The AARRR framework, also known as the ‘Pirate Metrics’ framework, was originally developed by Dave McClure, founder of 500 startups and the company, Practical Venture Capital. AARRR stands for Acquisition, Activation, Retention, Referral and Revenue. The application of the AARRR framework will have different implications on your company depending on which business model you use ; direct to consumer, 2-sided, freemium, advertising, software-as-a-service or razor and blades.
Acquisition
Where do your customers come from? What Digital Marketing channels provide the highest conversion rate?
How to measure acquisition?
As the goal of driving traffic to your website is conversion, KPIs such as CPA, ROI or Lifetime Value are the most relevant ways to measure the effectiveness of your acquisition. Tools such as attribution help mitigate the costs and provide an insight the real efficiency of each channel.
How to improve acquisition?
- Build your acquisition budget based on the CPA, ROI and Life Time Value
- Implement A/B testing within the different Digital Marketing channels
Activation
Do your visitors actually convert into clients or customers?
Depending on your business model, activation might mean the following for your company:
- Direct to Consumer/two-sided business model: the customer purchases a product or subscribes to a service
- Freemium model: the customer subscribes to a free version
- Advertising: the customer consumes the content you provide
- Software-as-a-service: the client signs a contract
- Razor and blades: the customer buys the main product
How to measure activation?
- The old fashioned conversion rate is the most efficient way to measure your activation.
- The number of page views and time spent viewing are the best ways to measure the activation, especially with an advertising business model.
Retention
Do your customers actually use and reuse your product and service?
Depending on your business model, retention might mean the following to your company:
- Direct to Consumer/Two-sided business model: the customer returns to the website or platform and makes a new purchase or extends the subscription to the service
- Freemium model: the customer moves from the free to the paid version.
- Advertising: customers who come back to the website on a regular basis in order to consume the content.
- Software-as-a-service: customers who use the software on a regular basis and extend their subscription.
- Razor and blades: customers who purchase the consumables on a regular basis
How to measure retention?
- Direct to Consumer/Two-sided business model: the number of orders per customer within a certain period of time
- Freemium model: the number of paying customers/number customers
- Advertising: the number of returning visitors
- Software-as-a-service: the percentage of extended subscriptions.
- Razor and blades: the number of sold appliances/number of sold consumables
How to improve retention?
- Churn rate detection for freemium and software-as-a-service models
- Database segmentation for the Direct to Consumer/Two-sided and Razor and blades business models
Referral
How do I turn my customers or clients into ambassadors?
Tesla is one of the companies that has mastered this. They have started a referral programme of their own that provides attractive incentives unique to each customer. However, a referral programme will only work if the product or service offered provides a high customer satisfaction.
How to measure referral?
- Net Score Promotor
- Viral Coefficient
How to improve referral?
- Improve the quality of product/service
- Provide an easy and attractive referral programme
Revenue
How to improve revenue?
Revenue is generated as a result of acquisition, activation, retention and referral. Depending on your business model, you can increase revenue by taking the following actions:
- Direct to Consumer/Two-sided business model: improve the Average Transaction Value
- Freemium model: move from the basic paid version to the premium paid version
- Advertising: increase the frequency of content consumption
- Software-as-a-service: upsell the higher subscription level to the client
- Razor and blades: increase the purchase frequency of the consumables
How to increase revenue?
- Direct to Consumer/Two-sided business model:
- Add a cross-selling section on the product page
- Display “add to basket” overlay with fast movers displayed on it
- Minimum order amount for free delivery
- Freemium model: Introduce a free trial of premium version
- Advertising:
- Provide an app
- Add a new content format (for example videos for a newspaper)
- Add alerting function
- Software-as-a-service: Free trial of the higher subscription level
- Razor and blades: propose a subscription service
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