AAARRR! What are Pirate Metrics?
This post originally appeared at www.activecampaign.com.
One thing that all marketers have in common is that we are all running out of time. It doesn’t matter if you are a solopreneur or the CMO of a giant organization, you only have 24 hours in a day, which means all of your actions have an opportunity cost. If you are unfamiliar, opportunity cost means that you are missing out on the potential gains of choosing not to do something else for your business, whenever you choose to do something for it.
Take for example, the tedious task of manually responding to new leads. For every hour spent responding to new leads, you lose an hour doing something else for your business (working with existing customer relationships), or for leisure (spending time with your family).
Pirate metrics is a helpful customer-lifecycle framework invented by Dave McClure from 500 startups that you can use to determine where you should focus on optimizing your marketing funnel, to make the most of your scarcest resource — your time.
Pirate metrics is essentially a way of categorizing different metrics and KPIs, and is made up of the metric “categories” Awareness, Acquisition, Activation, Revenue, Retention, Referral — or AAARRR for short (like a pirate. Pirate metrics, get it?)
I suggest you head on over to Slideshare to read the original slide deck outlining Pirate Metrics. During my time as a marketer I have adapted Dave’s methodology a bit to better suit my needs as a “marketer’s marketer.” (I have adjusted the order a bit, and added the “Awareness” category at the beginning)
Depending on your vertical, you will be paying attention to different types of specific metrics, and the shape of your funnel will look different, but the basic pirate metrics framework should still apply.
Awareness
Awareness metrics focus on the brand-building aspect of your marketing efforts. They are focused on introducing yourself to your potential customers, and trying to drive them to take action. It would be impossible to measure, but anytime a person sees somebody wearing a t-shirt with your brand on it, or a logo sticker on a laptop, that would be awareness.
Awareness “matures” as people have a recollection of your brand, so when they see that logo they know what it is. Traditional advertising like TV, radio, billboards are all marketing channels meant to drive awareness.
CPG (Consumer Packaged Goods) companies like Tide and Campbells soup spend a lot of time in the awareness category, and awareness is typically what “muggles” think of when they think of marketing an advertising.
Pirate Metrics means to remind us that awareness for awareness sake is not your objective. The ultimate goal is to tie awareness campaigns to objectives lower in the funnel, so that you are driving brand awareness for the right people.
Keep in mind that awareness metrics are not commodities. Some (those likely to convert further down the funnel) are worth more than others.
Metrics to measure: Impressions, CTR, Attention-minutes, site visits, vanity metrics (likes, social shares, social impressions), podcast impressions, etc…
Channels to work on: SEM (AdWords), SEO/Content, Display, Word-of-Mouth, Retargeting, Affiliate
Acquisition
Acquisition is when you can begin to identify your customers as individual users. This is your first transaction with a user. Only instead of exchanging money for a product or service, you are typical exchanging some form of content for the permission to message them again in the future.
For a SaaS company, this typically takes the form of PDF downloads — Case Studies, Whitepapers, etc… For an ecommerce company this could be a seasonal catalog, or a one-time coupon code.
It is a good idea to spend as much time trying to move your visitors from Awareness to Acquisition as quickly as possible — even if you don’t plan to message them.
Once you have a user aquired, you can begin to fill out their profile with customer attributes. Customer attributes are pieces of information about a lead that you can use to help sculpt both your product and the way you position your product.
Consider a product marketer *cough*, that wants to communicate the values of a marketing automation platform to several types of customer personas (ecommerce, SaaS, solopreneurs, etc…). If that product marketer knew the potential customer’s persona, then he or she could create tailored onboarding campaigns that create the most value for each individual person.
Metrics to measure: New leads, email subscribers, resource downloads, support/sales chats, pretty much anytime you get a customer’s email address.
Channels to work on: Conversion Rate Optimization (CRO), Lead-magnets, Webinars, Chat Widgets, Newsletter subscriptions, Landing page optimization, promotions
Activation
Activation is the process where your user actually tries your product. Different verticals have different shaped funnels, but this is generally the amuse bouche of your product. For SaaS companies we are most familiar with a limited time trial (like a 14-day free trial) or a freemium offering with limited features. For an ecommerce company this could be a loss-leader product, and for a photographer this could be a free consultation and/or product samples.
