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How To Improve Business With Pirate Metrics (AARRR)

Building A Startup - Product Development


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Pirate metrics are useful for tracking the behavior of users from the time they learn about your business until they become valuable, long-term, and loyal customers – with consideration to every step across the customer journey. Teams who can monitor, assess, and optimize each metric are more likely to successfully create synergy between marketing, sales, and customer support efforts, building a machine that brings customers in, creates widespread satisfaction, and maximizes revenue. 

Startups use these metrics to understand where they stand in every stage, including acquisition, activation, retention, referral, and revenue. Unfortunately, teams that fail to monitor metrics, or those that monitor the wrong metrics, usually do not know whether they are succeeding or failing. And if they do know which path they are on, they don’t understand why they are on that path. This article will explain the exact pirate metrics you should be using to collect the data you need to grow, scale, and reach success with your startup. 

What Are Pirate Metrics? 

Yes, the name sounds childish, but there’s a reason why “pirate metrics” is the perfect name for this group of data points. If you’ve ever heard a pirate say, “AARRR MATEY!” then you already have a grasp of what these metric categories are. In the case of real pirates, they use the phrase to showcase happiness, joy, or glee. And in business, if you use them right, it will give you the same joyous feelings! 

AARRR is an acronym that stands for: 

  • (A) Acquisition: Acquisition refers to how users find your business, what channels they use to find you, and how you introduce your products or services to them. 
  • (A) Activation: Activation metrics track how users engage with your brand and how they perceive your brand during their first experience. 
  • (R) Retention: Retention tracks how often customers come back to visit your site, repurchase products, or how many times they engage with your brand. 
  • (R) Referral: Referral refers to how many people tell others about your brand, product, or service – creating new clients through their networks. 
  • (R) Revenue: Revenue metrics track users who make a purchase or participate in some type of monetization event. 

Here’s a quick disclaimer. Some sources will define pirate metrics as AAARRR, including an “awareness” stage. Others will put revenue before referral. However, the original introduction of pirate metrics from Dave McClure of 500 Startups defined the acronym excluding awareness, and it positions revenue as the last category. And for that reason, so will we. 

pirate metrics - customer acquisition and awareness

Monitoring Acquisition Metrics

Before you can bring on a new customer or initiate a sale, you must first make them aware that you exist. Many channels are available that you can leverage to market your product and get in front of potential users or customers. Channels can include social media, blogs, Google Ads, YouTube, or even more traditional marketing techniques like television commercials and billboard advertising. 

Why Track Acquisition? 

Marketing is expensive, and low click-thru rates, high acquisition costs, and lower-than-average conversions can cause you to run through your advertising budget quickly, yielding few results. By tracking acquisition channels and performance, your team can better understand which channels work best and which don’t work at all. In addition, these metrics can help you identify ways to improve the techniques that are performing well, leading to more views, more leads, and more conversions. 

Which Acquisition Metrics Should I Track? 

As you bring in potential customers to the top of the funnel, you can track several metrics to help you adjust and improve your acquisition strategies. While there are many metrics you could monitor, some of the most popular and helpful acquisition metrics include: 

  • Impressions: You can’t always access impressions directly – but when you can track them, you should. Impressions showcase how many people viewed one of your ads, whether on Google, Facebook, Twitter, or another platform. By tracking this metric, you can ensure that your ads are optimized and that you are covering the right keywords or audiences to maximize views. 
  • Number of Clicks: It’s essential to know how many clicks you are receiving from your campaigns. If you notice that only a few clicks are coming in, you can dial in the cause, which can be numerous things, including your ad description, your selected keywords, and more. 
  • Click-Thru Rate: CTR describes the percentage of impressions that turn into clicks. On most platforms, you pay for clicks, not impressions. For that reason, monitoring impressions is not enough. Unfortunately, monitoring clicks alone doesn’t give you the complete picture either – at least, not on its own. Click-Thru Rate tells you how many users view your ad and then click over to your site. Research the average CTR for your industry, and if you fall behind the average, you can make the tweaks necessary to improve the metric and your ad performance. 
  • Cost Per Click: It’s satisfying watching traffic come to your site from your ad campaign, but not if your spending on the click costs more than potential revenue from a sale. Some industries are just naturally more competitive and clicks cost more for these sectors. But other times, high costs per click could come from low-quality scores on your ads or because of an unoptimized campaign. 

