Pirate Metrics or the AARRR Metrics of Product Analytics
The pirate metrics or the AARRR funnel, was introduced by Dave McClure in his presentation
for product managers to capture the stages of a customer lifecycle. Each funnel element represents the buckets into which your KPIs should fall.
The stages in AARRR Metrics funnel
Even though the KPIs that each business wants to track will differ slightly from each other, we have listed some KPIs under each stage for your guidance.
The first stage in the funnel is ‘acquisition’. Of course, it is impossible to track any metric without having users for your product. The main agenda of any company is to track acquisition – what brought a user to your product website, how many registered, what went wrong… When answered in this stage, these are questions that will cater to improving the product.
Some of the major metrics that fall into this category are:
Number of new users: How many users came to you in the last week, month, and quarter? At what percentage have they increased? Such questions should get answered with this KPI. Moreover, you must also be able to ask and retrieve information about where your new users came from and how they found your product.
Number of users signed up for trial: Free trials are highly successful in bringing users to check out a new product. You can also switch this up by tracking the customer response with new promotions, giveaways, discounts, etc.
Percentage of users who logged back in: Acquisition can also be translated as the number of users who actually continued to use your service after a first visit. If users have stopped using your product or service on the first try, it is a good indicator that something may be wrong with the way your service is provided or how your product functions.
Bounce rates / Reduced bounce rates: A high bounce rate means that your brand’s value proposition has not come across to the users as it should have. The user might not have found the information or value that they were looking for in the case where they have visited your website and chose to leave.
Acquisition does not indicate success at all times. That is why you must take users to the next stage of engagement, which is ‘activation’. Activation indicates that your customer has successfully realized the value of your product; Which means that they have used it for its true business intent, whether it be a purchase, payment, or making a connection.
The number of users who visit your web or product page does not mean much until you discover which of them will take your business forward. The below KPIs can help you begin to assess how your users perceive your product’s value:
Percentage of users who used a feature: Were your customers able to successfully use the main feature of your product? If they did, it indicates that users have interacted with your product well enough to make them understand its value.
Activation through feature usage could be as simple as adding an item to the cart, subscribing to a newsletter, or making a successful transaction. For example, Facebook determines the activation of users as adding a friend, and Twitter defines it as posting the first Tweet. Users should be able to see potential with your product in their first few visits for them to want to stick with you and move to the next stage.
Time to checkout / Rate at which users checkout: Depending on your business type, a user might get activated in a matter of a few days or through many weeks. The moment a visitor becomes your customer, they have entered the activation stage. Tracking the amount of time it takes for a user to arrive at the activation stage will speak volumes about the product’s value and performance.
Subscription rate: If your user has subscribed to regular services by paying a subscription fee or registering to receive updates, you have a high chance of retaining them. You can also track the number of users who converted from a trial version to getting a paid subscription to your services.
Churn rate: Learning how and where your customers are losing interest in your product by measuring the churn rates is a great way to keep developing your product’s functional deterrents. Identifying the deterrents in a customer’s journey will help them stay loyal to your services, leading them to the next stage of the funnel, explained below.
An Overview tab from a product analytics tool that displays basic user metrics
Retention is the stage where most products fail because it requires consistent efforts to capture your audience by not losing them to your competitor. According to a study by Bain & Company
, increasing customer retention rates by just 5% increases profits by somewhere between 25% to 95%. And 82% of companies that participated in an eCounsultancy
study agreed that retention is cheaper to execute than acquisition.
Customer loyalty, which is a key indicator of retention, can be measured through some important KPIs:
User retention rate / Cohort retention: Analytics tools can help you determine how long a customer has been part of your success. Basing your measurements on cohorts will tell you which group of users are most valuable to your organization.
Users who upgraded / Renewal rate: Usually, users who upgrade their product or pay in a subsequent period are satisfied with the product’s performance and are most likely to move on to the next stage.
When users like your product very much, they are likely to refer it to somebody else. When a user refers your product to a friend, their lifetime value as a customer increases, while you have a great KPI to track progress in the market.
References received: References can be measured through forms, personal contacts, or referral links that are trackable. Intelligent statistics and analytics help you streamline brand promotion strategies deriving lessons from past failures and successes.
NPS®: Net Promoter Score®
is a great way to measure brand loyalty and product references. NPS is a formulaic method that calculates the customers’ likeliness of referring products to their friends and family. NPS surveys collect ratings from 1 to 10 on how likely they are to recommend a product, based on which the NPS score is calculated.
Consequently, scores can range from a scale of -100 to 100, which shows whether the detractors or promoters are in the majority. NPS scores are a telling sign about how well your product will fare in the near future.
It is not enough to just look at the revenue figures as they are. Comparing revenues with targets can only go so far when growing a company. The revenue generated by the company or which comes from a user can be effectively measured through these KPIs:
Monthly Recurring Revenue or MRR: This shows the monthly recurring revenue of new deals on a monthly, quarterly, and annual basis. A higher figure indicates a higher-revenue client list, which means that each individual client is bringing great value to the business.
New revenue: New revenue is separately calculated as a measure of the value that new users bring to the product, and it’s measured across from quarter to quarter. When studied in relation to the number of new customers and MRR, the new revenue is a good indicator of changes in business success.
Revenue per cohort: To know which cohort of users bring in the most value to your organization, start measuring the revenue per cohort.
Customer acquisition cost (CAC): The cost of acquiring one customer is an important topic since you need to know where your resources are utilized. The resources a be the marketing costs, setup costs, and sales costs from quarter to quarter, by the number of customers acquired over the same period.
Average revenue per user (ARPU): Quite self-explanatory, this KPI will be calculated as the total revenue (monthly or quarterly) divided by the total number of user accounts that will get you the ARPU.