In 2007, Dave McClure, an investor in the 500 Startups venture capital fund, presented his AARRR method. AARRR is a marketing funnel formation model that takes into account five simple and effective metrics: Acquisition, Activation, Retention, Referrals, and Revenue.
Because the abbreviation is similar to the pirates' shouting "Aarrr!", the method is also known as "pirate metrics."
AARRR SaaS metrics helps monitor the strategy of promoting startups and new products and see the accurate picture of how your business is developing. Tracking the five key indicators allows you to determine weak points in your conversion funnel and develop the right strategy to improve them.
At this point, questions like "What do you mean by acquisition?" "How can I improve my activation?" and so on may arise in your head. No worries, that's why we are here. In this article, we will dive deeper into each metric separately to understand how they work, how to implement them, why they are beneficial for your SaaS startups, and how UI/UX design can help you improve them. No more words, let's do it!
Pirate metrics: what is AARRR framework
The way Dave McClure illustrated the AARRR model in his original presentation looks, let's just say, a bit chaotic.
A slide from Dave McClure’s original presentation “Startup Metrics for Pirates: AARRR!!!” Image credit: slidesharecdn.com
But in fact, everything is simple.
AARRR is a sales funnel for a startup. If we sort all five stages based on the number of users, starting with those who just came to the website and ending with those who made a purchase, we will get the following scheme:
Image credit: blog.tability.io
You need those actionable metrics to calculate the conversion: the number (or percentage) of users moving from stage to stage. The beauty of these five metrics is that they all are built on one another. The number of people who will move gradually down the funnel and eventually make a purchase depends on how thoroughly you will work out each stage.
Now, let's analyze each indicator from the pirate metrics one by one.
#1. Acquisition
The acquisition of AARRR metrics is about getting visitors to your website and making them sign up for your service.
For most SaaS companies, the goal at this stage is to make the user sign up for a free trial of the product. However, if you have micro-conversions on your website (such as email subscriptions, call-back requests, and such), you can break down customer acquisition metrics and measure their performance separately.
Tactics to use:
- SEO optimization
- Guest posts
- Webinars in which you are a speaker/invited guest
- Email newsletter
- Contextual advertising
- Referrals
How to implement
If you have enough time and budget, test as many options as possible. You may create a table in Excel and put all the information about each campaign there (name of a campaign, type of target audience, number of transitions from the advertising to your website, amount of conversions, cost per customer). This way, you will see which campaigns bring more conversions and benefit the development of your business, and which tactics are better to give up.
If you have limited time and budget, it is better to start with the most likely successful tactics. By the end of the test period, you conclude whether the channels and business development methods were chosen correctly. You can understand it by measuring the cost per customer (to do it, take the number of transitions to the site from a certain channel (we take the data from Google Analytics) and divide it by the money spent).
Important activation metrics:
1. СPC – cost per click.
2. CPL – cost per lead.
3. СTR – click-through rate.
4. Leads – the number of leads.
5. Bounce rate – the number of users who left the site immediately after opening.
How to improve this metric via UI/UX design
Good design is crucial for attracting new users and potentially converting them into clients. Pay attention to the following aspects:
Optimize landing pages
Ensure that landing pages are visually appealing, easy to navigate, and directly aligned with the ad or source that led the user there. Implement a clear and compelling call-to-action (CTA) to encourage immediate sign-ups or trial activations.
Implement responsive design
Ensure your website is optimized for various devices, providing a seamless experience across desktops, tablets, and mobile phones. Mobile optimization is crucial as an increasing number of users access websites from their smartphones.
#2. Activation
AARRR funnel continues with activation. You can acquire a person to enter your SaaS app, but that doesn't necessarily mean they will become a user. Activation means your leads take meaningful steps to move forward in the funnel. If they register and leave, never to come back, they never become activated. Surprisingly, the issue is sometimes with design rather than the product itself.
Some activation examples may include making the first booking on Airbnb, checking the first text with Grammarly, sending the first email as a new Gmail client, etc.
Take a look at how Evernote prompts users to explore their solution further. It sends a set of educational emails listing some special features and how to use them.
If your app UI is consistent and the software is convenient and useful, the customer will catch their “aha moment” and will be willing to continue using the app. If the transitions to the service did not result in action (conversion), analyze the behavior of users and figure out at what point they left the page.