Depending on your vertical, the “height” of the activation stage in your funnel will vary, but it is generally when a customer is able to experience the product you are offering first hand.
The differences between Acquisition and Activation are confusing, so it is important to remember you are solving a customers problem with content during the acquisition stage, but you are solving their problem with a sample of your good or service during the Activation stage.
Metrics to measure: New trial signups (SaaS), loss-leader product sales (ecommerce), freemium customers (SaaS), replies (sales).
Channels to work on: User-experience, feature adoption, customer success, traditional sales, early customer success.
Revenue
Revenue is probably the easiest stage to remember. It is when your contact finally takes the plunge to swap out some of their money for some of your products.
For a SaaS company this is when they make their first months payment. For ecommerce it is when they make their first “real” purchase (you may have a loss-leader product that you charge for, but doesn’t generate revenue). For a consultant this could be when you sign a contract, or receive a security deposit, etc…
The most important thing to remember about the revenue stage of the pirate metrics framework is that you are not done!!
You are only 4/6ths of the way through the funnel! Don’t stop here, this is where the funnest part of running your business comes into play. You no longer need to infer attribute data about your customers, you have it! They don’t need to do that crucial drop-off step of reaching for their wallet.
It is so much cheaper to drive an existing (satisfied) customer to repeat purchase than it is to acquire a brand new one. The path from revenue to retention is only one stage away, but a brand-new customer has to go through all the A’s all over again.
Metrics to measure: Customer Acquisition Cost, Trial to Paid conversion (SaaS), First purchase (ecommerce)
Channels to work on: Shopping cart abandonment, checkout flow, UX experience, sales, the actual product itself (assuming that you are taking advantage of an Activation stage).
Retention
Retention is the amount of incremental revenue that you can generate from a given client. The goal is for your customers to become “sticky.” When you think about your Customer Acquisition Cost (CAC) from the Revenue stage, that is a fixed cost. From this point forward, additional revenue is “free.”
If a mouse buys a cookie? Then she is going to want to buy a glass of milk. For a SaaS company this means continuing to keep a customer from churning, in addition to up-selling more value-add products. For an ecommerce company, that means selling additional complimentary products to existing customers. In the coaching industry this is the ability to keep your clients coming in week after week, so that working with you becomes a habit that they can’t let go of.
From a product management perspective, retention is an important group of metrics to keep an eye on. If your retention numbers are low, it is very likely that you are not marketing the right product to the right people. You should either re-think your offerings, or who you are marketing to.
Metrics to measure: CLTV, All the Churn Rates
Channels to work on: Customer lifecycle marketing, email marketing, retargeting, product marketing
Referral
Referrals are one of the most important, and often overlooked group of metrics to focus on. Even more so than retention. You can ask your customers to complete a Net Promoter Score survey until you are blue in the face, but asking somebody if they would do something is far different from measuring those that actually do.
Word of mouth marketing is one of the most important customer acquisition channels to focus on. In fact, “84% of consumers reported always or sometimes taking action based on personal recommendations. 70% said they did the same of online consumer opinions.” [1]
Despite this, 83% of sampled consumers would be willing to refer new business to a brand they love, but only 29% of them actually do . It is up to you to push them over the edge.
New business isn’t the only reason to continue to develop a referral marketing strategy. In fact, 43% of social media users report buying a product after sharing or favoriting it on Facebook, Twitter, or Pinterest[2].
For these reasons, the Referral stage is really a specialized Awareness stage, and why we sometimes refer to Referrals as “closing the loop.“
Metrics to measure: Net Promoter Score, Referrals, Social Shares, Awareness Metrics (by channel).
Channels to work on: Referral marketing
Conclusion
I suggest you spend a bit more time online researching Pirate Metrics and how my version of the framework differs from the original version.
We’ll be building on the Pirate Metrics concepts in an upcoming blog post to illustrate the different “shapes” of the Pirate Metrics funnel based on vertical or industry, and what an ideal funnel looks like for every business.
We will also spend some time talking about how you should sketch your funnel, and how to use that sketch to guide the most efficient use of your time as a business person.
Read Next — Customer Lifecycle Marketing with Pirate Metrics
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This post was originally published at www.activecampaign.com.
