Do you need the AARRR framework in 2022-2023?
Tags: startup
Published: 2022-09-09 13:39:35

Funnel, funnel, and again funnel. Each product should keep it in front of your eyes. What does a user flow or your user’s steps look like? Is it an ad somewhere, then where? Reached the target action, which one? Where fell most of the users? The AARRR metrics answer all questions.

At the beginning of the way, founders put forward and test ideas, often change plans, and make adjustments to the product. The AARRR metrics, which include several stages of the client’s life cycle, help track the company's dynamics and determine strategy and the possibilities for scaling. Each step of the consumer has its key performance indicators (KPI), the evaluation of which is useful for developing something new: the market, the audience, and the product.

Startups have used the AARRR framework all over the world to determine whether they are on the right track for growth and which stages of the funnel require optimization.

Pirate metrics are a modern approach to business growth commonly found among start-up businesses for financial success and scalability that focuses on a “funnel” in understanding your target audience and pleasing your consumers.

Let’s learn more about pirate metrics!

What is the AARRR framework?
The AARRR metrics framework is a collection of metrics used to measure growth and success and measure user behavior. They effectively measure your company’s growth at the same time being simple. It’s also known as pirate metrics because the acronym for the five different forms of measurement spells out AARRR - everyone's favorite pirate noise.

The AARRR framework demonstrates the number of users at each stage of the funnel, conversion - the number of people moving from stage to stage, and metrics that are useful to analyze at a certain stage.

Dave McClure, a Silicon Valley investor, noticed in the conference that startups focus mostly or only on social media likes, followers, or impressions on Google. So he created the pirate metrics to ensure businesses:

Concentrate on indicators that directly contribute to the company's health.
Use the correct data to determine what works for products and promotions.
The AARRR system is used to analyze and make product decisions, allowing you to track which KPI of each stage does not meet your business objectives. In a general sense, «pirate metrics» categorizes indicators of efficiency of a start-up according to stages of an end-user cycle.

Each letter represents its funnel stage. The framework consists of five stages:


The model works well with companies produce IT products for the market: applications, services, and online stores. For example, a startup presents a data storage service. What it looks like in reality to achieve the company’s business goals:

Attraction: lure the client to the site of a new service from social networks.

Activation: motivate a person to sign in and have an account.

Retention: keep the existing customers and convince them to use the services or product.

Referral: encourage the user to attract friends and acquaintances to the service.

Revenue: sell a person a paid subscription and additional storage space.

Without wasting your time, let’s get dig into every metric.

Acquisition
The first step allows you to understand where users come from and which channel is most effective. Before using our product, you should at least tell potential users about it. Not just anyone, but the target audience, those who really might be interested. The choice of how to attract customers depends on the research goals, the startup's budget, the time available to the team, and the specificity of the activity or product.

Any channel for someone to find your company may be considered an acquisition channel.


Once you've determined how much traffic is coming in from various sources, it's time to go beyond metrics like CPC - cost per click; CPL - cost per lead, Leads - number of leads. Now, its time to focus on them to find an active channel.

Recommendations: At first, discover how effectively you are meeting the needs of your target customer. Instead of saying to "everyone" start concentrating on specific customer needs to save money and create better messages for your target audience. The more people you attract in this stage, the more customers will buy in the last.

Here is how to define the target audience and conduct the market research with JTBD Methodology.

Activation
The goal is to involve the client in interaction with the product and to close their need. The user’s engagement passes into a certain target action at this stage. For example:

Purchasing the goods
Visiting additional pages
Subscription to news or free trial (for IT startups, it is the opportunity to test the service for free, the application is the most common way of activation)
Registration;
Experimenting with additional features
Order a callback, free consultation;
If the user has performed such an action, the activation has taken place. Suppose the attraction of a person did not end with conversion. In that case, you should analyze their behavior - with the help of statistics and analytics services (how long he was on the site, what he is specifically interested and so on). It is required to record negative actions that the user refused when they left.

Note: If there are problems in this stage, it is necessary to determine what distracts the user and what he needs. Introduce and test new methods of motivation for targeted action: simplify the registration process, make the product more understandable to the consumer, and offer a bonus for providing contact data.

Retention

The goal is to keep and make the user the client to reduce outflow. Here you have to know why the consumer refuses the product. Not everyone who registered on the site will return to it. And those who agreed to a free product demo do not always become paid users.

As users have already spent time activating and transmitting their data, show respect to them and their time. The tools by which you can monitor how many customers continue to show interest in your product:

Signing up for your RSS feed
Returning to your product repeatedly over a given timeframe
Contacting user service and support.
Opening your company’s emails and push notifications;
Returning to your website, engagement in social media (discussion)
It is necessary to determine how often a person returns to the product. For example, the client can use the accounting service once a month and the bank application - daily. Improving retention rates will help to communicate with the user to identify weaknesses in the product and eliminate them. The critical condition is not to disappoint the user’s expectations. Otherwise, they won’t follow the next stage of your funnel.

