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Starting your own business is hard. What’s even harder is ensuring your startup is able to attract and retain new customers at scale.

Today we will be discussing exactly how to grow your business using pirate metrics, which are widely accepted as the five most valuable metrics for any startup to focus on, analyze, and monitor.

That’s because these metrics effectively measure your company’s growth while at the same time, being practical and straightforward to implement.

Pirate metrics are a way to categorize and group KPIs depending on what aspect of your business you want to measure. The groupings are as follows:

  • Acquisition
  • Activation
  • Revenue
  • Retention
  • Referral

or as an enthusiastic pirate would say, “AARRR!”

The five groupings are aligned with your customer lifecycle stages and were created to help marketers identify where they should focus their time to optimize their marketing and sales efforts.

“It’s impossible to discuss AARRR without first discussing its founder, Dave McClure,” as mentioned in this article. Dave originally coined the acronym in a famous presentation at the Seattle Ignite Summit, back in 2007, which has been forever immortalized on Slideshare.

Dave, as the co-founder of 500 Startups and an active investor, came across a lot of tech startups that just couldn’t properly scale. Being a successful entrepreneur himself, he knew exactly where these startups should focus their time and efforts. After all, he struggled with growth at first himself.

He argued that for any startup to be successful, they should focus on just five key metrics or KPIs —AARRR.

By focusing on just five key stages, entrepreneurs and marketers become more effective in solving each stage of their business.

It’s essential to understand the framework of pirate metrics, because only when you know all the metrics will you be able to identify exactly where the leak is in your funnel and save your sinking ship.

So without further ado, let’s set sail.

1. Acquisition

Acquisition is the first step in your user lifecycle and typically is where most startups and marketers focus their growth efforts. Any way that allows someone to potentially find your business can be considered an acquisition channel.

acquisition

So to keep it simple, think of acquisition as all your lead generation strategies. This could be through various inbound and outbound campaigns.

You can acquire users through all kinds of channels, organic search, SEM, social media, banner ads, cold outreach, and even print ads.

Acquisition determines the rest of your funnel’s size.

While volume matters, I would place more value on the quality of your leads. You should always measure impressions and acquisitions for a given period of time for each specific channel. Then identify which channels perform best in terms of volume, quality, and price.

After your initial tests, eliminate your lowest-performing channels and spend your time and budget on the few that work best for you. Trust me, Facebook or Instagram isn’t always the answer.

By identifying, tracking, and analyzing each step of your funnel, you can find areas to improve your lead generation and round out your marketing strategy.

What to optimize

Landing pages, content marketing, live chat, webinars… basically anything related to engagement or lead generation.

Relevant metrics

New website visits, retention and bounce rates, overall leads, landing page success rate in generating leads, traffic driven to the site by channel, customer acquisition rate by channel, customer acquisition cost (CAC) per channel

2. Activation

Activation is when a user tries your product or service. It’s their first experience as a customer and is when they are starting to see the value you offer. It’s that magical “AHA!” moment where it all clicks, and you have a real user on your hands.

acquisition

Of course, it’s not enough for someone to start, not be pleased, and abandon ship. You want to make sure your onboarding process is seamless, so they stick around and progress to the next stage.

The differences between acquisition and activation are a bit confusing. It is essential to remember you are solving a customer’s question with content during the acquisition stage, but you are solving their problem with a sample of your product or service during Activation.

It’s the beginning of your relationship with a new customer.

Activation can be measured by dividing the number of “active users” by unique visitors.

What to optimize

Onboarding emails, customer success, onboarding assistance, tutorials, knowledgebase, UX, sales

Relevant metrics

New trial/freemium users, trial/freemium users who migrate to paid plans

3. Revenue

Revenue is pretty simple — it’s when a user finally pays for your product or service and is by far the most critical metric. Analysts can talk themselves in circles and show stakeholders vanity metrics to justify growth, but if revenue isn’t growing, nothing else really matters.

revenue

Revenue is when your lead finally takes the plunge and buys some of your product and starts offsetting their CAC (customer acquisition cost). If we are following our funnel, then this would only deal with the first purchases, but that’s not the case. Revenue in our framework refers to your business’s overall revenue.

Don’t forget we still have two R’s left.

It is so much cheaper to drive an existing (satisfied) customer to repeat purchase than it is to acquire a brand new one.

What to optimize

Product itself, customer experience, flow of purchase process, exit intent pop-ups (cart recovery)

Relevant metrics

Customer acquisition cost, users who start with trial/freemium and eventually pay, new customer purchases, overall customer lifetime value

4. Retention

Customer retention means people are regularly coming back after initially trying your product or service.

retention

For an e-commerce store, that means someone who buys from you more than once. For an app, that means users are coming back every week to use your app. For SaaS companies, that means people who are still subscribed and satisfied after their first two months.

The opposite of retention is churn. Customer churn is simply when a user decides to stop using your product or service. I can’t emphasize enough how important it is to measure churn. Understanding your churn rate can help you identify where users are dropping off and could prevent a revolt on board your ship.

Churn rate is a great metric to identify product/market fit. If you see a significant drop off when people start using your product, then either something is wrong with your product or messaging.

When satisfied customers stick with you for long periods, they generate more revenue than new customers, because their purchases aren’t “counteracted” by customer acquisition cost.

Make your product a habit, focus on customer service, and upsell!

What to optimize

Customer service/customer experience, product, loyalty program, email marketing, any way of offering value to repeat customers

Relevant metrics

Customer lifetime value, NPS score and other customer satisfaction measures, retention rate vs. churn rate, average customer retention length (average amount of time people stay active customers)

5. Referral

One of the best ways to drive growth is through referrals. Referrals measure the percentage of current users who successfully bring new users into your funnel.

referral

Why spend a ton of money on marketing and content creation, if you can just have your customers tell their friends about it. And since their friends trust what your customers have to say, they’re more likely to become your new customers themselves.

Customer referrals are the buried treasure in a pirate’s life.

  • 91% of consumers trust referrals from people they know
  • 77% of consumers are more likely to buy a new product when learning about it from friends or family.
  • 60% of marketers say that referral programs generate a high volume of leads.

What to optimize

Referral program (experience for both existing customers and referred leads), customer experience  (people will only refer others to you if happy)

Relevant metrics

Participation rate (% of customers who refer friends); share rate (rate customers send referrals); # referred leads; # unique customers who make referrals; referral rate (% total purchases by referred customers); conversion rate (% referred leads who make a purchase); lifetime value of referred customers. Positive reviews and review ratings can count here too.

Pirate metrics ‘AARRR’ worth it

Pirate metrics are a simple framework meant to help startups find their most important growth metrics. These metrics are intended to help you simplify the customer lifecycle and help you stay on track.

By identifying bottlenecks and drop-offs, you’ll be able to optimize your funnel and highlight your customer’s most important interactions. So, knowing how to analyze and optimize is vital.

At the very least, knowing these metrics will allow you to paint a better picture of your funnel.

There you have it, the introduction to pirate metrics, and how you can use them to scale your business.

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Matt Hofacker

Posted by Matt Hofacker

I specialize in demand generation focused on acquisition, activation, and retention for startups. Focus: SaaS, Online Education, Ecommerce, B2B Digital Services, Mobile Applications