What is it and how to use it?
One of the most popular frameworks in customer engagement is Pirate Metrics Funnel. This tool often used by Growth Hacker as the main model to find bottlenecks in a business or system. This tool is developed by Dave McClure as an abbreviation of Awareness, Acquisition, Activation, Retention, Referral, Revenue (AAARRR… sounds like a pirate, right?)
So, as we could see from the abbreviation, there are 6 steps in implementing this tool:
- Awareness: How many people do our business reach? To make it easier, it calculates how much people actually know, either only by name or loyal customer, our business.
- Acquisition: Now, it becomes smaller, how many people actually download your app or visiting the store? This step calculates how customers get into our business touchpoints, either physical store or Android application.
- Activation: The next one is about customers who take the first important step in your business. It could sign up for an account or try our product for the first time.
- Retention: After we successfully make someone do the important first step, how many do actually come back for more? Do they keep buying our products or just sign up and leave?
- Revenue: Now, here’s the big step. Do they start paying for our product or they just left after finishing all the freebies they could get?
- Referral: The last step is whether this customer refers our product to another person, or do they just keep it to themselves?
For a little disclaimer, anyone could interpret this tool differently, and it’s alright. We could swap retention with revenue or even leaving out awareness. It depends on our business model.
This tool slice our business into six steps which leads us to see the gaps and the reality of it. Does our problem in awareness, or is it the retention? Some businesses might already have low awareness and become the reason for it to have a low revenue. And some other company might have high awareness and low retention which lead to people leaving after buying the product for the first time. This funnel makes us know which process is ineffective and needs improvements. The example below will help us understand this tool much better:
Pirate Metrics Funnel on E-commerce Example
I take e-commerce as our example as it is one of the most popular online business now. For an e-commerce, awareness is all the people that know about our site, which is often not used as it’s hard to quantify. Usually, we focus more on acquisition, which all the people that come to our site from marketing channel (Google Ads, Facebook, Instagram, etc). All these unique people that come to visit our site is the number we should track, or if we want to be more specific, it could also be number of people that create an account in our site.
The next one is activation. In e-commerce, the popular one is when user adds a product to their cart or starting a checkout process. It’s because this step means they have the intention to start buying a product. And when the checkout process is done, this number will be our tracker for revenue metrics. This two metric will give us the information on user’s first impression, if they come to our site, but do not start a transaction, that means there are something wrong, whether they don’t have any interest in our products or our home page is messy.
As for retention, just like its name, it is the number of users who repeat the transaction process for more than one. This is the important metric so we could know whether people leaving after their first transaction or not. If yes, there might be a problem with our product/service which hinders them to use it again. There also might be a problem in the shipping/packaging process which leaves them not want to use our e-commerce site again.
The last one is referral, it’s when our user refers to his/her family and friend to also buy product/service in our site. To make it happen, we must first make sure they are happy with our e-commerce product and service. When referral happens, it means we got a strong organic channel as they market our site for free.
Now, what we need to focus is where the number drops down. Is it revenue? Or activation? Regarding this result, we could devise a strategy to fix the process and makes our e-commerce much better for our customer. Good luck and happy learning!