Startup Metrics: AARRR
10 years ago, Dave McClure, a Venture Capitalist, Angel Investor, and founder of the startup of the Accelerator 500 Startups, introduced startup metrics consisting of 5 steps to growth or growth. This framework is known as Aarrr.
What is AARRR?
Aarrr stands for acquisition, activation, retention, referral, and revenue. The five steps are used to understand your customer, Purchasing Journey them, and optimize your funnel and regulate business strategies so that your goal is reached.
AARRR itself is widely used because these five steps are the five most important metrics for a startup. These five metrics can help measure your company’s growth effectively, simply, and easy to execute.
Well, now let’s discuss the fifth step on the AARRR metrics.
The first letter A on the AARRR framework is Acquisition. This section explains from where our customers or users come and how people find your business until they end up being a customer.
In understanding Acquisition, you must focus not only on how many website visitors you get but also how many and how many website visitors can become customers. You want to track every step of your customer and not just the final step on Conversion. Every small conversion that occurs at Customer’s Journey can help you.
An example of one of the customer journey is as follows:
Visit the Website> Signup or Subscribe to your email> Participate in the event you hold> Contact Team Sales> Conversion into a customer.
All steps that occur above before they become customers are calculated as a micro-conversion or small conversion. By paying attention to this section, you can understand how your customer moves and optimizes your customer Journey.
For businesses that have an active sales team, you need to distinguish between leads and qualified leads. What is the difference? Lead is a website visitor you get contact information; Good email or mobile number.
But even though they provide their contact information, not necessarily they will buy anything from your business. Maybe they are interested in getting a free ebook that you offer but there are no plans to buy it. So, not all leads can be seen as someone who will immediately buy from your business.
But if one of your leads does a micro-conversion, for example, someone participates if you hold then they can be considered as qualified leads because they are actively involved with your products and services. This is a customer candidate who can Team Sales you target.
Fundamental Questions for Understanding Acquisition
In understanding your business acquisition process, there are three fundamental questions that you can use as a guide:
- Which channel brings the most traffic?
- Which channel has the highest Conversion Rate?
- Which channel has the lowest Acquisition or Customer Conversion costs?
The three questions above can help you manage your acquisition strategy to get more results.
Activation is about the first experience of your product or service user and how satisfying the first experience is.
It’s useless if you succeed in making them download your application or buy your product for the first time, but they are not satisfied and immediately stop using it.
Therefore, you need to be able to provide your customer a fun first experience so that they realize the value that is on your product or service. This is so that they continue to use it.
Briefly, activation is the time of the customer first getting your product until they like your product or service.
Different types of business, different activation
The activation itself has different forms for each type of business. For an e-commerce business, activation is arguably not as important as conversion. You have to see what is consumed by website visitors and how they consume, for example on your website, and optimize their experiences. Activation has a greater influence on the SaaS application and business (software-as-a-service).
For applications, you must see activation after people download or register for your application. Do they just use it once and don’t use it anymore after that?
For the SaaS business, you want to see when people start using your platform. You can think of when they sign up for a trial (or even full service) as a moment of acquisition. Every effort after that must be directed to successfully activate your customers.
SaaS businesses usually provide broad on-boarding support and provide accounts managers to guide you to start using their products.
In other words, an Activated Customer (enabled customer) is someone who continues to use your product.
Facebook realizes at the beginning of their growth that the activation moment for users occurs when they get 7 friends in 10 days, which is why they synchronize your email account with Facebook to advise friends.
Twitter realizes that once you follow 30 people, you will most likely return so they suggest a popular account when you register.
Dropbox sees that users who upload at least one file are far more likely to use Dropbox again, so they encourage you to upload files when registering.
So to encourage the customer to the activation moment as soon as possible, you want to make sure the on-boarding process is as smooth and as fun as possible. And of course, you have to test, test, test until you find the right strategy to build and develop the onboarding process of your business.
To change the “cold customer” you become people who actively use your product, it’s good to segment and starts targeting this user with certain ON-boarding emails.
Customer retention is one of the important things for every business. From this data, you can see how many customers return to your product or service, whether you lose customers, and evaluate whether the marketing strategy is a successful company. In addition, you can also see the success of the products and services they offer.
Retention means people continue to use the product or service you offer. For e-commerce businesses, for example, this means that a customer does not only buy it once from you. For applications, this means users continue to use the application and Utnuk SaaS business, this means people who use the software will continue to use it.
The opposite of the Customer Retention is Customer Churn. It’s important to measure the level of your customer’s churn. Your Churn level will tell you whether you have achieved good product/market matches.
If many people drop your product after they start using it, it is clear something is wrong with your product or your service. According to Bill Gates, your most unhappy customers are your biggest learning resources.
Second, you want to make sure that your customer’s churn level is lower than the level of your customer’s acquisition; much lower. Because that’s the only way to achieve growth.
You can think of it like a leaky bucket, no matter how much water you pour into it (how many customers you get) buckets will not be more full (your company will not achieve growth) because the water is leaking at the bottom (your customer spin).
Third, according to Harvard Business Reviews, get new customers Memilliki prices 5 to 25 times more expensive than maintaining existing ones. You will also make more sales with someone who has bought from you before because the trust between you has been set.
Therefore, it is much cheaper and easier to sell again to the customer you have earned before rather than starting again from the start.
So how can you increase customer retention?
The easiest way is to connect with your customers. Email and social media automation is a good method for this.
The best way to encourage growth is through referrals.
Why spend a lot of money on marketing too much if you can get a customer by making sure that your customer tells about your product or service to their friends? To encourage reference you must have a systematic process in a place that gives incentives and produces them consistently.
Word-of-Mouth is one of the most powerful marketing strategies to get more customers. Most people will believe more if they get advice from friends or family in choosing a product or service.
Now, businesses have often offered various advantages if you invite your friends to try these business products. This step can indeed help increase your website traffic and the number of your customers.
The last framework of Metric AARRR is revenue. If you have optimized straining your business following the four previous AARR metrics, the income should have flowed well.
Knowing revenue and finding out the monetization plan is very important for any startup. Even Facebook and Instagram, companies that begin as a social, non-monetary pure platform, are only successful today because of their advertising business.
Then how do you get a high revenue? By increasing the Customer Lifetime Value (CLV) and reduce the customer acquisition cost (CAC). What are CLV and CAC?
Customer Lifetime Value or CLV is the number of revenues that you get from a customer as long as they become your business customer.
Meanwhile, Customer Acquisition Cost (CAC) is the amount of money you spend to acquire a customer or customer. This includes marketing, sales, meetings, and all the activities you do to get customers. Ratio CLV: CAC which is good for growth is 3: 1.
Then how do you reduce customer acquisition costs? You need to optimize the Sales Funnel. You can read our Funnel Sales article to understand deeper.
In this article, we have discussed all Metric Startup AARRR. The five steps on this framework are the most effective way to optimize your business and measure your startup business growth. Each metrics has its own goals and needs to be optimized to achieve your business goals.
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