What Is AARRR Pirate Metrics Framework? & How It Works?
September 2, 2022 Edwin Kooistra
SaaS startups require customer-focused business analysis metrics to ensure they grow with every sales cycle. One of these, the AARRR metric, also known as the pirate metric is employed by B2B tech sellers to design a growth-oriented trajectory for the future.
AARRR is an acronym for Acquisition, Activation, Retention, Referral, and Revenue, the five foundation stones of optimizing your SaaS business funnels. The AARRR model teaches startups to emphasize efforts on metrics that are directly related to sustainability.
Pirate metrics enable businesses to leverage data for improved marketing, product management, and branding initiatives. Startups can use AARRR metrics to derive actionable insights to enhance product development, identify ideal marketing roadmaps, and optimize the customer service process.
Understanding the AARRR Model
As we discussed above, pirate metrics are an acronym for the five unique steps that constitute a customer-focused performance measurement framework. Let’s quickly overview each step as described by its creator Dave McClure.
The acquisition metric analyzes all channels that you engage audiences to introduce your brand and products. These can include all popular channels including SEM, SEO, email, blogs, videos, social feeds, and much more.
The activation step or metric is generally the stage when customers begin to further learn about your products. This includes the audiences visiting blog pages, different landing pages, signing up for free trials, or subscribing to standard product features.
The retention metric analyzes users, who after taking a primary action, continue to research or use your services & products. Users revisiting blog & landing pages, subscribing to newsletters, and renewing their product subscription, etc. are all such retention metrics.
The referral step is the analysis of customers who share your products with family, friends, and colleagues. While this metric is difficult to measure, professionals agree that the right tools can provide lucrative insights. These tools can include referral emails, referral codes, referral campaigns, etc.
The most critical metric measures the revenue achieved through the preceding four steps acquisition, activation, retention, and referral. This step analyzes if initiatives are increasing revenue or not, what is the break-even of campaigns and if revenue more than the customer acquisition costs.
How does the AARRR framework work?
The AARRR framework operates very similar to a marketing funnel and is hence the acronym of an ideal customer journey.
Acquisition stage metrics as we discussed above measure how audiences found your products by visiting the website or downloading a trial, etc. The marketing strategy is critical to determine how effective your message is and how many users it acquires.
Acquisition employs different marketing tactics including blogs, video demos, social media feeds, emails, landing pages, and advertising to engage as many users as possible in the AARRR funnel. The aim of this step is to analyze all the customer touchpoints that allow users to experience your products & brand name.
Once new users are acquired, it is time to convince them and encourage them to take an action on your call to action. Users get a real-time experience of your service through free trials, limited feature products, live demos, guides, and newsletters.
Activation step metrics are crucial since visiting websites, social pages, blogs, and reading newsletters doesn’t necessarily convert them to customers. The acquisition metrics answer important questions about the product, the unique value proposition, the user experience of marketing channels, and how engaged audiences are with your brand.
Retention metrics follow activation, and this is where businesses get to identify the behavioral pattern of activated customers. This stage is the perfect opportunity to retain customers and recover those who left previously.
Educational content and marketing promotions are a great way to retain existing customers and returning ones. For example, using data from the retention metrics can be used to offer product subscription discounts, important features of the product, and highlight the unique value to users.
Referral stage metrics look to identify the likeness of customers to recommend your products to others and how to enhance their brand loyalty. Being a popular marketing tactic, referral metrics highlight the effectiveness of marketing campaigns and product branding.
Social proof and testimonials are excellent evidence for B2B buyers. SageFrog identified that referrals are the leading source of marketing leads at 68% for B2B SaaS products. Keeping customers loyal to your brand is critical to any startup’s success. This can be achieved through promotions, discounts, referral offers, and many other initiatives.
Finally, monetizing your products through subscriptions is the final stage to determine if all the stages that came before were in fact successful. Revenue metrics identify critical errors in the marketing, operations, product development, and customer services processes.
Revenue pirate metrics allow startups to identify customer lifetime value, customer cost of acquisition, revenue growth, and average recurring revenue. Measuring these metrics against the costs of the preceding stages allows room for improving efforts to engage new audiences while enhancing revenue for each step.
How to use and measure each funnel stage of AARRR?
Each stage of the AARRR funnel should seek to answer critical questions that optimize conversions and hence revenue.
In the acquisition stage, startups look to answer who their ideal customer profiles are, where they are and which channels to engage them through. Businesses analyze buyer personas, the relevant marketing channels, segments of the market, cost of acquisition for channels, and the buyer journey.
