AARRR metrics (also known as pirate metrics) is a method for analysing the performance of a business that focuses on customer satisfaction. Growth hackers utilise the metrics created by venture capitalist Dave McLure, analysts, consultants, and business owners to increase profitability.
Acquisition: How does the company acquire new clients?
Activation: What percentage of customers are pleased with their shopping experience?
Retention: What percentage of clients return?
Revenue: How much money does each customer contribute to the company?
Referral: How many customers recommend that others consider your company?
The ultimate purpose of AARRR metrics is to maximise a startup's profitability. An essential objective of the AARR funnel is to segment the customer base into stages that facilitate analysis. The simplified analysis enables the business's issues to be identified and addressed separately for more effective problem-solving.
By dividing customer response into stages, AARRR funnel enables business owners to focus on areas in which their company could improve rather than blaming the market or the entire enterprise. For instance, the metrics may reveal that the business needs to attract more customers. The business can then determine why it is failing to attract customers and take corrective action.
5 stages of AARR funnel is ordered based on the number of users, beginning with those who have just visited the website and ending with those who have made a purchase; the following scheme will result:
Conversion requires actionable metrics: the number (or percentage) of users migrating from stage to stage. The beauty of these five metrics is that they are interdependent. The number of people who will progress through the sales funnels and ultimately make a purchase depends on how thoroughly you plan each stage.
Now, let's analyse each indicator from the pirate metrics individually.
The acquisition involves attracting visitors to your website and convincing them to subscribe to your service.
At this stage, the objective for the majority of SaaS companies is to convince the user to sign up for a free trial of the product. However, if you have micro-conversions on your website (email subscription, call-back request, etc.), you can separate customer acquisition metrics and measure their performance independently.
You are responsible for deciding which tactics to employ.
You can acquire a user for your SaaS application, but they may still need to activate it (become a user). Activation signifies that your leads take a meaningful sequence of steps to progress through the funnel. If they register and then leave without returning, they are never activated.
Examine how Evernote encourages users to investigate their solution further. It sends a series of instructional emails that describe how to use unique features.
If your app's user interface is consistent and the software is convenient and valuable, the customer will experience a "aha!" moment and be willing to continue using the app. If transitions to the service did not result in action (conversion), analyse user behaviour to determine where they left the page.
After activating users, you must ensure they can keep your product.
Most cloud organisations use a subscription-based pricing model, making client retention the most important stage for SaaS businesses. It means you can gain a customer once and obtain predictable revenue for life (in case the client sees the value and is satisfied with the service you provide).
And this is vital, as acquiring new customers is difficult and expensive. Still, if you do your best to keep customers, you will have a steady relationship with them and a steady income stream.
For instance, Grammarly has come up with the innovative concept of sending user retention emails in the form of accomplishments.
At this point of client retention, they become brand ambassadors. You are responsible for caring for them and encouraging them to spread the word about the company.
Herein commences the referral phase.
If you acquire a customer, they activate and continue to use your app. They love it so much that they start telling others about it, either through word-of-mouth or a referral system, or whatever the case may be, they invite their friends or team members to use your product, which is the referral metrics stage.
The objective here is to increase user recommendations of your product. Do everything possible to facilitate the sharing process.
Income is a measure of whether or not you have accomplished all of the preceding steps effectively. Users will only advance to the revenue stage if they comprehend your product's worth in its entirety.
The primary objective at this stage is to acquire initial payment from clients.
The final "R" in the AARRR structure was revenue. If you begin to make judgments regarding how to improve each of these fundamental indicators, you will be able to expedite your cloud business's progression to the subsequent growth stage.