Utilizing Activation Metrics

The second category in pirate metrics is activation. First impressions are everything, and customers will make immediate judgments about your entire business based upon their first experience. Activating a customer means getting them to reach the “ah-ha moment.” 

The “ah-ha” moment is defined as the moment of sudden realization, inspiration, insight, recognition, or comprehension. In terms of business, it’s the point where the customer realizes that your product or service is what they need to solve the specific problem they are experiencing. 

Why Track Activation Metrics? 

Acquiring visitors is a significant accomplishment, but it’s a waste if their first experience with your product is negative – or if they are unimpressed with your brand when they happen upon your website. By tracking activation metrics, you can ensure that visitors realize the value of your offering. 

Depending on your business, you can activate a client with several different techniques. For example, a SaaS company might activate a customer by offering a free trial – allowing them to get a hands-on experience with the product. A car dealership activates a customer by getting them behind the wheel; some offer a test drive, and some allow the customer to take the car home for a week. 

The activation stage prepares the customer for purchase. If you aren’t achieving the ideal targets here, you might get users to your site, but they will all click away without even considering a purchase. Inevitably, your overall conversions and sales will grow as you collect metrics and optimize your activation efforts based on the data.

Which Activation Metrics Should I Track? 

Activating customers gets them one step closer to purchase. Activation metrics will allow you to ensure that each visitor has a successful first experience as they engage and interact with your brand. Some of the essential activation metrics to track include: 

  • Number of Free Trial Downloads: Some businesses, like SaaS startups, use free trials to activate new users. These companies will track the percentage of visitors that download or request a free trial. Furthermore, this metric could also represent the number of visitors that schedule a consultation or request a demo.
  • Number of First Events: Activation could also be a “first event.” For example, the first event for a social media site may be setting up a profile or posting the first status. For a business like Dropbox, activation could be the number of visitors that upload their first file – as they know that once someone uploads one file, it is much more likely that they will continue uploading more. 

Understanding Retention Metrics

According to studies, it can cost five times as much to acquire a new customer when compared to retaining an existing customer. Retention metrics allow you to understand how many customers stick around and why others churn. The goal is to make sure that every user becomes sticky – meaning that they come back to your product frequently or use it consistently. 

Why Retention Metrics? 

Customer retention is a sign of satisfaction. Dissatisfied users will churn quickly, but they can also cause harm by leaving negative feedback and reviews. On the other hand, if you can retain customers for the long term, you will ensure that you are solving their specific problems. These users often become a business’s most loyal brand ambassadors. 

If you don’t understand what causes customers to retain or churn, you can’t make the necessary adjustments to maximize user satisfaction. As you collect and assess these metrics, you will gain insight into what users really want – and once you deliver it, your retention rate will expand drastically. 

Which Retention Metrics Should I Track? 

Retention can differ based on your particular business type. For example, for a SaaS business, retention could be the number of re-subscribers each month. On the other hand, retention may be defined as the rate of return purchases for a product retailer. Here are a few examples of retention metrics: 

  • Retention and Churn Rate: Retention and churn are opposites. The term “retention” refers to a measure of the number of customers a company retains over a given period. Churn refers to the rate at which customers end their engagement with a business over a given time. 
  • Repeat Purchase Ratio: This metric measures the percentage of customers or users who return in the future for another purchase. The higher the percentage, the more revenue your business will generate. 
  • Net Promoter Score: NPS rates the likelihood of a customer recommending a company, product, or service to one of their peers. The rating is given on a 0 to 10 scale, with 0-6 being detractors, 7 and 8 being passives, and 9 and 10 being promoters

Measuring Referral Metrics

Referral metrics help you answer the question, “How likely is it that an existing customer will refer someone else to your business?