Tactics to use:
- Optimize the onboarding process to make the product more understandable for users.
- Simplify the registration process.
- Offer a free month or demo.
How to implement:
- Choose the tactic. Based on it, create prototypes and test them. Make several variants of the onboarding process/registration forms with different approaches to the target audience, various designs, etc. Focus on the needs and problems of your customers.
- Do A/B testing to find out which variant works best in the chosen strategy.
- Collect a base of activated users and analyze their actions. Pay attention to the way they interact with your product. Analyze which features of your app they don't use. These observations are the key to what you need to improve and change in your app.
Important metrics:
- CPA – the cost per acquisition: registration, subscription, a transition from free to paid version.
- Engagement – duration and depth of the session.
- Bounce Rate – the percentage of bounces.
After you have activated users, you need to make your product impossible to give up.
How to improve this metric via UI/UX design
At this stage, losing potential users is easy if the registration and onboarding process is not frictionless. So, pay attention to a couple of tips.
Streamline the registration process
Simplify the sign-up process to reduce friction. Minimize the number of form fields and only ask for essential information. Or even better – implement social media login options.
Sometimes, you simply cannot make the sign-up process short. Still, it would help if you made it as painless as possible.
For example, the sign-up for Habstash is quite lengthy as it requires a lot of user information to set up the app properly. To retain users who don't want to or can't fill in all the data in one go, we introduced the "save an exit" button.
You should always have indicators for when the info is in incorrect format. But it's also a good idea to encourage entering the data right. For Habstash, we added a checklist for a password that changes the color as the criteria are met. We also enabled logging in using Google, which is a preferred method for lots of users.
Ensure smooth onboarding
When planning onboarding, create diverse user personas and use A/B testing. Integrate interactive tutorials or walkthroughs that guide users through key features and functionalities. At the same time, you can provide users with a hands-on experience to showcase the value of your product and how it addresses their pain points.
It's a good idea to add a progress bar and allow the users to quit the onboarding. That's what we did with Prift onboarding design.
Whenever possible, especially in the B2C segment, use gamification.
Duolingo onboarding
#3. Retention
Retention is the most crucial stage for any SaaS business, as most cloud companies use a subscription-based pricing model. It means you can acquire a customer and keep getting a predictable amount of revenue for an unlimited period (in case the client sees the value and is satisfied with the service you provide).
And that's really crucial because customer acquisition cost is always high. But, if you optimize retention, you will have a consistent relationship with the customer and get a predictable flow of revenue coming in.
For example, Grammarly has come up with a creative idea of sending retention emails to users in the form of achievements.
Tactics to use:
- Email newsletter (for example, describe how you improved the functions that the client has already used)
- Push notifications
- Weekly Digest
- Improve user experience.
How to implement:
Track the statistics of how often customers use your service and at what point most users leave your app. Monitoring the churn will help you identify what features in your service require improvement.
To keep your customers, you should find out what they love most about your app and what value they receive. Ask your most devoted clients what they do in your application, what features they use more often, and why.
Don't forget to take care of customer support as one of the working SaaS customer successful strategies to reduce the churn rate. Listen to your users and react to their feedback as quickly as possible.
Once again, the most effective way to make your customers return to your app repeatedly is to learn what they value most about your product. Keep improving the most popular functions, and never stop refining the user experience.
Important metrics:
- Session duration – how long the user interacts with the product during one visit.
- Customer return rate – how many users reuse the product over a certain period.
- Customer churn – how many users stop using the product over a certain period (for example, a month).
How to improve this metric via UI/UX design
A consistent and intuitive app design unveils your solution's most powerful features and lets users see its true value. At Eleken, we managed to help many SaaS companies make their products hard to give up, thanks to a well-thought-out design.
- When relevant, implement personalized dashboards that display relevant information based on individual user preferences and usage patterns. Allow users to customize their dashboard to prioritize the features they use most frequently.
A dashboard we designed for Ricochet360. A lot of information, but it's all well-organized and relevant to the user.
- Use push notifications strategically to inform users about updates that enhance their experience. Clearly communicate the value proposition of these updates and how they contribute to a better user experience.
- Use tooltips or guided tours to introduce users to features they may not have explored yet.
- Establish a seamless feedback loop within the product, allowing users to provide input on their experience and suggest improvements. Actively respond to user feedback, communicating how their suggestions have contributed to enhancing the platform.
