AARRR or “pirate metrics” is a framework for a marketing funnel that consists of 5 metrics: Acquisition, Activation, Retention, Referrals, and Revenue.
What is the AARRR framework?
It is a model that highlights five key product metrics: acquisition, activation, retention, referral, and revenue. In English, the first letters of these metrics form the abbreviation AARRR. Pirate metrics are used in almost all digital products, including large ones like Facebook and Instagram.
Why are pirate metrics needed?
To focus on managing key metrics that impact financial outcomes. As a result, you get a higher quality product and increased profits.
What are Pirate Metrics?
Pirate metrics, or simply “AARRR”, help startups analyze the five most important indicators of their business. Each of these five indicators is crucial for startups and businesses. Without tracking these metrics, you won’t be able to achieve stability and business growth. You simply won’t know how well or poorly things are going.
Acquisition
Acquisition is the first metric in the pirate framework. Usually, it is the only thing many marketers focus on. Acquisition typically happens through various channels: organic search, banner ads, recommendations, TV ads, social media, SEO, and many more. Anything that helps the user find your business can be considered an acquisition channel. It is important to track not just website traffic, but also conversion rates for each channel. For example, video views, newsletter subscriptions, product page visits, etc. These metrics help determine and diagnose user behavior and can be tracked using Google Analytics.
Once you reach the minimum user activity level in your sales funnel, you need to improve these metrics. A/B testing and an analytics strategy are critical for growing the top of the sales funnel (TOFU). Without proper analytics tools, such as Mixpanel or KISSmetrics, you won’t be able to track how people move through the stages of the sales funnel.
Activation
Activation is the point at which an acquired user first gets value from the product. Here, the focus is on conversion metrics that define the success of certain channels. A starting point might be the transition from the homepage to the registration page. However, it is necessary to build the entire sales funnel within an analytics tool:
1. The user visits the website via one of the traffic channels.
2. They show interest in the product.
3. They want additional information.
4. They leave a request.
5. They speak with a representative.
6. They make a purchase.
All these steps are called conversion activation or sales funnel activation. Activation should be measured by the number of visitors who perform the desired action on the site, such as signing up for a newsletter. You can create a simple conversion formula where the number of active users is divided by the total number of visitors to the site.
Retention
This is an incredibly important metric. An activated user must return to your product again and again.
Examples:
– If you are a mobile app company offering a free game and relying on ad revenue, you need to track how many users come back and use the app the next day. This metric is critical because ad revenue increases with more users.
– If you are a company selling winter gear, you need to measure how many customers return every winter for new products, such as boots or jackets.
– If you are a software company, you need to measure user churn. Reducing churn should always be a top priority.
There are many ways to measure churn, with cohort analysis being the simplest. This is available in both Google Analytics and Kissmetrics.
Revenue
Every business needs good old revenue. However, not all revenue is measured the same way.
Most companies only track total revenue, but it’s also important to consider revenue per customer and calculate which customers require spending to ultimately generate profit. Companies that are proficient in analytics can build a comprehensive marketing strategy and sales funnel that allows them to track expenses and revenue from each traffic source.
Without measuring revenue per customer and per channel, you won’t be able to distribute your budget effectively. Worse still, you will be managing your business blindly.
Every business is focused on generating revenue from day one, so measuring revenue per customer and per acquisition channel plays an important role. Even if you’re one of the lucky venture-backed companies, these metrics will help attract more capital in the future.
Referral Program and Recommendations
Every business owner’s dream is for users and customers to tell others about their products. This is the cheapest way to acquire customers. Setting up analytics to track referrals is quite difficult, and this metric is often imperfect.
For example, take Uber. Uber was one of the fastest-growing startups of its era: by 2014 it was already valued at approximately $40 billion. The company’s rapid growth is largely due to its referral program. Every user is assigned a unique referral code that Uber then uses to track how many new users came through that code.
They use this data to calculate the viral coefficient. The viral coefficient is the average number of invitations each user sends multiplied by the share of those invitations that get accepted. For example, if there are 1,000 users and your company sends out 400 invitations, that is 400/1000 = 0.4 invitations per user. If 120 of those 400 invitations are accepted, the acceptance rate is 120/400 = 0.3. Multiply the two: 0.4 × 0.3 = 0.12. This is the viral coefficient: with k = 0.12, every 100 users bring in about 12 new ones.
To clarify: a viral coefficient of 1 means that, on average, every user refers one other person. Reaching this result is quite difficult, but companies like Uber and Facebook have gotten very close to this figure relatively quickly. If you can calculate how many customers each user will attract within a given period, you can scale your business to incredible levels. Mixpanel has a tool that allows you to create a formula to calculate the viral coefficient.
Applying Pirate Metrics in Business
Analytics is often talked about, but few businesses implement it correctly. Pirate metrics provide guidance to business owners and marketers to focus on the most important indicators. The reason why marketers usually neglect analytics is the overload of data and numbers. This is the primary reason to use pirate metrics: it simplifies life.
Breaking down key performance indicators (KPIs) using the AARRR method helps marketers prioritize and stay on track. At the very least, knowing these metrics will not only maintain but also grow your business.