Referrals are critical to a company since they can help enhance visibility and reduce acquisition costs. As we mentioned, acquiring a new customer through traditional marketing channels is expensive. An acquisition could cost hundreds or thousands of dollars in some industries, like finance or business services. In contrast, it costs the business nothing to bring on a prospect referred by another customer. 

Why Referral Metrics? 

The more referrals you can inspire, the more revenue you will generate. Furthermore, referrals are also a great way to assess customer satisfaction. There is no marketing channel as effective in persuading customers to purchase as a recommendation from their peers.

It is essential to know how many people refer your products to their networks and which channels they use. Understanding why they share, when they share, and who they share with can inspire new efforts for incentivizing brand ambassadorship and increasing your referral potential. 

What Referral Metrics Should I Track? 

To get the most data, you want to track metrics across all the channels where customers review and refer products to their peers – social media, review sites, and more. Some of the essential referral metrics you should track include: 

  • Social Shares: Social media is a powerful tool for introducing products to new customers – especially when those products are shared by their closest friends. By encouraging and incentivizing social shares, businesses can increase their visibility with the backing and recommendation of individuals that prospects trust most – peers. 
  • Ratings & Reviews: Positive ratings and reviews are another form of referral. Customers can refer products to prospects they don’t know by leaving public ratings on platforms like Google, Facebook, TrustPilot, BBB, etc. The higher your ratings are, the more confident prospects will be that your product will solve their problems sufficiently and successfully. 
  • Customer Satisfaction: Only satisfied customers make referrals, and by tracking how satisfied your customers are, you can also predict the likelihood that they will share your product online, tell a friend, or leave a favorable review. 

The Most Important Metrics – Revenue

Revenue is arguably the most critical metric category. Ultimately, none of the other metrics matter much if it doesn’t eventually earn revenue. What’s the point of referrals if they don’t bring more income into the business? 

By knowing how your business earns revenue and understanding its drivers, you can position the startup to focus on its strengths and consistently grow its monthly income. 

Why Revenue Metrics? 

Revenue metrics allow you to assess how much revenue your business generates and how it generates that revenue. Entrepreneurs often see the money coming in and just assume that things are in great shape. And when an unexpected expense comes up, or sales take a shift, these entrepreneurs freeze like a deer in the headlights. When you are fully aware of your revenue metrics each month, you’ll notice if things take a turn for the worse and can address any issues as they arise. 

What Revenue Metrics Should I Track?

To get a big picture idea of revenue, you can track every dollar that comes in – keeping a close eye on monthly recurring (MRR) and annual recurring revenue (ARR). However, there are several other metrics you can track to better understand your business’s revenue position. These metrics include: 

  • Average Transaction Revenue: Businesses find it much easier to predict future revenue when they know the average transaction revenue. Furthermore, awareness of this data enables you to ensure that each transaction is profitable and that your customer acquisition rates are low enough to earn positive profit each time a customer makes a purchase. 
  • Customer Lifetime Value: We’ve already mentioned how necessary retention is; the longer you keep a customer around, the more revenue you will generate from that customer over time. The duration of that time is the customer lifetime. If you understand the actual value of each customer, you can better gauge how the acquisition of each customer will impact your business’s bottom line – both presently and in the future. 
  • Conversion Rates: Another vital factor for revenue is conversion rate. Revenue is directly related to how many customers you can convert. Therefore, you should always track your conversion rates and seek to improve them over time. 

How To Apply Pirate Metrics

The whole goal of pirate metrics is to develop a funnel that helps you understand your customer and business on a granular scale. Collect metrics intentionally – know what information you want to collect, and then decide which metrics are most important to track to give you the essential details about your business. Pirate metrics are crucial to developing a lean startup since you can use them to adapt and further develop your product. They also give you the supporting data that you need to prove your business case in your pitch deck or business plan. 

As always, if you need help writing your business plan, creating your pitch deck, or developing your app – we’d love to hear from you. Contact us today to discuss your startup with one of our expert consultants.

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