Note: Customer retention costs 5 to 25 times more to attract a new client than to keep an existing one. It's also easier and cheaper to sell to someone who has previously purchased from you because they trust you already.

Referral

Here, the user begins to recommend the product and share their positive experience. As a result, the company can receive new customers thanks to the existing ones. If the previous elements of the AARRR model are well-developed, there will be no problems at the referral stage. It's one of the cheapest acquisition channels, regularly bringing the best target audience.

Good reviews form a positive brand reputation, significantly increasing ease consumer loyalty. At this stage, it is important to simplify the process of transmitting recommendations and motivate the client to share them with these tools:

Emails with referral promotions embedded
Put on the side button «Share»
Offering bonuses for sharing information about the company or for good reviews.
Referral links
Referral bonuses system (when the reward increases after reaching some number of successful referrals)
Referral stage includes customer motivation to spread positive information about the startup and work with negative feedback. The company's response to the user's negative feedback and demonstration of the desire to get rid of the problem will keep the client's loyalty and not lose them.

Revenue
The main indicator for which the startup works—is income, which displays how successful the previous stages of AARRR are. Comes money from the client who realized the benefit of your company and is ready to pay for it.

How to convert a free customer into paid one?

Emails with referral promotions embedded
Referral contests
Pay for advanced courses after free primary education and subscription to articles after using certain free content.
Purchase a product with advanced functionality after testing the demo version or new computer game levels after passing the free version.
Examples can be different, depending on the startup and product specifics.

In addition to user metrics, the AARRR tool necessarily includes business indicators. If there is no purchase from the client, it is important to analyze what prevents him from buying the product and how to solve it as quickly and efficiently as possible.


What is the purpose of using pirate metrics?
The AARRR method allows the startup to focus on the main stages of interaction with the client. The purpose is to optimize the company's activities, increasing the conversion of users and income. What are the main tasks of the AARRR framework?

Visualizing the client’s path and understanding their needs will allow for scaling the business properly.
Identifying the problem points of the whirlpool.
Ability to regulate customer behavior at particular stages.
Classifying important tasks and solving only those prior problems at a particular stage of the funnel to save your time and money.
Pirate metrics create a transparent business structure to grow, quickly navigate, and rebuild when conditions change. It also gives your team an understanding of key performance indicators that can influence each stage of interaction with the end-users.


The AARRR framework is the most straightforward and successful approach to improving your business and monitoring growth. Every measure has deeper levels, and I advise you to look into improving each one further. Pirate metrics represent a customer-lifecycle framework focusing on performance indicators in major categories

Why is the AARRR framework important?
Metrics are transparent enough for the flow of clients when starting a project: from attraction to interest and purchase. Just remember that AARRR does not give a picture of business development after the start, but a fast and bright start. It lets you focus on the main stages that your product involves.

Build your funnel and see where the most users fall off.
Make customer behavior immediately better.
It works perfectly with startups on web services, applications, online products, courses, and online stores. It is appropriate for new products of companies that have previously worked only on the offline market and new apps that have grown out of the already known brand. When you see how users go through your funnel, you can better understand their "pain."


Who is the AARRR framework for?
Dave McClure is an investor. He designed the prediction metrics out of a need for a simple, universal solution:

how the business idea would work
how many percent of the involved users would make a profit.
Also, he reported specific system-the steps the user goes through to transform them into clients and profit from them. So originally, AARRR was the metric for startups. But is it right?

For Startups

A startup is not a proven business model. It is a search for a business model that will be scalable and generate income regularly. At the start, the founders can

Test ideas and change processes or parts of the business
Create a consumer behavior model that will lead to business success
Improve marketing and development efforts by concentrating on fundamental KPIs.
For stable companies

Companies that use the AARRR framework have already formed their business and found a profitable model.

For example, when a business develops new digital platforms - web resources, widgets, applications for smartphones. Large retailers, in this case, turn their attention from marketing to new channels. They need measurable goals and milestones: new audiences, other customer needs, and tactics.


Nescafe launched a smartphone app in 2014: a video alarm. It is a small social network with friends.

Acquisition: With 35 million fans worldwide, the company announces on social media that now you can wake up not under annoying melodies but funny and stimulating videos. You download the app to put a video on the alarm.

Activation: You sign in, set the alarm, and choose who will wake you up: a random person or your friend as you can look for and add your friends in an app. There are phone analogs of such a service to wake others up.

Retention. Log in to wake up the next day from the video of your friends and acquaintances.

Referral: Share with friends through Facebook, and advise the app.

Revenue: The brand raises a loyal audience—active users of smartphones and social networks. Moreover, Nescafé expanded its consumer-led communications and e-commerce offering in formats optimized for mobiles and tablets.

Note: Adopting this metrics framework is to build a sustainable and scalable firm by focusing on what drives business growth. Pirate metrics are not only appropriate for marketers. They may be used by CEOs, entrepreneurs, product managers, and investors.

When is the AARRR framework useful?
Mostly, startups or large companies start working with the framework for scaling the business. There is already a working business model, and confirmation that the product solves the target audience's problems, and customers are ready to pay for this decision.

