All businesses want to sell their products and services. This means that all marketers have very similar goals. Marketing can be challenging: marketers have tons of factors to keep in mind, and their audiences differ in their social status, age, habits, online affinity, etc. Every group confronts different challenges and applies different strategies when dealing with a new business. Consequently, the metrics that marketers use to plan strategy and measure performance should be leveraged to improve business and empower its owners with data knowledge.
Why AARRR Metrics Are Important for Businesses
Established companies use these metrics when they are trying out new platforms – web resources, widgets, mobile apps, or when they are starting to use new marketing channels instead of the usual mass marketing. They need measurable goals that new audiences and their needs bring. For this, they use the AARRR metrics introduced by entrepreneur Dave McClure.
The truth is, he created this framework first and foremost for startups. So, why are they crucial for startups? Basically, they are a way to get your feet wet, find out whether your business model works, whether the product finds its audience, and so on. But what helps you see if your new startup is improving? How do you know if it’s worth scaling into a proper company?
This is exactly what the AARRR metrics are for.
New businesses generate all sorts of data in large amounts, and to understand and analyze it, you have to know your metrics. This way, you can figure out your baseline performance and work on improving it over time.
Startups can provide all kinds of services and deliver products directly to consumers and other businesses. Roughly, they can be divided into:
- Direct sellers. These either manufacture and sell their own products, or ship them from their own or someone else’s warehoused stock.
- Online intermediaries who act as the middleman between website visitors i.e., the consumers) and the businesses whom it represents.
- Businesses using advertising-based models that use specialized sites to attract consumers through advertising placed on these sites.
- Community-based models use websites devoted to particular interests to place their advertisement there and derive revenue from them.
- Fee-based models present content online and rely on its value to bring them revenue.
As you see, there are numerous types of businesses, and each of them generates different customer behavior. Going back to the topic of metrics – it’s important to know how to collect your data, what channels to use, and most importantly, how to analyze the data that all these diverse businesses generate. And for startups, it’s crucial to learn how to do so, as this is what their success depends on.
What is the AARRR Framework?
As already noted, the AARRR (also known as Startup Metrics for Pirates) is a startup metrics model developed by the entrepreneur and angel investor, Dave Mcclure. These metrics represent all customer behavior patterns and can help you understand them better, as well as optimize user experience for your clients. They allow you to better measure conversions and focus on the right channels.
The best thing about AARRR is that this framework doesn’t require any technical knowledge, so it’s easy to understand for both experienced businesspeople starting a new project and for newbies with fresh startups. Basically, it’s there to help you make more data-driven decisions and reach success by optimizing every one of the five metrics.
And if you understand them, you’ll know right away if there’s something wrong with your startup, what exactly isn’t working, and how to fix it. This way, you will avoid making wrong decisions based on guesses.
The AARRR framework consists of 5 steps. The aim is to lead people from one step to the other. This way, customers will move step-by-step from signing up for your product or service (Acquisition) to paying you for it (Revenue).
Acquisition. Where and from what channels do your users/customers come from?
Basically, you want people to sign up for something. For example, you would want people to sign up for a Free Trial. Be sure to keep good traffic acquisition – you need to ensure you direct qualified leads to your website. The thing is, you don’t need huge lead volumes to get customers if you have a solid number of targeted visitors each month.
Don’t waste time! Define your audience and start a campaign to create excitement before the launch. It will be easier to get more users when there is somebody already waiting for your product to hit the market.
Find out where your audience hangs out – is it on Instagram, Facebook, Reddit, forums or blogs? Use SEO and SEM, PR and newsletters to attract customers, and use social media and targeted ads to spread the word. This will help you be where your customers are and insert yourself into the conversation.
For your advertising to have impact, you have to offer your audience value. For instance, you’re offering an email marketing automation service. In this case, an online community for email marketing specialists is a great place to start. You can write interesting posts about email marketing growth hacks to warm the audience up and subtly introduce them to your product. Or, write a useful article on a hot topic or give an elaborate answers on Quora. There are numerous options. You’ll just have to find what works best for you and brings the biggest return on investment.
For example, there’s Postable, an app that lets you write your own wedding invitations and thank-you notes on custom-made postcards made by indie artists and mails them to you, nicely printed. They talk to their customers on Instagram, because that’s where modern-day brides and grooms look for inspiration and services for their weddings. They use different Instagram tools (likes, saves, stories, statistics, etc.) to acquire new customers. But use a platform that’s appropriate for your product. (A beautiful website featuring thoughtful UX won’t hurt either.)
Don’t be shy about trying different channels to see what works best for your startup, and what brings in more people. To figure out what channel fits your business the most and optimize your strategy, try answering these three questions:
- What channel has the highest volume (#)?
