AARRR

AARRR is an acronym for acquisition, activation, retention, referral, and revenue, which describes the five metrics of user behavior and is often used by a product-led business.

Coined in 2007 by American entrepreneur and startup consultant, Dave McClure, the AARRR method is a key framework designed to help startups focus on metrics that matter when scaling their business. 

Colloquially, it’s also referred to as the “Pirate Funnel” due to the nature of the abbreviation. The framework helps businesses develop a model for customer behavior, as well as use these metrics to assist marketing and product management.

The first purpose of the AARRR framework is for startups to focus on valuable metrics affecting their business growth and health instead of superficial metrics like social media presence. And second, it gives growing companies the relevant data to succeed in product management and marketing, or improve what initiatives were not working.

In this article, we will discuss the AARRR framework, the different metrics, and how to track them.

What is AARRR?

The AARRR framework focuses on analyzing customer behavior through 5 key metrics: acquisition, activation, retention, referral, and revenue. It also applies these metrics to marketing campaigns and product management efforts as a means to drive business growth. 

These are the 5 measurements of user behavior:

1. Acquisition—What channels do your users come from?
2. Activation—How good is your user’s initial experience?
3. Retention—Do these users return to your site?
4. Referral—Are users referring you to others?
5. Revenue—Will people pay or purchase?

By using the AARRR framework, companies can track a customer’s journey from ‘potential’ to ‘actual’ and also optimize their customer funnel by providing actionable metric goals. Because of this, the AARRR framework is widely accepted as the five most important metrics for startups to focus on. Additionally, acquisition is placed at the front since it’s considered the most important metric for a business to focus on. 

However, AARRR was later updated by Gabor Papp and rearranged to RARRA—Retention, Activation, Referral, Revenue, and Acquisition—placing more emphasis on retention. This version is more effective for larger and more established businesses in competitive industries because they need to prioritize customer retention over acquisition.

How Do the AARRR Metrics Work?

Each of the 5 metrics in the AARRR framework measures a stage in a customer’s journey. It proceeds in a funnel-type framework, from a high initial conversion rate with a low value on acquisition to a lower final conversion rate with a high value on revenue.

This is how the 5 metrics operate in a business

1. Acquisition

The acquisition metric refers to the different channels in which your users find your business before they become customers. For example, when a user visits your website, this means they are in the acquisition stage. 

Some different acquisition channels include:

• Organic SEO searches
• Direct searches
• Social media platforms
• Digital marketing campaigns
• Traditional marketing campaigns
• Apps and widgets
• Other forms of advertising

To understand your acquisition metrics, businesses need to ask questions like:

• What channels are generating the most traffic. Where are your clicks coming from? How do most of your customers arrive at your website?
• What channel drives the most valuable traffic. What channels produce the most conversions by percentage? Where is your highest click-through rate (CTR)?
• What channel has the lowest cost for customer acquisition. Which channel has the lowest price per customer converted?

For a startup, one channel will usually be the primary driver behind the majority of its website traffic. By focusing efforts on one channel and optimizing how its usage by the startup, the company can improve acquisition metrics and increase its user base.

2. Activation

An activated customer refers to one that has taken further action after their first encounter with your website. For example, users in the activation phase may have spent more time on a website, joined a newsletter or trial, or signed up for the product or service. 

Some important metrics to track in the activation stage are:

• Visitors to registration ratio
• Dwell time + viewed pages
• Conversion rate
• Time to value
• Drop-off rate

If they have a positive experience through these actions, then the user or customer has been activated, making them likely to proceed to the next stage.

3. Retention

When you retain a customer, it means they regularly and consistently return to your product or service. This shows when a customer repeatedly makes purchases from an eCommerce store, regularly uses an app/website, or maintains their subscription.

Conversely, customer churn refers to the rate at which customers are lost. This can occur when they stop purchasing, uninstall an app, or cancel their subscription. For startups to succeed, the churn rate should be significantly lower than the acquisition and retention rate since this signals growth.

4. Referral

During the referral stage, customers recommend your product or service to others in their personal network. For example, if they enjoy your startup’s product or service, they’ll be more likely to tell everyone they know, like their friends, family, and colleagues. 

While it is difficult to track any referrals given by word of mouth, there are other metrics that can be recorded and analyzed. For example, some important referral metrics to follow include:

• Referral codes
• Affiliate partnerships
• Social media mentions

A common way that software companies do this is by giving users an incentive when they invite others to use it. These incentives can include benefits like a price discount, added product features, branded merchandise, free upgrades, credits to their account, and so on. 

5. Revenue

Your revenue metrics track actions like when users purchase a product or subscribe to a service. By identifying different revenue targets, a startup can see if the acquisition, activation, retention, and referral stages are working correctly in order to grow the business and boost its profits.

Revenue targets include:

• Minimum revenue
• Break-even revenue
• Revenue in excess of your customer acquisition cost

When taken together, these 5 metrics allow startups to track user behavior to improve and scale up their business. 

The AARRR Framework for Measuring Business Growth

By focusing on the AARRR metrics, start-ups and other businesses can gather the relevant data necessary for their growth. Then they can analyze this data, to identify what’s working well—and what’s not—in order to address issues. When applied alongside A/B tests to check for areas to improve, the AARRR framework is incredibly effective for businesses of all sizes.