pirate-metrics

Dave McClure’s Pirate Metrics: The AARRR Funnel In A Nutshell

Venture capitalist, Dave McClure, coined the acronym AARRR, which is a simplified model that enables us to understand what metrics and channels to look at each stage for the users toward becoming customers and referrals of a brand. This is a simple tool for business growth.

How does the AARRR (pirate) funnel work?

This funnel goes through:

  • Acquisition
  • Activation
  • Retention
  • Revenue
  • Referral

It is important to highlight that this is a model, and as such, it doesn’t represent the actual behaviors of users or customers. Instead, that is a simplification that helps identify the crucial actions and marketing tactics to implement to make sure a user becomes a paying customer.

Acquisition

How do potential customers get to know us?

The acquisition stage is usually when a user or potential customer gets to know a brand. A single touchpoint isn’t often enough at this stage. That is why organizations use several channels to gain visibility. Some of those are:

  • SEO or search engine optimization is a critical channel as it enables us to gain visibility through Google, primarily. When a user finds your website or service through Google, it is a great first touchpoint to bring it closer to the activation stage. Again the process is not given, and it might well happen that users acquired through SEO might become customers right away. In general, though SEO is a good starting point. 
  • SEM, or search engine marketing, is the ability to gain visibility through Google by paying the search engine to show up on specific queries that users type. For instance, if you sell clothing and shoes, you might pay Google to enable your site to show up on its search results pages when people search for “shoes” or “sport’s shoes.”
  • Social networks have become a massive distribution channel for most companies. That is why organic and paid campaigns on social are critical to gain visibility and traction for the brand
  • Blogging has become a critical element for brands to build trust with their audience. That’s because ongoing blogging is a good substitute for an ongoing conversation with a broad audience. People get to know your brand, intimately. 
  • Email marketing is also a key distribution channel in the acquisition stage. 
  • BizDev is about creating the proper distribution for your product and services to scale up the business

Other channels for acquisition comprise:

  • PR
  • Affiliates
  • Apps and Widgets,
  • TV, and more…

Activation

How do potential customers get to try our product?

At this stage, you need to make the acquisition concrete by enabling users to start playing around with your product or service:

  • A homepage that converts, and that is optimized is essential to activate as many users that land on a site. 
  • Landing pages also help you create a controlled experience for users to take a set of actions you want them to take. 
  • Product features empower your clients, but they also work as a magnet for new, potential customers. 

Retention

How many potential customers will stick around?

At this stage, it’s essential to look at the user engagement and how to make her stick around:

  • Emails & Alerts, to enable users to understand the benefits of your product and help them benefit from it, thus reducing the churn at this stage, which brings the user closer to becoming a paying customer.
  • Blogs and content help build that kind of trust and ongoing relationship with the audience, to make your product sticky
  • System Events and Time-Based features.

Revenue

How many will actually become customers?

At this stage, it is essential to focus on how to make the potential customer or the users that are already engaging with your app, service, or site to become a paying customer:

Referral

Will those customers invite other potential customers?

At this stage, you want to make sure to trigger network effects so that existing customers can bring you more customers too:

  • Campaigns,
  • Contests,
  • Emails & widgets

The full presentation below:

Platform business models

digital-platform

Platform business models have a different logic compared to more traditional, or symmetric models. 

Indeed, network effects are key growth drivers:

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

That is why, when it comes to growth, you will hear the term “flywheel” rather than “funnel.”

From funnels to flywheels

flywheel

When you look at platforms like the Amazon business model, you realize how the company used a flywheel model (what Amazon called a virtuous cycle) as the main thinking tool to understand the growth of its ecosystem.

etsy-flywheel

The same applies to the Etsy business model

liquidity-network-effects

And how Uber generated growth by unlocking what the company calls liquidity network effects

Connected Business Frameworks

Blitzscaling

what-is-blitzscaling
Blitzscaling is a business concept and a book written by Reid Hoffman (LinkedIn Co-founder) and Chris Yeh. At its core, the concept of Blitzscaling is about growing at a rate that is so much faster than your competitors, that make you feel uncomfortable. In short, Blitzscaling is prioritizing speed over efficiency in the face of uncertainty.

Growth Hacking 

growth-hacking
Growth hacking is a process of rapid experimentation, coupled with the understanding of the whole funnel, where marketing, product, data analysis, and engineering work together to achieve rapid growth. The growth hacking process goes through four key stages of analyzing, ideating, prioritizing and testing.

SEO Hacking

what-is-seo-hacking
SEO hacking is a process of quick experimentation that aims at efficiently growing the organic traffic of web properties. Where traditional SEO strategies look at a steady growth, SEO hacking finds unconventional ways to quickly gain traction. That is a process well suited for small web properties and startups looking to scale up organic traffic against large media outlets.

North Star Metric

north-star-metric
A north star metric (NSM) is any metric a company focuses on to achieve growth. A north star metric is usually a key component of an effective growth hacking strategy, as it simplifies the whole strategy, making it simpler to execute at high speed. Usually, when picking up a North Start Metric, it’s critical to avoid vanity metrics (those who do not really impact the business) and instead find a metric that really matters for the business growth.

ICE Scoring

ice-scoring-model
The ICE Scoring Model is an agile methodology that prioritizes features using data according to three components: impact, confidence, and ease of implementation. The ICE Scoring Model was initially created by author and growth expert Sean Ellis to help companies expand. Today, the model is broadly used to prioritize projects, features, initiatives, and rollouts. It is ideally suited for early-stage product development where there is a continuous flow of ideas and momentum must be maintained.

Virtuous Cycle

virtuous-cycle
The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Growth Matrix

growth-strategies
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

Digital Strategy

distribution-strategy
Distribution is one of the key elements to build a viable business model. Indeed, Distribution enables a product to be available to a potential customer base; it can be direct or indirect, and it can leverage on several channels for growth. Finding the right distribution mix also means balancing between owned and non-owned channels.

Bootstrapping

bootstrapping-business
The general concept of Bootstrapping connects to “a self-starting process that is supposed to proceed without external input.” In business, Bootstrapping means financing the growth of the company from the available cash flows produced by a viable business model. Bootstrapping requires the mastery of the key customers driving growth.

Engines Of Growth

engines-of-growth
In the Lean Startup, Eric Ries defined the engine of growth as “the mechanism that startups use to achieve sustainable growth.” He described sustainable growth as following a simple rule, “new customers come from the actions of past customers.” The three engines of growth are the sticky engine, the viral engine, and the paid engine. Each of those can be measured and tracked by a few key metrics.

TAM, SAM, SOM

total-addressable-market
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.

Business resources:

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"

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