AARRR (Acquisition, Activation, Retention, Referral, Revenue)

What is the AARRR Framework? 

AARRR metrics (also known as pirate metrics) is a method for analysing the performance of a business that focuses on customer satisfaction. Growth hackers utilise the metrics created by venture capitalist Dave McLure, analysts, consultants, and business owners to increase profitability.

AARRR framework is an acronym for the following individuals:

Acquisition: How does the company acquire new clients?

Activation: What percentage of customers are pleased with their shopping experience?

Retention: What percentage of clients return?

Revenue: How much money does each customer contribute to the company?

Referral: How many customers recommend that others consider your company?

Why is the AARRR Framework Important in SaaS? 

The ultimate purpose of AARRR metrics is to maximise a startup's profitability. An essential objective of the AARR funnel is to segment the customer base into stages that facilitate analysis. The simplified analysis enables the business's issues to be identified and addressed separately for more effective problem-solving.

By dividing customer response into stages, AARRR funnel enables business owners to focus on areas in which their company could improve rather than blaming the market or the entire enterprise. For instance, the metrics may reveal that the business needs to attract more customers. The business can then determine why it is failing to attract customers and take corrective action. 

How to Calculate AARRR Funnel? 

5 stages of AARR funnel is ordered based on the number of users, beginning with those who have just visited the website and ending with those who have made a purchase; the following scheme will result:

Conversion requires actionable metrics: the number (or percentage) of users migrating from stage to stage. The beauty of these five metrics is that they are interdependent. The number of people who will progress through the sales funnels and ultimately make a purchase depends on how thoroughly you plan each stage.

Now, let's analyse each indicator from the pirate metrics individually.

Acquisition

The acquisition involves attracting visitors to your website and convincing them to subscribe to your service.

At this stage, the objective for the majority of SaaS companies is to convince the user to sign up for a free trial of the product. However, if you have micro-conversions on your website (email subscription, call-back request, etc.), you can separate customer acquisition metrics and measure their performance independently.

Tactics to use: 

• Guest posts
• SEO optimisation
• Webinars
• Newsletter
• Contextual advertising
• Referrals

How to implement:

You are responsible for deciding which tactics to employ.

• If you have time and money, try everything. Create an Excel table to store campaign data (name of a campaign, type of target audience, number of transitions from the advertising to your website, amount of conversions, cost per customer). On this basis, you can determine which campaigns generate more conversions and contribute to the growth of your business and which strategies should be abandoned.
• After the test period, you determine whether the selected channels and methods for business development were appropriate. If you have limited time and resources, you should prioritise those strategies with the highest likelihood of success. You can understand it by calculating the cost per customer (to calculate the cost per customer, divide the money spent by the number of transitions to the website from a specific channel (using Google Analytics data).

Important metrics: 

• СPC - cost per click.
• CPL - cost per lead.
• Bounce rate - the number of users who left the site immediately after opening.
• СTR - click-through rate.
• Leads - the number of leads.

Activation

You can acquire a user for your SaaS application, but they may still need to activate it (become a user). Activation signifies that your leads take a meaningful sequence of steps to progress through the funnel. If they register and then leave without returning, they are never activated.

Examples of activation include:

• Making the first reservation on Airbnb.
• Using Grammarly for the first time.
• Sending the first mail as a new Gmail client.

Examine how Evernote encourages users to investigate their solution further. It sends a series of instructional emails that describe how to use unique features.

If your app's user interface is consistent and the software is convenient and valuable, the customer will experience a "aha!" moment and be willing to continue using the app. If transitions to the service did not result in action (conversion), analyse user behaviour to determine where they left the page. 

Tactics to use:

• Optimise the onboarding procedure to increase product comprehension among consumers.
• Simplify the signup process.
• Offer a free month or demo.

How to implement: 

• Choose a strategy. Create a number of variants of the onboarding procedure/registration forms, each with a unique approach to the intended audience, distinct designs, etc. Create and test prototypes based on this information. Concentrate on the problems and needs of your customers.
• Utilise A/B testing to determine which variant works best with the selected strategy.
• Consider how your customers interact with your product. Collect an active user base and analyse their behaviour. Additionally, analyse which features of your app are underutilised. These observations are the key to determining what changes and enhancements must be made to your app.
• Important metrics:
• CPA is the cost per acquisition, which includes registration, subscription, and the transition from a free to a paid version.
• Engagement - the session's duration and depth.
• Bounce Rate - the proportion of bounced emails.

After activating users, you must ensure they can keep your product.

Retention

Most cloud organisations use a subscription-based pricing model, making client retention the most important stage for SaaS businesses. It means you can gain a customer once and obtain predictable revenue for life (in case the client sees the value and is satisfied with the service you provide).

And this is vital, as acquiring new customers is difficult and expensive. Still, if you do your best to keep customers, you will have a steady relationship with them and a steady income stream.

For instance, Grammarly has come up with the innovative concept of sending user retention emails in the form of accomplishments.

Tactics to use:

• Email newsletter (e.g. describe how you improved the functions that the client has already used)
• Push-notifications
• Improve user experience.

How to implement: 

• Monitor the usage statistics of your service and the point at which the majority of users leave your app. Monitoring churn will help you determine which aspects of your service need improvement.
• To retain your customers, you must determine what they enjoy most about your app and how it benefits them. Ask your most loyal customers what they do in your application, which features they utilise most frequently, and why.
• As one of the effective strategies to reduce the churn rate, pay attention to the importance of customer support. Listen to your users and respond as quickly as possible to their feedback.
• Again, the most effective way to make your customers return to your app repeatedly is to determine what they value most about it. Continue enhancing the most popular features and refining the user experience indefinitely.

‍Important metrics:

• Session duration: how long the user interacts with the product during one visit.
• Customer return rate: how many users reuse the product over a certain period. 
• Customer churn: how many users stop using the product over a certain period (for example, a month).

At this point of client retention, they become brand ambassadors. You are responsible for caring for them and encouraging them to spread the word about the company.

Herein commences the referral phase.

Referral

If you acquire a customer, they activate and continue to use your app. They love it so much that they start telling others about it, either through word-of-mouth or a referral system, or whatever the case may be, they invite their friends or team members to use your product, which is the referral metrics stage.

The objective here is to increase user recommendations of your product. Do everything possible to facilitate the sharing process.

Tactics to use: 

• Send email reminders about your referral program
• Offer referral rewards (cashback, discount, etc.)
• Offer two-sided reward 

Important metrics:

• CSI - Customer Satisfaction Index (measured through testing).

Revenue 

Income is a measure of whether or not you have accomplished all of the preceding steps effectively. Users will only advance to the revenue stage if they comprehend your product's worth in its entirety.

The primary objective at this stage is to acquire initial payment from clients. 

Tactics to use: 

• Add a step of connecting the payment card for users before they start a free trial.
• Set up push notifications that tell users what the free version can't do and invite them to switch to the paid version.
• Consider up-selling and cross-selling

Important metrics:

• ACV - average contract value
• LTV - lifetime value, profit from a client for the entire time of working with him.
• The total amount of proceeds for a certain period.

The final "R" in the AARRR structure was revenue. If you begin to make judgments regarding how to improve each of these fundamental indicators, you will be able to expedite your cloud business's progression to the subsequent growth stage.