'For any Startup, KPIs are a dominant part of your strategy. But, having KPIs and knowing what to do with KPIs are two completely different things. Dave McClure over at 500Hats developed the AARRR — or Pirate Metrics – system. Since then it has evolved, improved and grown an extra A.
AAARRR shows you how to create, convert, and keep customers by organizing your KPIs into handy-dandy buckets. Or, to be more precise, AAARRR is a customer lifecycle flow that helps with funnel optimization. Recently, I've talked to a few businesses that utilise AAARRR and helped some embed them into their business, so I figured now would be the perfect time to dive into Pirate Metrics.
Of course, you don't have to onboard the entire lifecycle to get some value out of AAARRR. There are tons of juicy tips cloaked in these Pirate Metrics. Trust me; you'll want to read this blog post — it'll have you hooked.
Also, I'm going to have to make some adjustments to this lifecycle, because, well... you'll see.
What is AAARRR
The AAARRR system is a customer lifecycle flow originally designed by Dave McClure, which he discussed at Ignite Seattle.
AAARRR stands for:
You can use AARRR to categorize your KPIs. You can say "Ok! This customer is at this point in their lifecycle journey." That's what these are useful for. None of these are KPIs in themselves. In fact, half of those share names with KPIs that you should be measuring (but they don't mean the same thing.) So, don't mistake these as things you should measure — they aren't. Pirate Metrics are buckets that you can pour your KPIs into to garner some meaning. So, if some of your KPIs are doing poorly, you can look at this list and say "Ok, here's what we need to be working on." And depending on where you are in your startups lifecycle, you will have emphasis on certain buckets and/or KPIs.
Let's go over each.
This is a new one on the block, but an incredibly useful one. Most of the things that go into Awareness used to be in Acquisition, and you can see why they needed to come out! Thing to remember is that this is the very top of of the funnel.
So, how do you get trigger more awareness? With inbound marketing! Really, awareness is the easiest phase, but probably the one that startups startups struggle most with
The KPIs we focus on here are very much vanity metrics, like:
- Social Post & Ad Impressions
- Click through rates from those posts and ads
- Website visits
Key channels for businesses to focus on to drive Awareness are:
- Search Engine Marketing (Google Ads)
- Social Advertising (Facebook & Instagram; LinkedIn etc.)
- Display advertising (Google Ads; YouTube; Outbrain etc.)
- Retargeting (Connecting all of these…. We love retargeting!)
This is a key stage for startups in the pre-launch phase. Maybe you are doing some funding rounds; maybe you’re looking to see what the market is like through MVP testing.
Let's take a moment to clarify: this isn't your "typical" definition of acquisition. In this case, acquisition refers to getting something from a prospective user — not converting them.
You can consider this your first engagement with your customers; your handshake. For most startups, this is likely going to be an app download, but it can be as simple as getting their email address and filling out a form on a landing page.
This is where you go from a target segment to being able to identify individual users. No longer is it a persona… it's a person.
So, how do you get trigger more customer acquisition? This is still very much reliant on inbound marketing and awareness. But the big distinction here is conversion.
This is a massive one for any startup, and startups are no different. Who cares if you have 100,000 visitors? How many of them are decision makers?
Acquisition-based KPIs tend to be where the majority of your marketing dollars go.
KPIs in this bucket:
- New leads
- App Downloads
- Email subscribers
- Resource Downloads
Bonus Extra - My go to Awareness>Acquisition Facebook 1-2 punch
I’ll be super quick, but this is all gold. Trust me!
- Set up a brand awareness campaign in Facebook targeting your customer. The goal is impressions, recall and even some web clicks
- Remarketing the engagers with conversion ads. If you did a video at stage 1 (and you should have), you can remarket to a specific audience who watched it. Web click? Retarget them!
This is when you start to give your prospects a back rub. Activation is "the point" where you can say, "Ok, this customer is officially a customer." How you define, that is up to you. This is where they go from being a little curious and actually using your product (or a version of).
When I look at our current crop of Neobanks, this is where I see them falling down. They might be getting a shed tone of app downloads, but are they converting into a customer.
Here's the big secret: you should be defining it in a bunch of ways. Look, getting hyper-granular with who you're sticking the "user/customer" tag on is probably more complex than it needs to be.
KPIs we look to embed with our clients are:
- New trial signups
- Loss-leader sale
- Freemium sale
- Account open
This is the point in the life-cycle where you hook the customer. This is where your product people earn their coin. I’ll not complain about the order here, as you would be thinking about Retention well before doing any awareness stuff when designing the product to begin with. But this is the customers journey… not yours!
There are KPIs which are leading indicator and some that are lagging in this bucket:
- Churn rates - lagging (i.e. what is the attrition rate)
- Usage - leading (i.e. are people starting to use the product less?)
Having a solid lifecycle management program in place is the key to retention. Another big fail point for startups and even banks. Once the product is “sold”, very few go back and speak to that customer to try and increase their usage. Incentives are a great tool for most startups (think spend XX and get YY), but information and education can be just as rewarding. Just keep the dialogue going!
For some reason (way beyond me) McClure put referrals as the step before purchase. That's not how it works. But, that's ok, we'll just switch them around. Revenue is McClure's way of saying that "a purchase" happens. This is the conversion point. You now have a full-blown customer that's been pooped out of your funnel straight into your reverse funnel.
Really, this bucket is all about increasing revenue. Usually, that's done by increasing lifetime value and decreasing customer acquisition cost.
KPIs in this bucket:
- First purchase
- ROI (return on investment)
- Incremental sales
- CAC (customer acquisition cost)
- CPL (cost per lead)
- LTV (lifetime value)
Another bucket for your product guys. Side bar: all product people should be able to build a profitability model for their product!!! Otherwise you are a UX person, which there is nothing wrong with, as UX is a key channel for revenue (and retention), but you need to know how you are making the green $$$!
Is your customer happy? Did they like your all-in-one credit card? Are they eating up your investment app? If you don't know, you should! People are 4x more likely to buy your product if someone they know tells them about it, and 81% of ALL consumer decisions are based on WoM. That's huge! This is the customer satisfaction stage in the life-cycle.
KPIs in this bucket:
- NPS (net promoter score)
- Social shares
- Actual referrals!!
Pirate Metrics are a fantastic way to redefine your customer lifecycle. Looking at your customer's journey through the lens of a lifecycle will help you create meaning in your metrics. If you have low NPS and LTV, you know that you're having issues pleasing customers. But, if you have low social engagement levels and CTR, you're having issues getting customers to revisit. Fixing those two issues requires radically different strategies. AAARRR helps clarify the issue.
I hope this helped some of you who are using pirate metrics in your day-to-day business practices. Remember, AARRR is all about funnel optimization and deep tissue metric strategising — it's not a step-by-step revenue builder. You have to really dig beneath the surface lever to garner any lasting value. But, when you do, you'll find a strategy that absolutely helps guide you towards better profits and more successful business practices.