During the activation stage, businesses seek to analyze several customer behaviors that relate to making a buying decision. Startups can identify the steps varying audiences take to reach a purchase decision, in addition to identifying the value customers derive from the product.
By mapping the buyer journey, SaaS sellers can simplify the onboarding process and improve the time it takes for customers to extract value from their products. This is also an excellent stage to analyze the behaviors that will lead to retention.
It is essential to measure activation metrics for different buyer personas and evaluate their behaviors individually since every customer can have their own unique journey.
During the activation stage, it is a good idea to request customer reviews and feedback. This feedback can be used to determine both satisfaction and retention insights.
Managing the churn rate is crucial to ensuring sustainable growth for your startup. The retention stage metrics identify critical signs of customer churn, for example, declining login numbers and short website durations.
For more engaged users with a higher retention rate, startup businesses can use multiple tactics. One of the most popular retention channels is email marketing. Email offers the highest ROI for all marketing channels, identified to earn $36 for every $1 spent. Personalized emails that communicate benefits & value instead of product features are a very popular way SaaS sellers retain customers.
The retention stage is a good time to identify the customer lifetime value (CLV) and monthly churn. You can identify stages of the buyer journey that have flaws and discover insights that can extend the CLV of canceling subscribers.
Measuring referral metrics can be difficult but these statistics can be significant for business growth. Viral loops are one of the most popular tactics employed primarily by social media platforms like Twitter and Facebook.
The Viral Coefficient is a popular measure that identifies how many new customers are acquired through referrals. The viral coefficient is expressed through the following formula:
(Number of New Customers) * (Referrals per Customer) *(Conversion Rate for Referrals)) / 100
Another popular measure of retention metrics is the net promoter score (NPS). Professionals agree and recommend this tactic especially because it measures both customer loyalty & satisfaction. The net promoter score requires asking customers a single question “on a scale of 0-10 how likely are you to recommend our products to friends, colleagues, and peers?”
Answers are then categorized into three groups, namely promoters (9 to 10), passives (7 to 8), and detractors (6 and below). The NPS is then calculated with the following formula:
NPS = %Promoters – %Detractors
Calculating revenue metrics is although complex it is of most importance for startups to gauge their ROI. Probably the most important measure is the customer lifetime value of individual customers or buyer personas together. Another popular metric is the customer acquisition cost which indicates how much it costs to acquire a new customer.
The conversion rate is an essential element of this stage, as these are the number of customers who began the journey from the acquisition stage and converted. Startups can identify high-value clients by identifying order values and repeat purchases, hence identifying buyer personas who spend more.
Example of Dave McClure’s AARRR Dashboard
Dave McClure’s AARRR dashboard is a great example of breaking down the pirate metrics framework into stages. For example, McClure segments acquisition into two stages, landing the visitor and then measuring stay-on-site metrics.
Looking at McClure’s dashboard we can immediately notice that conversion goes down, filtering audiences through the buyer journey. Simultaneously, the estimated value of lead value increases as sales qualified leads filter through the process.
4 Most Significant AARRR Metrics for SaaS Startups
To wrap it up, here are some popular pirate metrics that SaaS businesses use to optimize their business processes while focusing entirely on customer experience.
- Online traffic per channel (Website, Social Pages, Email, Mobile, SEM Ads)
- Customer acquisition cost (The cost of acquiring an additional customer)
- Click-through rate (The number of visitors that click CTAs)
- Cost per click (The $ cost of clicks on different keywords)
- Conversion rate (The number of leads who completed the buyer journey and purchased)
- Cost per click for Ads
- Cost per lead added to the marketing funnel
- Click-through rate
- The number of new leads
- Bounce rate of visitors who exited marketing channels
- New subscribers to the service/product
- New accounts created
- Conversion rate
- Segmented retention rates (monthly and yearly)
- Churn rate (monthly and yearly)
- Customer lifetime value
- The Net Promoter Scores
- Conversion rates
- Customer order value
- The % and number of customers who refer your services to partners
- Number of referrals
- Total order value of referred customers
- CLV of referrals
- Positive brand reviews & feedback
- Social media referrals and shares
- Net Promoter Score
- Revenue Metrics
- Customer lifetime value
- Customer acquisition cost
- Monthly recurring revenue
- Average purchase values of different customers
- Customer churn rate
- Revenue growth
The AARRR metrics framework is still a leading technique for business process optimization, especially for SaaS startups with fewer resources. At Chasm, we focus on making product marketing and branding easier for B2B startups struggling to make an impact.
Our proficient team and data-driven strategies aim to give startups the competitive edge they need to survive in the SaaS sector. Get in touch with us to learn more about optimizing your business with focus on customer experience.