It is at this stage of retention that your customers become brand advocates. Your task is to take care of them and encourage them to spread the information about the company.
This is where the referral phase begins.
#4. Referral
Your loyal customer base might love your app so much they start telling other people about it. Whether through word of mouth or some referral system, they invite their friends or team members to use your product. And it is the referral metrics stage.
The goal here is to encourage users to recommend your product. Do everything to make the process of sharing quick and easy.
Example of Dropbox referral program. Image credit: blog.theflyy.com
Tactics to use:
- Send email reminders about your referral program.
- Offer referral rewards (cashback, discount, and the like)
- Offer two-sided rewards (like Airbnb offers credits if someone signs up with your shared link).
Important metrics:
- CSI – Customer Satisfaction Index (measured through testing).
How to improve this metric via UI/UX design
A well-crafted UI/UX design can be a catalyst for turning satisfied users into enthusiastic advocates. You have to make it as easy for them as possible.
- Implement a clean and intuitive interface that guides users through the referral process step by step.
- Strategically place in-app prompts encouraging users to refer friends or colleagues. Unobtrusive pop-ups or banners might highlight the benefits of referrals and provide a quick way to share.
- Minimize the steps required for users to send invitations, ensuring a frictionless experience. Ideally, optimize the sharing process by enabling one-click sharing through popular platforms like email, messaging apps, or social media.
- Provide users with personalized referral links that they can easily copy or share directly from the app. Communicate the unique benefits associated with using their referral links, such as exclusive discounts or additional credits.
Take note of how Grammarly designed the referral link. Through the image, the offered value is immediately clear.
- You can introduce gamification elements to make the referral process more engaging. Reward users for each successful referral and consider incorporating challenges or leaderboards to further motivate participation.
#5. Revenue
Income is an indicator of whether you have successfully implemented all the above stages.
Only those users who fully understand what value your product gives them will proceed to the revenue stage.
The main goal at this stage is to receive the first money from your customers.
Tactics to use:
- Add a step of connecting the payment card for users before they start a free trial.
- Configure push notifications that will inform the user about the limitations of the free version and offer to switch to the paid version.
- Consider up-selling and cross-selling.
Important metrics:
- ACV – average contract value
- LTV – lifetime value, profit from a client for the entire time of working with him.
- The total amount of proceeds for a certain period.
How to improve this metric via UI/UX design
- Explain the benefits of connecting a payment card, such as uninterrupted service or access to premium features.
- Ensure the payment process is seamlessly integrated into the user journey. Use a clear and visually appealing design for the payment card connection step, providing reassurance and clarity to users.
- Design UI elements that visually indicate limitations in the free version. Use intuitive icons or color-coded alerts to draw attention to features that are exclusive to the paid version.
- Include offers to extend the trial period in exchange for connecting a payment card. Tell about the additional benefits users will receive during the extended trial, motivating them to take action.
- Design user-friendly pricing pages that clearly outline the features and benefits of each subscription tier. Use concise language and visual hierarchy to make it easy for users to understand the value proposition of each plan.
- Showcase discounts or exclusive perks for customers who choose annual billing or renew their subscription for an extended period.
- Ensure a user-friendly and reassuring design for the payment confirmation screen. Provide clear confirmation messages, use visual cues, and consider incorporating a thank-you gesture to enhance the overall user experience.
Revenue was the last "R" in the AARRR framework. If you start to make decisions on optimizing each of these core metrics, you can accelerate the path to the next stage of growth of your cloud business.
Does the customer journey end here?
And the answer is, of course, no. It's just the beginning.
AARRR funnel framework is a great start. It helps to:
- See the entire customer journey
- Recognize the bottlenecks of the funnel
- Check each stage separately and adjust the client's behavior
The metrics are transparent enough to customize the flow of customers when launching a SaaS project, from acquisition to activation and purchase. However, this model only considers the number of people at each stage of the funnel. By relying solely on these metrics, you will not be able to gauge the long-term performance of your actions fully, so you must keep track of other important metrics as well.
If you need more guidance on tracking the right numbers that matter specifically for SaaS, look at our article about financial KPIs for SaaS Companies. And if you prefer more traditional variants, check the list of best books on SaaS metrics.
Lastly, if you need help with implementing that magic of UI/UX to boost your AARRR pirate metrics, don't hesitate to contact us!
