As a small business owner, you may not be waking up and going to bed obsessed about the idea of business growth. No, you may be content with doing all you can to make sure your business enjoys a steady flow of customers. That way, your bills are paid, salaries are paid out, and the kids can have a life better than the one you had.
But what if the same parameters that drive growth in high-powered startups are the same ones that could establish and maintain a steady stream of buying clients for your small business?
In the world of startups and growth, a precious few metrics stand out above the rest for their penchant to push the needle forward and drive business. These are known as pirate metrics or AARRR metrics
AARRR…What Be Pirate Metrics?
In order to stay afloat in their volatile circumstances, startups are obsessed about attracting and retaining business or customers at scale.
And ten years ago, Dave McClure, a venture capitalist and angel investor, the founder of the startup accelerator 500 Startups came up with a brilliant framework of keeping an eye on the factors that mattered for startup growth and survival.
He called this framework AARRR or Pirate Metrics…because, you know…get it?
AARRR represents the five most important metrics that startups and upstart businesses must follow, monitor, and analyze. These metrics are:
The Significance of Pirate Metrics to Your Small Business
Pirate metrics are important for your small business because each metric represents a different stage of the buyer lifecycle. Their ultimate purpose is to help you as a business owner identify the areas of your business that you should be focusing on and optimizing for better marketing and sales performance.
Pirate metrics boil down the business process from a complex setup to basically five key steps which you have to excel at in order to excel at business.
By understanding what each metric in the AARRR framework stands for and represents, you can identify crucial leaks in your funnel and make amends before your ship sinks.
So, let’s take a look at each metric on the framework and identify how they could be useful to your small business:
This is the first A of the frame, and one of the most obvious to track. Acquisition consists of all the ways through which people find your business and eventually become paying customers.
It’s important to take a broad or holistic view of the process and not get hooked up on just one aspect. You want to take note of various steps involved in the conversion from visitor to customer, rather than paying attention to just the final conversion when prospects become paying customers.
Marketers often use the analogy of dating when talking about their craft, and if you use this analogy in this case, then tracking acquisitions does not only keeping track of when your date says “I do”. You want to also take note of when they agreed to go on the first date, the first time they said, “I love you”, your first fight over some burning issue which you had to solve, and so on.
Likewise when someone signs up for your email list, you want to track that, as well as when they opt in for a audit or a demonstration, pass by to window shop, and any other minor conversion that comes before making the big purchase.
Tracking acquisition properly can help you zero in on which distribution channels bring in the most promising traffic, as well as which promise the least cost per customer.
This is the second A in the pirate metric framework, and it can is easily confused with acquisition. Usually, activation is defined as when someone first uses your product or service—whatever that may be.
But what about cases when they interact with your business once and never come back?
Activation involves getting someone to become an active user or repeat customer for your small business after that initial contact (acquisition).
This is different for every business, and it may take one form for you and another for the business premises opposite yours. The trick lies in discovering at what moment people get excited about your business and become repeat customers (what growth hackers call the “aha moment”) and then reducing the time gap between acquisition and that special moment.
For example, Facebook realized very early that people had the “aha moment” when they acquired 7 friends in 10 days. Hence, they accelerated this process by syncing your email with your Facebook account so they could suggest relevant friends.
That’s just one example to show what activation is and how you as a small business owner can take action to accelerate it. What do customers say keeps them coming back to your business? How can you make this immediately apparent to new leads that come in contact with your business?
This is the first R in the framework, and represents the rate at which people keep coming back to use your product or service. Retention is such an important aspect that it is often a valid indicator of how well your product and or overall marketing strategy is doing.
The opposite of customer retention is customer churn—which you should also track because, well, you need to.
First of all, churn directly affects business growth. And, yes, perhaps you don’t lose sleep over growth as a small business owner, but when customer churn overtakes customer acquisition, it means you are burning through your marketing budget and getting negative returns. Your business is practically leaking at the bottom.
Secondly, customer churn can tell you a lot about product-market fit. If people are using your product or service once and then dropping it all together, then there might be something wrong with the product (or your business message). Investigating your churn can tell you a lot of unpleasant facts about your business which you need to know.
To keep your customer churn low (much lower than your acquisition rate), you have to track and supercharge your retention efforts. The better you are at retaining your customers, the lower your churn will be and the lower your marketing costs. After all, according to studies, it is 5 to 25 times more expensive to acquire a new customer than it is to retain an existing one.
This is the second R in the pirate metric framework, and perhaps the one you are most familiar with. After all, as a small business, you understand that the best form of traffic is referral traffic. People tend to get referrals from people they know and trust, so referral traffic is usually the easiest to convert.
But referral in the context of the AARRR framework consists in coming up with a systematic and consistent process for getting these referrals. Incentivizing the process is usually the way to go, so that customers become raving fans who get rewarded for bringing a friend or two along for their next visit.
Once such a process is put in place, you can expect to see your marketing costs take a nose dive because of all the free marketing your fans will be doing for you.
Revenue is the final R of the framework, and perhaps the sweetest because it involves money entering your pocket. Well, here is another sweet fact for you: if you properly optimize the preceding stages of the pirate metrics framework, then revenue will be flowing in nicely without you having to do much else.
That said, revenue and monetization remain the most important parts of any business, and you need to invest as much energy into this stage as you did for the others.
Basically, tweaking your revenue will involve increasing the lifetime value of your customer, which is the amount of money you can expect to receive from a customer during their lifetime or during their time as a patron of your small business.
You can also increase your revenue by taking down your customer acquisition costs. If you spend less to get new customers, then you make more money per customer.
Pirate metrics are usually thought to be the sole preserve of startups and fast-paced entrepreneurship, but as a small business owner, there is no reason why you can’t take something that works for others and adapt it for yourself. There is a lot more that can be said about these pirate metrics, and you can research more on them to unlock their power for your business.