- What channel performs best (%)?
- What channel requires the lowest investment ($)?
When communicating with customers, reduce uncertainty. Be as clear as possible in your website copy, emails, FAQ, etc. Make sure your customers can get a taste of your product. And when the deal is done, get back to your customers to see how everything is going. Let them rate your product via app, email, or a designated section on the website.
Figuring out this information will help you prioritize and focus on the right thing. Remember, acquisition is crucial. Done poorly, it may be the reason for failure, even if the product is awesome.
Activation. What percent of users/customers have a “happy” initial experience?
Okay, so you have people signing up for your product. But them clicking around randomly isn’t enough. You need your customers to take action.
What do you do next? The key word here is “onboarding”. Many of the people who sign up never use the product itself, which is why you have to make sure people see your value proposition and understand how it can be of use for them.
Here, content marketing, social media and well thought-through onboarding will help you turn potential customers into loyal clientele. Get a solid idea of what a “happy” user experience would be, and move towards it. Use analytics: see what landing your customers spend the most time on, or what part makes them close your website or app.
In earlier days, it was common to try out different onboarding strategies, but experience shows that it’s better to work out one solid onboarding strategy and then just refine and adapt it along the way. So, what you do is you set the goal (the end of onboarding process), map out the steps to activation (what do you want to the user to do after they install your app?), identify where and why users may get stuck, and build actions that will help them get through it. And don’t forget to test, measure and optimize your data as you go.
Oh, and by the way… One thing that people often overlook when looking for that “happy” experience is the fact that there can be more than one “aha!” moment for a customer – and that those moments can vary for different groups of customers.
For example, one pain that mobile photographers shared when shooting with their phones was lower image quality in low light. After the ‘Shot on iPhone 6’ campaign, Apple decided to fix this problem and tell the whole world about it. Which is why, on November 5, 2016, they urged photographers from 25 countries, all armed with an iPhone 7, to capture whatever they wanted between sunset and sunrise. This way, Apple demonstrated the low-light capabilities of the iPhone 7’s camera.
Improving activation also means removing friction by:
- Removing unnecessary form fields
- Reduce visual friction 01, 02
- Cut down the number of steps users have to take
- Clarify onboarding language
- Improve site/app performance
Retention. Do customers come back and/or revisit?
Congrats! You’ve got people buying your product or service! Now, you have to make sure they come back regularly to use it. Retention is probably the most important metric. Keep in mind that retention measurements can vary among different products and services. For example, some apps or websites may expect only two to three logins per month, while others will send you notifications inviting you back after only 2-3 days.
But even if you feel like you’re failing to retain people, don’t give up. Try to stay in touch with them, keep showing them the value of your product or service, make special offers, send newsletters or useful information to let them know you still exist. So as not to scare people off with spam, try to find a good schedule and automate emails every 3, 7, or 30 days, or come up with an individual life cycle for the product, if necessary.
Why is retention so important? It’s not just about not losing followers and giving yourself a pat on the back for every new user who joins in or buys your product. Retention is the core of your growth model.
- Retention drives acquisition. Get it through invites, shares, or word-of-mouth.
- Retention drives monetization. The more users you have, and the longer they use your product, the more money you get.
- Retention gives you a competitive edge. Following the previous two steps, you will afford acquisition channels you couldn’t afford earlier.
- Better retention makes the payback period shorter, and you can re-invest into retention sooner.
Amazon, for example, made use of special offers to their customers. It was rather unusual for a commodity-based business to start a subscription service, but it soon proved to be a big success. Amazon introduced Prime, a subscription that was originally created to offer users faster delivery only. After some time, it also included access to Amazon’s Instant Video platform and music streaming services, which provided access to exclusive content and events that increased Amazon’s retention. But if you’re going to follow Amazon’s example, make sure you give people what they want and what they need. Which is why you have to understand your audience’s desires.
Referral. Do customers like your product or service enough to tell their friends?
This one’s pretty big. If you get people to talk about your product and, better yet, refer their friends, it’s a big success. At this step, you’ll be able to find out how many people are using your product and invite their peers. This is your awesome chance to drive organic growth – it’s a big win for startups that will help them become really big in the business.
At this point, start loyalty programs, and make your content easy to share. A tip from us: don’t use viral marketing unless your product or service is perfect. You don’t want people go around and tell others your product is bad, right?
A prime example of a successful referral program is Dropbox. Did you know they won over 4 million users in 15 months? According to Dropbox CEO/Founder Drew Houston, referrals increased signups by 60% percent, as in April 2010 Dropbox users sent out 2.8 million direct referral invites. Let’s see why it was so successful.
It combines the referral program with the onboarding process.
The referral process is part of the setup/registration process.
Customer benefits come first.