If mistakes were made during the research stage, then the AARRR framework will reveal and return to the original: check data about the target audience, conduct interviews, and finalize MVP.

Recommended reading: What is MVP development for startups?

Therefore, the most effective way to work with pirate metrics is when the company has the time and resources to test metrics that will help improve the product or service performance.

How does the AARRR pirate metrics framework work?

Determine your AARRR Pirate Metrics

As I mentioned, the first stage is identifying conversion metrics for these five user activities. If you represent stages by users who came to the website and made the purchase, you get a funnel like this:

A - Acquisition - 100 people

100 people came to the media site: they saw a promotional post on Facebook, were interested, and followed the tagged link. 70 out of 100 thought: «Another news site» - and closed the tab after ten seconds. 10 out of 100 people walked the site 1-2 minutes and left.

A - Activation - 20

20 out of 100 people found the site curious: 15 of them subscribed to the channel, and 5 people added the site to the bookmarks of the browser.

R - Retention - 7

5 people read your telegram all the time, the other 5 opened a couple of links and unsubscribed, and another 5 did not read, muted, and deleted after a while. 2 people copied news to their website, and 3 people forgot that they have browser bookmarks.

R - Referal - 3

Two people who read your channel recommended it to a friend. 1 person who copied the news passed the link to a colleague.

R - Revenue - 1

1 person thinks: «Do I need to buy an annual subscription to the full versions of the texts of this news site?». Here must be your clear call to action without any choice and hesitation.

Establish processes for tracking and analyzing AARRR pirate metrics

You must develop tools and procedures for collecting and evaluating data after you've determined the data you want to gather for each stage of the AARRR framework. Assuming your product is digital and online, you can gather data using product analytics tools like Google Analytics, Hype, or Glassbox.

Test, test, and again test to define the best approaches to user’s behavior

You have to conduct several A/B tests to identify areas where you can boost user engagement at each level of the AARRR framework. It might run various versions of a referral contest to determine which one gets the most people to tell their friends about your product.

You know you can measure product success with testing? Or what’s the difference between best MVP vs Prototype testing?

Don’t forget to use pirate metrics to improve your goals

Finally, as you discover what works and what doesn't at each level of your AARRR structure, your team may begin searching for methods to tweak your product management and marketing campaigns.

How to work effectively with the pirate framework?
There are no clear formulas for developing the AARRR model. They change depending on the type of the product, the user’s journey, and the priorities of your startup. There is no single working system for everyone - in each case, the team picks stage boundaries, target actions, performance indicators, and other aspects of research and analysis.


The sequence and order of levels are flexible enough - they can be changed, removed, or added. Sometimes the initial stage companies put «Awareness», which describes the emergence of need in a person, the channels of information about the startup, product. In this case, the model is called AAARRR. Often the last steps of Referral and Revenue change places.

The order of metrics and focus at individual stages should reflect the specifics of the startup and the client's way. Why? It is important when moving to a new level to maintain and consider the previous results. The AARRR model aims to enable the founders to understand their business and ask key and right questions such as

What indicators can measure the effectiveness of each metric?
What are the stages of my funnel?
How to improve the effectiveness of each stage?
Conclusion
Without a clear picture of the funnel, you will wander in the dark with tied hands. The funnel is the product's core; use the AARRR model to focus on what is really important to the user.

To sum up:

Focusing on conversions allows the team to analyze the current metrics and focus efforts on areas where experiments can give the most effective growth.
AARRR is created for startups, but it is useful for all companies that are developing something new: market, audience, product.
Knowing these KPIs will help you to maintain and grow your company more effectively.
AARRR framework is used to achieve large-scale business goals: get financing, capture the lion’s market share, prepare the company for the sale or go IPO.
Your team can choose which metrics are most important to them.
Optimizing your funnels help you understand the main stages of the customer journey while interacting with your company to respond and react quickly.
As you study how to establish and sell a business, you'll come across a lot of crap like "the only thing that matters." Take every chance to learn your customers better and make cost from it. Experiment and see where it leads you!

FAQ

#1. What is the AARRR framework?

The AARRR Framework is a tool that helps to increase two vital metrics for a product: the number of active users and revenue. The structure of AARRR resembles a marketing funnel.. The framework comprises five stages: Acquisition, Activation, Retention, Referral, and Revenue.

#2. Why is AARRR called pirate metrics?

The metric is called «pirate»: if you say this acronym aloud, you will «AARRR» - as the pirates cry.

#3. What is the AARRR framework for startup metrics?

The AARRR method allows the startup to focus on the main stages of interaction with the client. The purpose of «pirate metrics» is to purposefully optimize the company's activities, increasing the conversion of users and income.

#4. Why should you use AARRR framework?

AARRR helps company owners to honestly focus on where their company may do more to improve itself rather than blaming the market or the whole business by breaking down consumer response into phases. For example, the analytics may suggest that the company does not attract as many clients as it should. The startup may then focus on why it is failing to attract consumers and take corrective action.