AARRR — A framework for SaaS business, examples and template sheet
How the pirate metrics can help your product to grow.
The first time we listen about AARRR framework was envisioned by Dave McClure, in a meeting, where he presented the following slides regarding important KPI to observe.
Even though the AAARRR framework describes the customer lifecycle stage for many businesses and business models, there are still many businesses that don’t fit in this model.
An ecommerce, for example, may have a different funnel than a SaaS or consulting business.
The pirate metrics is a fun name for a serious set of SaaS metrics that make up a 5-step framework for SaaS growth, and they stands for:
- Acquisition — the number of users who interact with your product
- Activation — the % of users who achieve success
- Retention — the % of users who stick with your product, month after month
- Referral — the % of current users who refer new users
- Revenue — the average contract value (or ACV) that a user pays per month
In order to understand how best optimize the customer journey, you need to first understand how much exactly the activation affects your growth, and if your product is really helping users to reach their gains and solve their pains.
How important are these metrics?
This graph below shows us the revenue increasing thanks to retention and referral percentage, for each customer retained for a long time.
As you can see, increasing the acquisition resulted in the same increase in MRR (Monthly Recurring Revenue). Thus, if you have 10x in acquisition, you’ll get 10x your MRR.
Acquisition — Aarrr
Activation metrics can include everything from pageviews to sales qualified leads. In our model, acquisition measures the number of users entering your free trial. For our acquisition benchmark, let’s assume 5,000 free trial sign-ups. You can either use this number or enter your own — if you don’t know monthly free trial signups, just estimate.
Examples of acquisition: you can acquire new customers by landing pages or by newsletter form.
Activation — aArrr
It’s expressed as the percent of activated users out of total acquired users and it’s different for every business.
How to measure: you need to define exactly what determines an activated user to understand when happen the first “aha moment” implementing tracking and analysis around the user navigation and its customer journey.
Examples of activation: When a user completes their first ride with Uber or Lyft, when a customer receives a grocery delivery from Instacart, when a new Gmail customer sends their first email, etc.
Referral — aaRrr
It’s the percentage, of the customer base, that talking in positive way about your product or service and bring to you other customers. Some articles around the web, estimate that 22% is a good rate for a successful business.
Examples of referral: invite your friend and get X on your next purchase!
Retention — aarRr
It’s the period of time while your customers pay your service monthly; it has a highly impact on the business, as you can see from downloading the template above in the page. Much higher is the number of customers which pay month after month, much more is the monthly earning and your business.
How to measure: you need to dig into the cohort analysis to understand your retention and churn rates and find out where drop offs occurs.
Example of retention: It’s a percentage that represent how many times your customer base pay for the services: purchase N times in X time.
Revenue — aarrR
In a SaaS product, the revenue represents the ACV (average contract value) per month.
How to measure: the ACV value.
Example of revenue: the same of retention, it’s only when your prospect became a customer purchasing something from you.
Download here the gsheet template
Above these lines, there’s the document divided into 3 tabs:
- KPI: edit here with your metrics
- Forecast: calculation based on KPI edited
- Line chart: data representation of forecast revenue