The Pirate Funnel: 6 Steps to Grow Your Business (AARRR Framework)

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The Pirate Funnel AAARRR Framework

The Pirate Funnel (AARRR Framework), a way to map your entire customer journey and discover where your business is missing out on growth…

Sounds almost too good to be true, but I’m going to show you:

  • What the Pirate Funnel is and what AARRR stands for
  • How to fill in the Pirate Funnel
  • And then how to make sure you can solve the underlying problem.

Without wasting any time, let’s get started.

What is the Pirate Funnel?

Dave McClure, Silicon Valley investor and founder of the company “500 Startups” saw that startups were focusing on vanity metrics, such as:

  • Likes or followers on social media
  • Google impressions

McClure invented the AARRR Framework with 2 goals in mind:

  1. Ensure young companies maintain focus on metrics that directly contribute to the health of the company.
  2. And ensuring companies use the right data to measure what’s working well about their product and their marketing.

AARRR is an acronym that stands for several marketing-related terms:

The Pirate Funnel AAARRR Framework
The Pirate Funnel AAARRR Framework

Speak AARRR out loud, does it remind you of a person on a boat with a wooden leg and an eye patch on? Probably so, hence the name Pirate Funnel.

Why an extra ‘A’?

Later, the “A” of Awareness was added because the Pirate Funnel became too sales-driven:

Then we will now go through the different steps…

The 6 steps of the Pirate Funnel

How to fill in the Pirate Funnel?

  1. Awareness – How many people are you reaching?

    This step was added later, because the Pirate Funnel became too sales driven….
    Awareness is about how many people you reach in total.

  2. Acquisition – How many people visit your website?

    People you have reached are still unknown to you. In this step you don’t sell anything yet, but you ‘get to know’ each other.

  3. Activation – How many people take the important first step?

    In this step, customers must experience the WOW moment or the Aha moment.

  4. Revenue – How many people become paying customers?

    Your business will eventually need to make revenue so you look at how many people actually become a paying customer.

  5. Retention – How many people make repeat purchases?

    Once you have a customer you want them to come back more often, buy upgrades or make repeat purchases.

  6. Referral – How many people refer an acquaintance?

    Check with your company how many people are referred and make sure you have a system for this, because people obviously need to have a good reason to refer someone.

Pirate Funnel Canvas

Download the Pirate Funnel Canvas and work with me to complete the different steps for your business:

Yes, now we are going to start!

1. Awareness

If people don’t know you exist they will never do business with your company.

People who deal with you in the Awareness phase most likely do not know in advance that your company exists and what your company can help them with.

So in this stage it’s about how many people you reach with your marketing.

Some questions that might help you with this:

  • Which channel offers the lowest Cost per Mille (CPM)?
  • From which channel do you pay the least for a click?
  • Which channel offers the lowest Cost per Engagement (CPE)?
  • From which channel do you achieve the highest Click Through Rate (CTR)?

Metrics you could use:

  • Google impressions
  • Social Media impressions, shares, engagements, etc.
  • Banner impressions

2. Acquisition

For the Acquisition step, 3 types of growth apply:

  1. Viral – like Dropbox. You grow because other people recommend you to family, friends and/or colleagues.
  2. Sticky – like Facebook. You create a great experience for your customer that makes them stick around longer and therefore spend/value more.
  3. Paid – like Paypal. You pay €20 to a customer who eventually becomes worth €200 to your business.

Mapping channels – Bullseye Framework

With so many different channels, it’s hard to choose…

The Bullseye Framework helps you determine which types of channels are most important to focus on:

Bullseye Framework 2
Bullseye Framework
  1. Inner ring: this is about the channels that are already working for you at the moment.
  2. Middle ring: the channels that might start working, there are still opportunities here.
  3. Outer ring: these are channels that you could start using, but from which you could not immediately derive a great advantage.

Using the G.R.O.W.S. Process, you can test which channels belong in which ring.

3. Activation

The goal of the Activation phase is for people to discover how valuable your product or service is…

They need to experience the WOW moment or the Aha moment.

Your (potential) customer has to say ‘Wow’ or ‘Aha’, because then they have realized the added value of your product or service and they probably also know how to use or apply it.

The earlier the Wow moment the less likely you are to have customers or users leave you:

Aha Moments
Aha Moments

Some questions that will help you in the Activation step:

  • How quickly do (potential) customers or users find the added value of your product or service?
  • What do customers find the most valuable parts of your product or service?
  • What does activation mean for your product or service?

Metrics you could use:

  • Freemium customers
  • Trial period sign-ups
  • Visitors to registration ratio

4. Revenue

Money for a business is like oxygen for a human being…

There are more revenue models than you can count on two hands, probably you already have an idea which revenue models you want to apply or you are already applying one or more of them.

Questions that can help you with the Revenue step:

  • What is the Customer Lifetime Value (CLTV) and how can we increase it?
  • What revenue models/prices could we test else?

Consider metrics such as:

  • Customer Lifetime Value (CLTV)
  • Average order value
  • Monthly recurring turnover

5. Retention

Retention means that once you’ve brought in a customer that you’re going to make sure they make repeat purchases, buy upgrades or continue to use your product/service…

According to Harvard Business Review, it is about 5 to 25 times more expensive to find a new customer than to keep an existing one.

By exceeding the customer’s expectations in every step of the Pirate Funnel, users and customers will not leave (churn) with you, you can do this best by being a customer-centric company.