Words are crucial. It’s not “Invite friends”, but for example “Get more storage space”.
The referral process is easy as pie.
Suggest inviting friends via email, link, or different social media.
Referral CTA is clearly visible.
Users must see what you’re offering, right?
There’s a tab for referral and reward status.
Build trust by letting users see that their referral worked and they were rewarded for it.
Referral emails encourage people to refer more.
When sending out the email thanking new users for accepting the invite, encourage them to refer more friends to get more storage space.
Revenue. Can you monetize any of this customer behavior?
Here we are, at the final step. People love your product or service, they’re using it and paying for it. However, it’s not the end of the road. Keep taking care of your customers, offer discounts, create attractive annual plans, and offer high-quality support.
A great way to improve your revenue is to align prices with customers. Set different prices for smaller- and bigger-volume customers. However, at the lower end, don’t set the price too low – you have to be sure that customers are serious and are willing to pay. Low-paying customers may be not very profitable and unreliable in terms of paying bills in time or at all, so later on you’ll just lose money on them.
Offer discounts. Game developer Valve once decided to run discounts, and a 75% cut led to a 293% increase in revenue. But be careful with your discount strategies, as some customers may shop with you only when you lower your prices.
How can a startup apply the whole set of AARRR metrics
The AARRR method is easy to master. It also works smoothly with web-based startups, no matter what they work with – whether it’s services, apps, online products, courses, or e-commerce. It’s possible to apply them to new products that used to be brick-and-mortar only, as well as new applications developed by a famous brand.
So far, we’ve been dealing with this theory of the AARRR model. But for you to understand it better, let’s check out a case study and see how can a business apply all of the steps described above. Let’s say you offer an app that helps people stick to healthy eating by buying the right foods. Users can fill in a form, tell the app how they want to live – like avoid gluten and lactose – and the app will get them there.
In this case, the AARRR metrics are no less than perfect for keeping track of your growing business – it’s a lean and pretty straightforward framework that helps entrepreneurs navigate their way to sustainable revenue.
When it comes to acquisition, it’s possible that many customers will come directly from Google search – if you take good care of your SEO and brand recognizability. In this case, by simply searching for, let’s say, “healthy lifestyle” or “healthy eating”, they will land on your website. But also it’s a good idea to invest substantially into influencer links. Invite bloggers to try your app and share their results, use referral programs (get a friend to join and get some perks!), social media and partner email campaigns.
To figure out what channel works best for your startup, monitor every acquisition channel individually:
- Per channel: by the ratio of acquisition cost to revenue
- Facebook especially: by cost per purchase
- Affiliate partners: by cost of traffic generated
- Email campaigns: by conversions
Analyze your customers to see exactly what attracted them and how their behavior evolves. Was it a coupon from a partner store that let your users get a discount? Or a referral from a happy customer who got rid of a bad health issue thanks to your app? What features do they use more, what features do they use less?
To stay in touch with the clients, send out newsletters via email or as app notifications. Instead of sending out sales texts convincing users to buy your ebook on nutrition in all caps, put together useful emails – in your case, it could be health tips on how to improve skin by drinking veggie juices recommended by professional nutritionists.
As for the other important part, retention, you and your team could try to personalize the user experience. Learn as much as you can about your users and use this data to adjust the nutrition facts and recommendations you present accordingly. Use their location to recommend locally grown and produced products and places to purchase them, or even let them buy products they need through your app.
Why it is important to be data-informed and not data-driven
Metrics are, without a doubt, a valuable tool for business development, and it’s easy to become overly data-driven and let data fully guide your decision-making process. This is a case of data-driven business strategy, which can limit your view of the bigger picture as you’re looking to ship faster or blindly try to get more likes for your product, without being able to turn those likes into actual orders and purchases.
Let’s not forget that metrics are merely a reflection of a strategy you’ve implemented. They only show what is here and now. You need to include your intuition and the ability to read people into the process of making decisions to be successful with whatever you offer your customers.
Simply put, you have to be data-informed. This means that you understand and realize that you only have a limited amount of the information you need to make a successful product or provide a service. Who knows – maybe, in the future, your product will target other audiences or gain an entirely different set of features. But if you learn to base your startup’s further development on the data you get and use data extensively to inform your strategic decision-making, this means you become data-informed.
There’s one thing though, that must be said in conclusion: the data you get from the metrics won’t tell you exactly what your product should look and feel like and how is it supposed to work – but it is data that will tell you whether a particular design or feature helps your customers reach their goal or solve a problem.
And this is exactly where AARRR comes in handy. You have to remember that your audiences differ, and their preferences differ. And to sell well, to keep clients from different backgrounds happy, you need to know who they are and where they come from. Having a more personal relationship with your client will not only help you successfully market your product, but also gain customer value.