Pirate Metrics for Business Growth – Only five numbers that matter the most
Are you wondering how to grow your business? Well, you are in the right place. During his presentation at Seattle Ignite, Dave McClure the head of ‘500 Startups’ put forward the ‘Pirate Metrics’ – A 5-step framework for startup growth. Interestingly the 5-step framework is proven useful for the most type of businesses as well.
The pirate metrics namely Acquisition, Activation, Retention, Referral, and Revenue. or AARRR! have a major impact on the growth of a business than the vanity metrics such as a number of registered users, downloads or likes. You can consider these steps as the stages of your customer lifecycle or conversion behavior. Focus on these five numbers and take your business to new heights!
Step 1. Acquisition: Number of users acquired through various marketing channels.
Question: How do users find you?
For any business to be successful the first and most important step is optimizing the user acquisition process. If there are no users there is no business. There are several channels to acquire customers, you can go ahead and choose a channel based on your requirement – from a local magazine advertisement to Facebook ads. Nature of your business is an important element that decides which marketing channel work best for you. All you need to do is figure out which channel offer better ROI on your advertising efforts and leverage those for optimizing the user acquisition.
Step 2. Activation: Number of users engaged with your product or service.
Question: Do users have a great first impression of your business?
Now that you have acquired customers, the next step to grow your business is activation. The optimized acquisition allows you to bring several users to your doorsteps or the landing page of your business website. However, only some of your acquired users would be interested and engage in your product or services. Further, based on your first impression these active users could become your buyers. Also, pay close attention to their behavior and look for any feedback from these users. As sometimes small modifications to landing page could provide a better first-time experience for the users.
Step 3. Retention: Number of repeated users.
Question: Do users come back?
The 3rd step to grow your business is customer retention. Remember the 80:20 principle? It goes like this, about 20% of the total customers bring 80% of the total revenue. This is true, repeat users are like assets to your business. Therefore, you must focus on that 20%. Depending on their previous experience with you, the user may or may not come back. Again, if you have repeat users, great! Ask them what they love about your product or services. And, if they are not coming back then try to add more value to the product or service. Think about various strategies to retain your users. For example blogs, email newsletters, discounts and coupons, referral bonuses, etc.
Step 4. Referral: Number of user referrals and recommendations.
Question: Do users recommend your product or services to others?
Ever wondered how companies like Facebook and Uber managed to grow that big in such a short period of time? Well, it is because a majority of their users refer the services to their friends and families. That’s the power of a successful referral strategy. The classic example of a referral is word-of-mouth. If people love your product or services, they are likely to recommend it to their networks. Uber used paid referral strategy to pay each user on successful referrals they bring. You can also opt for a similar strategy by providing discounts to your existing users for successful referrals.
Step 5. Revenue: Number of users pay for your product or service.
Question: Do users pay you?
Revenue of a firm is commonly used to measure the growth of the business.
Here, revenue metric is the total number of users purchased your service or product.
So, when you know all the metrics mentioned above, it becomes easier to estimate how many users you need to acquire for increasing your revenue by the desired amounts.