At the Retention step, think about questions such as:

  • How do you keep customers informed?
  • How do you improve your relationship with your customer?

Metrics you can use for this:

  • Customer Satisfaction Score (CSAT)
  • Relationship duration
  • Average up-/cross-sell value per customer

6. Referral

The literal meaning of Referral Marketing:

“A systematic part of your business that encourages people to tell others about your company, product or service.”

The Referral step is all about customers or users who are going to refer their acquaintances to you…

Of course, your customers/users need a good reason to do so.

As Ward van Gasteren points out, a Referral program has some important benefits:

  • Mutual trust increases the Click Through Rate (CTR).
  • Warm leads will stay customers longer.
  • You reach people you wouldn’t reach otherwise, because individual customers, when combined, have a greater reach than you do alone.
  • You get a lower Customer Acquisition Cost (CAC).

There are many ways to build referrals into your product or service, it’s up to you to test which way fits best with your product, service, or target group.

Ask yourself the following questions:

  • Why would someone refer an acquaintance to you?
  • At what point in the customer journey is someone most willing to refer someone?

And pay particular attention to metrics such as:

  • Net Promoter Score (NPS)
  • Reviews
  • Social shares

The effect of referrals can be measured very well with the K-Factor

What is the K-Factor?

The K-factor or Viral Growth Factor is used to describe the growth ratio…

You calculate it using the following formula:

K-factor = X * Y

K-factor = average number of new customers that each existing customer or user wins for you

X = Number of referrals per existing customer or user

Y = Conversion rate of referrals

Suppose your existing users or customers sent 1,000 invitations to acquaintances. During that same period, you had 800 customers or users.

So X = 1,000 / 800 = 1.25

Suppose 1 out of 10 invitations is accepted, that means:

Y = 1 / 10 = 0.1

The K factor then comes down to:

K = X * Y = 1.25 * 0.1 = 0.125

So 800 existing users or customers have created 100 new users or customers, K = 100/800 = 0.125

Customer Journey Flowchart

I always create a visualization of my customer journey…

This ensures that I have a flow where every step of the Pirate Funnel has been thought of:

Flowchart Restaurant
Flowchart Restaurant

For this, I usually use Draw.io or Lucidchart to create my flowcharts.

Fill in the Pirate Funnel Canvas

Now you should have completed the steps using the Pirate Funnel Canvas

There might be a possiblity that you don’t have enough qualitative data at this point. Then you can make an estimate and find your bottleneck from there, because speed is more important than perfection in this case.

If you can’t make a good estimate you could also spend the next 2-4 weeks setting up your analytics.

Finding out that you don’t have good measurability yet is in itself a bottleneck you have found.

Identify your bottleneck

If you’ve completed the Pirate Funnel, you should see that somewhere a conversion rate is performing below the benchmark or below your expectations:

Bottleneck research
Bottleneck research

Once you have found where in the Pirate Funnel your bottleneck is you can start looking at the underlying problem:

Find the underlying problem

You find the underlying problem by doing qualitative research.

You can fill in the Pirate Funnel with segmentation (or a cohort analysis) on different channels or target groups to see where exactly the bottleneck is.

By doing so, you might discover that the problem lies with one particular channel or one particular target group that you can then respond to.

In addition, you could also find out the underlying problem by:

  • Having conversations with sales and support staff to see which complaints recur most often and where customers drop out the most.
  • Reviewing Hotjar recordings and heatmaps.
  • Conducting customer conversations.

Finding the underlying problem is often skipped and changes are made immediately based on assumptions. However, you get the best results when you do qualitative research on the underlying problem.

Example

Perhaps people don’t convert (enough) from website visitor to lead because you have one button that doesn’t even stand out.

Formulate the One Metric That Matters

Once you have found the underlying problem, you can create a One Metric That Matters:

Example

The number of people who sign up for the “Healthy Plants in 7 Days” mailing list from Facebook ads.

Follow the G.R.O.W.S. Process

Once you know where your focus point is you can start to set up experiments to improve the One Metric That Matters…

Use the G.R.O.W.S. Process to efficiently and effectively test small-scale solutions:

GROWS Process Rapid Experimentation
GROWS Process Rapid Experimentation

Useful here is to use an Experiment Card, Conclusion Card and Experiment Canvas.

Now it’s your turn…

So, enough telling. Now it’s up to you:

Will you apply the Pirate Funnel or use something else to map out your Customer Journey?

Let me know in a comment what you think of the Pirate Funnel.

P.S. if you would like additional help let me know at [email protected]

Frequently asked questions

What is the Pirate Funnel Canvas?

The Pirate Funnel Canvas is a tool to map your Customer Journey and identify your bottleneck. You complete the different steps of the Pirate Funnel with data to calculate your conversion rates.

What is the Pirate Funnel?

The Pirate Funnel is a framework that focuses on metrics that directly contribute to the health of a business and uses data to measure what’s working well about a product and its marketing.

What does AARRR stand for?

Acquisition – Activation – Revenue – Retention – Referral are the 5 components of the AARRR framework. Later Awareness was added because the Pirate Funnel became too sales driven.

Do I have to fill out the Pirate Funnel Canvas for every product?

You can fill out the Pirate Funnel Canvas for any product you have, any channel you use, and any type of customer you are trying to convert.

Gust de Backer
Gust de Backer

I try to help business surpass their growth ceiling with my content.

Sounds interesting?

Let’s connect on LinkedIn!

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