What is the AARRR framework?
The AARRR framework is a set of five user-behavior metrics that SaaS companies should monitor for product-led growth. It’s an acronym for Acquisition, Activation, Retention, Referral, and Revenue.
It helps you understand your customer journey and what to do at each stage to convert your potential customers and increase sales.
Who Created AARRR and Why?
The AARRR framework was created by Silicon Valley investor and 500 Startups founder Dave McClure. McClure noticed that many startup firms were frequently sidetracked by ‘vanity’ metrics such as social media likes.
With AARRR, McClure had two objectives in mind. The first was to demonstrate to young firms how to concentrate their efforts on only those metrics that can directly influence their company’s health.
Second, assist these companies in using accurate data to measure the success of their product management and marketing activities, allowing them to improve initiatives that aren’t working. As a result, many product managers and marketers will also use this terminology.
Fun fact: Dave calls AARRR his “Pirate Metrics” framework due to its amusing pronunciation (say it out loud).
Let’s break down the framework:
How are people learning about your product or company? Where are your potential customers coming from?
At this stage, your focus should be on the channels through which people discover you. Figuring out where your target customers are is half of your marketing problem solved.
Think about the platforms like Facebook & Instagram. Advertise on YouTube and optimize your blog for SEO. This metric is at the top of the funnel, so the more customers discover you, the more chances you get to interact with them – and the more they are convinced about you.
Now your prospects are aware of your product. What are prospects doing when they interact with your business? You want your visitors to take action to try your product or service.
Your ultimate goal is to get your customer ‘activated.’ Activation includes all the actions your potential customer performs after coming from your Acquisition channels.
For example, after they landed on your website, did they spend a significant amount of time on your website? Did they visit other pages? You can direct them to a high-converting landing page that can convince them to sign up for your email newsletter.
Some metrics worth monitoring include:
- Newsletter subscribers
- Free trial subscribers
Now your users have had a taste of your product. Your focus is to monitor how many of your ‘activated’ users are willing to continue their subscription. Have you noticed that any new customers are not sticking around?
How many of the new users become repeat customers? If you’re consistently recording low numbers, your users are probably not convinced about your product, and you need to get back to the drawing board.
A positive onboarding experience will help with this. Once your customer experiences the value in your SaaS product or service (the ‘Aha moment’), mission accomplished. For example, you can send emails to help users understand how to navigate your website. Blog articles are another way to keep customers engaged.
Retention metrics you can track:
- Number of free trial users continued after the trial expired.
- Number of times a user logged into your app in a month.
- Email open rate
This tries to determine how many users are talking about your product with their friends. Do customers like your service enough to recommend it to others?
Word-of-mouth recommendations are one of the strongest signs to predict positive product growth. It tells you your customers are so happy they’re willing to let their friends and family benefit too. That’s free advertising and free new and qualified customers!
Referral metrics include:
- Participation rate (how many customers participated in your referral contest?)
- Referral conversion rate (how many of their friends converted after responding to their referrals?)
- Share rate (Post retweets, shares, mentions, etc.)
Let’s face it – your company isn’t a charity organization. You are in business to make money. And the money is going to come from paying customers.
Are your users willing to pay for this product? Are they convinced that the value they’re getting from your product or service is worth the money? How many of your top-tier packages are purchased monthly?
Examples of AARRR metrics
AARRR metrics, unlike many similar methods, don’t need to be executed religiously. You can tweak and iterate based on your company, goals, and industry.
Here are some real-world situations to help you understand which metrics belong in which categories:
- Paid search
- SEO / organic search
- Social media (LinkedIn, Facebook, etc.).
- Mobile app downloads from the App store
- Significant time spent on website
- Free trial signups
- Visiting other pages
- Subscribing to your email newsletter
- Repeat visits to your website
- Number of sign-ins
- Email open rate
- Subscription renewals
- Signing up for referral programs
- Recommending your product via word of mouth
- Sharing your brand on Twitter, LinkedIn, etc.
- Achieving a set minimum revenue per customer
- Reaching break-even point for total revenue
- Getting the right LTV:CAC Ratio
- Monthly or Annual Recurring Revenue (MRR/ARR)
Don’t forget: these are only a few of the metrics you might measure as part of the AARRR framework in your company.
As you start to keep track of these metrics, other possibilities will most likely appear organically — and that’s part of the value this approach delivers.
How do you use the AARRR framework?
The goal of the AARRR framework is not really to provide a step-by-step procedure. It’s there to define certain terms and give you an idea of what metrics you should measure and optimize. But to be on the safe side, here’s a general guideline on how to implement the framework:
- To begin, choose which AARRR indicators are most essential to your company goals.
- Next, set up the tools and processes for tracking these particular metrics.
- Now evaluate the data to see what changes you should make. Run tests (A/B tests for example) to find out where you can improve. Perhaps your acquisition rates are high, but retention rates are low. What steps do you need to take to resolve this problem?
- Take relevant actions based on your analytics within your business to improve your product management and marketing.
Many startups and product teams waste their time tracking irrelevant metrics that don’t add any valuable feedback. The AARRR framework brings key areas into focus for your team to monitor.
Choose the metrics that meet your company’s goals, set up tools for measuring these metrics and after making careful evaluations, you and your team will be in a better position to improve your product’s features and get better traction.