The Pirate Metric Funnel is an internationally recognised 5-step framework for business growth. It was created by Global Accelerator 500 Startups and whilst they have been in hot water recently, it’s one of the things they got right.
The Pirate Metric framework is now used across the globe and widely accepted as the five areas most crucial for businesses to focus on: Acquisition, Activation, Retention, Referral and Revenue...get it, “AARRR”...like a Pirate!
In fact, because we're Pirate Metric obsessed, we’ve joined forces with Growth Hackers Australia to bring together some of the Australia’s best growth hackers to discuss their Pirate Metric Funnel! Read more here.
The framework is held in such high regard, it’s included on the first page of the Lean Startup playbook. The framework is for anyone who is looking to improve the health of their business. Not only is it super simple, you can implement the framework in just a few minutes.
Here at Recomazing, we adopted the framework 6 months ago and since then, we’ve seen a significant lift in growth as we’re now hyper focused on the metrics that matter. Let’s take a deep dive into each part of the funnel:
“focus on what potential customers struggle with, along with how and where they look for solutions”.
If you can work that out, the results will underpin the rest of your traffic-generating strategy. So you’ll be focusing more on the big wins that actually convert and avoid sweating the small stuff.
To do this, take a look at your channels (PR, SEM, social, SEO, blog referrals, email, affiliates, business development) and identify which bring the highest quality traffic (lowest bounce rate + most visitors).
- Metrics to track: Just about anytime you get a customer’s email address: Email subscribers, resource downloads and support/sales customer discussions.
- Channels to optimise: Conversion Rate Optimisation (CRO), lead-magnets, webinars, chat widgets, newsletter subscriptions, landing page optimisation and promotions.
The Activation stage focuses on providing your customers with an exceptional first time experience with your product or service. Depending on your vertical, the Activation stage generally refers to when a customer is able to experience the product you are offering
- Metrics to track: North Star Metric is the single metric that best captures the core value that your product delivers to customers.
- Channels to optimise: UX, feature adoption, traditional sales and customer success.
The third part of the funnel is all about whether your customers come back and use your product or service. In fact, some argue, this stage of the funnel is the most important, as this is what drives growth for your business. During this stage if you don’t reduce churn as much as possible you’ll lose lots of customers (money) when you ramp up your acquisition efforts - nobody likes a leaky pirate ship! In fact, Bain & Co. estimates it’s super expensive to find new customers, shiver me timbers!
The other thing to keep in mind is if your retention numbers are low, it’s likely you’re not marketing your business to the right market. So it’s probably worth your while to rethink who you’re marketing to or go back to the drawing board when it comes to your offering.
One of the first places we optimised during the retention phase was our email marketing. Email marketing is hailed as one of the most powerful tools for boosting your retention. Whilst online advertising is being blocked at an alarming rate, your customer's inbox is one of the last places you can reach them in a meaningful way. Audience segment tools are a handy way to understand valuable behavioural insights about your audience. Once you have those insights (interactions, site visits etc) you can use that information to deliver the perfect email at the perfect moment.
Survey and Net Promoter Score (NPS) tools are an effective way to keep track of your user satisfaction rates which are a strong signal to users’ likelihood of churning. NPS uses the question “How likely are you to recommend this business to a friend of colleague?” to rank your customers as either Detractors, Passives or Promoters. By analysing your results and responding to users you can uncover the causes of churn and prevent it from happening.
Tools like Ask Nicely automate the process of sending and responding to NPS Surveys.
- Metrics to track: Churn rates. NPS.
- Channels to optimise: Email marketing, customer lifecycle marketing, retargeting and product marketing.
One of the biggest opportunities to drive growth for your business is through Referrals. Ask any small business owner and they’ll tell you a large part of their business comes from word of mouth, aka referrals.
At Recomazing we’re encouraged to share anytime someone has proactively given us positive feedback or talked about Recomazing online...we call them ‘fist pump moments’. We share them internally on Slack to keep the team customer obsessed and we get instant alerts for free with Mention anytime the word ‘Recomazing’ is used online.
Many of the Fortune 500 companies use the Net Promoter Score to determine the likelihood of whether a customer will refer their business. However, Growth Engineer & Product Marketing Specialist at ActiveCampaign, Jordan Skole says the NPS isn’t a true reflection of a customer who will refer your product.
“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”, said Skole.
Here at Recomazing, we like to support brands referral efforts by saving trusted recommendations by our members to help others in the ecosystem learn and grow from their insights. Click here to see how your B2B business can start collecting your customer referrals.
- Metrics to track: Net Promoter Score and the Viral Coefficient
- Channels to optimise: Referral marketing
So how do you supercharge your referrals? The key is to make it as easy as possible for your customers to refer your product throughout the customer journey.
This is the section of the funnel where your customer spends their money in exchange for your product or service. For a consultant, this could be when you receive a security deposit, for a SAAS company it could be a customer's first month’s payment or for e-commerce it’s when your customer makes their first payment. Whatever it is, you still have to close the deal.
One of the things I love about the Pirate Metric Funnel is that each stage leads onto the next. So if you’re acquiring a good portion of quality customers visiting your site, activating a healthy percentage of them, retaining top rated users and generating referrals constantly, you should have no worries about bringing in treasure chests of gold bullion Revenue.
Founder and CEO of iDoneThis, Walter Chen, says the best way to increase revenue is to get more value from your customers than it costs to acquire them.
“This is governed by the LTV: CAC ratio. Lifetime value (LTV) is how much you earn from your customer over their entire time spent using your product. Your customer acquisition cost (CAC) is what you spent on sales, marketing, meetings, steak dinners, etc. to get that customer”.
He says the guys over at Profitwell, suggests an LTV: CAC ratio of at least 3:1 if you want to ensure consistent growth in your business.
Walter says there are three basic strategies to optimise your LTV and CAC and to also set a value metric that will scale with your customers.
- Optimise your funnel
- Work out how you can move customers from one part of the funnel to the next in the most efficient and cost effective way possible. Tools like MixPanel or Amplitude are great for this.
- Optimise pricing
- Usually related to LTV, pricing can impact CAC due to incorrect positioning, targeting the wrong customer, therefore spending more cash to acquire the right one.
- Engagement optimisation
- Using better sales and customer success, you can bring on new customers using your product or service quicker.
"By using these strategies you can achieve the 3:1 ratio so you can get more value for each customer, increase revenue while maintaining that awesome customer experience that brought them on in the first place", said Walter.
- Metrics to track: First purchase (e-commerce), CAC and Trial to paid conversion (SaaS).
- Channels to optimise: Shopping cart abandonment, checkout flow, UX experience, sales, the actual product itself (assuming that you are taking advantage of an Activation stage).
At the time of writing about Pirate Metrics, 500 Startups were one of the first to call out that most internet marketers were measuring vanity metrics - they look good but do little to move the needle. Metrics like page views, downloads, registrations - unfortunately, there are still many marketers who are using these feel good metrics that do no good. The sections of the funnel we just went through are timely and will always be relevant in helping you to drive growth for your business.
The Great Pirate Metric Debate
So because we’re Pirate Metric obsessed, we’ve joined forces with Growth Hackers Australia to bring together some of the Australia’s best growth hackers to discuss their Pirate Metric Funnel! Read more here.
Last but not least, here’s a nice infographic by SaaS Growth Marketer Pierre Lechelle to recap what we’ve gone through: