How to Understand (and use) Your Pirate Metrics Funnel
Unpacking Your AARRR Metrics to Find Growth Opportunities
TLDR: While it’s critical to know what your funnel metrics look like, it’s even more critical to read between the numbers to know what they’re not telling you. The questions you find in between the numbers show you the path to growth.
You’ve seen it everywhere. AARRR, or Pirate Metrics. Acquisition, Activation, Retention, Referral & Revenue. Every SaaS founder is obsessed with their funnel metrics. One founder I spoke to called it their “bible,” as if to study and pour over it every day looking for answers. In implementing growth programs for our clients, we use and love the Pirate Metrics methodology, although we have adjusted it slightly. I’ve never understood why Referral and Retention are typically placed before Revenue. In my experience, it’s more likely that Revenue will lead to Retention and then Referral. This comes from years of inbound marketing work, and maybe someone could explain it to me in a way that I would change my mind, but this order seems to make more sense to me.
If you need a quick refresher on what each of these areas are (according to how we use them), here you go:
- Acquisition is the number of people who land on your website or landing page.
- Activation is the number of people who “act” on your call-to-action - maybe that’s an email address or a trial download.
- Revenue is the number of users who become paying customers.
- Retention is the number of those customers who stay with you month over month (opposite of this is churn), and
- Referral is the number of those customers who share your product/service with others.
Again, this is a little different than how Dave McClure defines and orders these metrics. You can review his definition here.
Here’s what a typical SaaS funnel might look like:
Knowing your numbers is growth strategy 101, but you can’t stop there.
Identifying your top-line numbers is a great place to start. In fact, it’s the ONLY place to start if you’re trying to build a more impactful growth program for your company. But, this is where many founders and marketing executives stop. They have a tendency to take the numbers at face value, and then concoct a list of "growth hacks" to throw at whichever metric they want to change. If we use this funnel as an example, it might be tempting to think that your top-line Acquisition number is fine, and ignore it for more pressing numbers, like Activation. But, if you see these numbers as jumping off points to find the right questions, you’ll begin to ask questions like, "if we’re only Activating around 13% of those who hit our site, are we targeting at the awareness level properly?" "Is our keyword strategy targeted to the right personas?" "Is our inbound strategy speaking to the right customer problems?”
When you take each individual metric apart and see them as interrelated and dependent on other factors, you begin the work of developing a stronger growth program.
Let me give you an example. One company we spoke with a similar challenge as this funnel indicates. Although, their Acquisition and Activation numbers were enviably high, his Revenue number was excruciatingly low. So low that the founders still had to have other means of income to keep the business afloat. At face value, the solution seemed easy enough. “Let’s turn more of those Activations into Revenue!” However, as we took apart the individual numbers and uncovered the interdependencies, it was clear that the challenge was more complex. They had found a keyword strategy “hack" that was working for them. But, for as much traffic as it was sending, this keyword strategy was setting an expectation that the product was free. So, naturally, people hit the site and readily Activate into a free account. This explained his high Acquisition and Activation numbers and led us to ask more questions.
Look between (and all around) the numbers to find your problem areas
This problem, being multifaceted, would need an adjustment in several, interdependent growth areas if he wanted to see bottom line Revenue increase. We might solve this type of challenge with a growth program like this:
- Build a new Awareness level strategy to retarget a different audience with keywords that set proper expectations of paying for this valuable product and re-work landing page copy to confirm/qualify intent;
- Re-architect the trial account experience that provides greater clarity of what they get in a paid account and creates the urgency to convert;
- Create a deliberate “path" to turn account subscribers into customers by showing the value the product brings;
- Add an aggressive referral program that rewards customers when their friends sign up for a paid account.
Here’s an important reality: when using a growth strategy like this one, the business may actually see a decline in top-line Acquisition, and maybe even a decline in Activation. (And this is where a lot of companies freak out and go back to what they were doing before). But don't panic. With some courage and patience, I’d suggest that they would start to see the Revenue number improve as a percentage of Activations because of the better targeting and properly set business expectations in the user journey.
After executing this growth experiment program over a couple quarters, their new funnel, while smaller than before, might look like this:
Bottom Line: Funnel metrics serve mostly as an indicator of the strength of your whole growth program, top to bottom.
As you can see from the funnel examples and real-life scenario above, focusing only on isolated areas of your Pirate Metrics funnel and throwing different growth hacks at, say, "lead conversion," ignores other critical elements of the buyer journey and prevents a balanced funnel (read: business model).
With our clients, we absolutely start by getting a high-level understanding of what their funnel metrics are, but we move immediately into questions that dig out the roots of the problems. It’s in this work that we can help bring vision to companies that have gotten too lost in the weeds of tactical hacks and help them refocus on the broader growth strategy as a whole.
We love talking Pirate Metric Funnels. Throw us a challenge that you’re seeing in yours in the comments below, and let’s discuss it!