

It’s a very crucial stage that’s often overlooked in traditional marketing models. It describes the customers’ transition of wanting or needing the product to actually using it. Another way to look at it is to say that activation describes the process up to the moment the customers reach an “aha” moment - a decision to stick with your product.

We can say that activation has become a more pronounced problem in recent years where customers have so many options to choose from that a simple hiccup such as a long signing-up form can lead them straight to the competition.

The goal of activation is to get customers to start using your product, while the strategy is to offer shortcuts.

Activation = Onboarding + Lowering the barrier to success + Realizing Moment of Success

Retention

How many people come back or buy again? / Why do some customers leave?

Acquiring new customers is important, but retaining old ones is even more so because acquisition is a lot more expensive than retention. On top of that, without retention, there’s no growth - you would just be replacing new customers with old customers which is not really sustainable in the long run.

Retention is the most cost-effective way to grow your business and arguably one of the most impactful stages in the growth hacking funnel. Usually, it includes all the activities that a company does to retain a customer, from sending email notifications with upcoming promotions, to maintaining a tight community on social media.

The ultimate goal of retention is to keep existing customers using your products and make them loyal.

Churn costs money and once improved is one of the fastest ways to increase revenue and reduce your burn rate. In 2023, if you are not investing here you are putting your team, company, and investors at a disadvantage. If you are VC-backed your investors are focusing on retention especially now as we are in an economic downturn.

The name of the game is a mix of:

• Onboarding
• Segmentation of users
• Using behavioral data to tailor your experience
• Cohort curves
• AB testing
• Redefining what success looks like for a user

Referral

How many people refer others to you? How to turn your customers into your advocates?

The referral stage is the process of convincing your customers to be advocates for your products. In other words, find a way to utilize the benefits of word-of-mouth marketing by encouraging your existing customers to spread the word about your brand to their friends and family.

It’s also the best way to show with social proof that your product is the right choice. This way, you can tap into a cheap and scalable source of customer acquisition. In fact, using referrals to create viral loops can lead to exponential and unprecedented growth.?

The poster child for this is Dropbox. They gave customers free space if they refer the product to their friends and family. And, that action alone led to Dropbox’s unbeaten growth by 3900% from 100,000 to 4,000,000 users in 15 months!

While Dropbox's referral model still works it's often misused and overused. What makes the strategy magical is users actually care about what they are getting in return and it enhances the core product experience.

The goal of referrals is attracting new customers, and the strategy to achieve that is to focus on quality over quantity.

WARNING: Do not focus on Referral if you have any of the following challenges:

• Lack of product market fit
• Have a retention/churn problem
• Have not segmented users out by channel
• Don't have adequate behavioral event analytics that is trusted

Revenue

How many (and how much) people start paying? / How can you increase revenue?

Finally, the last stage of the funnel describes how to calculate the money that remains after subtracting all the costs involved in getting that customer. These are usually all the customer acquisition costs (CAC metric) such as advertising, promotions, paid search, and more.

For instance, if your offers are very expensive for your niche target, referral programs are probably not going to be effective, regardless of how attractive they might be.

In this regard, the goal for revenue is to increase customers’ lifetime value while decreasing the CAC. The strategy to achieve this is to have flexible offers.

Very few growth teams put effort here, look back over the last year and identify what experiments or initiatives your team has done with a direct focus on increasing average revenue per user (ARPU). I can almost guarantee there are now.

Conclusion

Optimizing the growth marketing funnel takes a lot of work and requires a level of flexibility and open-mindedness, but the rewards from employing the right strategies are so worth it.

The only thing that you need to remember is that it won’t come naturally - you have to get out of your comfort zone and prioritize sustainable growth. Growth is a long-term journey, not something accomplished in a quarter but over years.

If you’re just starting with growth marketing, think about the strategies we’ve introduced here and how you can incorporate them into your company. The same strategy will take different shapes in different industries.

If you want to talk more, schedule a chat with us. Alternatively, you can keep learning about growth marketing through our blog and here on LinkedIn as we regularly share our experience from the front lines.

Hopefully, you learned something, and if you found this post helpful please give us feedback and feel free to share it with your community and your team.