Pirate Metrics For Product-Led SaaS-How Does The AARRR Framework look like In SaaS
What are Pirate Metrics?
Invented in 2007 by Dave McClure, pirate metrics is a framework that is still used by businesses to measure and optimize customer interaction across their lifecycle.
But how does the pirate metrics framework work for SaaS and how can it help drive growth?
That’s exactly what I’m going to cover in this article, so read on.
- Pirate metrics put simply, is a system for grouping and tracking metrics across different stages of the user journey: acquisition, activation, retention, referral, and revenue. In short- AARRR.
- While the stages outlined in pirate metrics are generally applicable, product-led SaaS is a tad different and, as such, uses an adapted version of McClure’s Pirate Metrics framework.
- SaaS AAARRR stages: acquisition, activation, adoption, retention,revenue (expansion)and referral
- Step 1 to implement pirate metrics in your SaaS: determine the metrics for each stage that are relevant for your product (activation point and its metrics specifically will vary depending on each product)
- Step 2 to implement pirate metrics in your SaaS: set up tracking and analytics tools to track the metrics
- Step 3 to implement pirate metrics in your SaaS: use a product adoption tool and A/B test in-product experiences to drive those metrics up
What is Dave McClure’s pirate metrics?
The pirate metrics framework was developed by Dave McClure from 500 Startups and introduced in his 2007, presentation entitled “Startup Metrics for Pirates.”
Put simply, pirate metrics is a system for grouping and tracking metrics across different stages of the user journey: acquisition, activation, retention, referral, and revenue. In short- AARRR.
The idea laid down a metrics framework that helps product marketers and managers define and measure their customer lifecycle stages and optimize their funnel for specific goals at each stage.
However, not all businesses need to follow McClure’s AARRR framework in its original form.
Depending on your business nature and stage, you may be focusing on a different arrangement of AARRR metrics and the version of your funnel may also look different. But the basic AARRR stages will still be applicable.
What is AARRR and why is it called Pirate Metrics?
As Dave McClure explained them, AARRR stands for:
- A — Acquisition: users come to the website from multiple channels
- A — Activation: users enjoy the 1st visit and have a happy user experience
- R — Retention: users come back, visit the website multiple times
- R — Referral: users like the product enough to refer others
- R — Revenue: users conduct some monetization behavior
These probably apply to most businesses nowadays, but the product-led SaaS business model is a little different, and so, Dave’s pirate metrics framework needs to be adapted to suit the product-led funnel.
Pirate metrics for product-led SaaS
Product-led SaaS businesses rely on the product as the primary driver of acquisition. Using a freemium or free trial model, users get to try and experience the value of the product before making a purchase decision.
Unlike the sales-led growth model where marketers hand signups over to sales for further nurturing, product-led growth involves marketers throughout the customer’s lifecycle.
Here’s how the customer lifecycle might look in SaaS.
You will notice that things are a little different here which is why the original pirate metrics framework should be adapted to:
- A — Acquisition: users start a trial
- A — Activation: realizing the value (AHA moment) and experiencing it
- A — Adoption: repeated usage of key features in your product
- R — Retention: repeated payments after the first subscription payment
- R — Revenue (Expansion): users spend more money on your product (upgrading and adding add-ons)
- R — Referral: users become advocates for your product
Almost the same, but not exactly. Let’s go over each stage in more detail.
AAARRR SaaS pirate metrics
Acquisition stage pirate metrics
The acquisition stage is the moment when the user decides to signup for a free trial or a demo of your product.
You can use metrics like the number of signups or demos booked to track how well your website and landing pages are converting.
Users who convert in this stage are called MQLs (Marketing Qualified Leads) as these types of users are interested in testing and experiencing the value of your product.
Activation stage pirate metrics
Let’s clarify what these are.
Most people think they are the same thing, but with different names and that’s not quite true. The “AHA moment” is when users perceive the value of your product. It’s a thought, a feeling, a moment when they think the product holds value for them.
Reaching the activation point is a different thing. User activation happens when your users actually experience the value. This is all about engaging with your product’s key features relevant to each specific user persona.
To measure activation you must first define what the key features are for your product as these will depend on your type of product and use cases. Then track success using the activation rate metric.
Adoption stage pirate metrics
The next stage in the user journey is product adoption.
This is when users are past the activation point and are discovering and engaging with secondary features. These are meant to provide additional value and determine the users to convert from a trial to paying customers.
Retention stage pirate metrics
The retention stage is all about making sure users keep using your product and continue to pay for it after the initial purchase. To achieve this you need to reduce the churn rate by constantly engaging with your users in-app and collecting user feedback.
Feedback from users is packed with insights you can act upon: both about what makes customers happy and what’s frustrating them.
Important retention metrics to track at this stage include the retention rate and churn rate.
Revenue (expansion) pirate metrics
I like to call the revenue stage in the pirate metrics, “expansion”. This is more relevant for SaaS as your focus is on not only generating repeated purchases (monthly subscription) but also increasing the average revenue per account.
This is done through upselling, cross-selling, and add-ons — in other words, customer expansion.
There are several metrics to track in SaaS to measure growth but an important one here is Expansion MRR.
Referral stage metrics
The referral stage is when the users become product advocates and start recommending your product. Use Net Promoter Score surveys and you’ll know when users reached this stage and become promoters. Also, it will give you insights into why some users are not there yet, giving you a bunch of opportunities to act on NPS feedback and improve.
How do SaaS pirate metrics work? How to use SaaS pirate metrics?
SaaS Pirate Metrics framework allows you to measure user behavior across different stages in the user journey and identify areas where you need to take action and improve the user experience to drive better growth results.
Let’s go over the three steps you need to implement to start using the pirate metrics framework and drive results for your SaaS.
Step 1: Identify the pirate metrics specific to your SaaS
As mentioned before in this article, each product is different. This means you’ll want to track metrics that make sense for you. Especially if we are talking about the activation stage.
Acquisition stage metrics examples
Identify all your acquisition channels and determine what metrics you are going to track. SaaS businesses generally acquire users through their website, so you will want to track both the number of MQLs and the channels that perform best.
Start by tracking:
- Organic vs paid traffic conversion rate
- Number of trial signups
- Number of demos booked
Activation stage metrics examples
Activation point differs from one business to another due to the differences in product types, user persona, and their Jobs-to-Be-Done.
Start by tracking:
- how many users reach the activation point
- Activation rate
- Average time to value
Here are some insights on what the activation rate is among SaaS products.
Adoption stage metrics examples
In the adoption stage, you should focus on understanding how users engage with your product.
What features are they using? How and how often are they engaging with them? Here you should be focusing on product usage metrics.
Start by tracking:
- Usage frequency
- time spent in-app
- feature usage
- customer engagement score
Retention stage metrics examples
Retention is all about making sure users continue to get value from your product and don’t churn.
Start by tracking:
- Churn rate
- Customer lifetime value
- LTV to CAC ratio
- User retention rate
Revenue (expansion) stage metrics examples
In the revenue stage, you should be looking at how healthy is your SaaS from a financial point of view. So you’ll mostly want to look at revenue metrics both from existing users and new ones.
Start by tracking:
- Expansion MRR
- Annual recurring revenue (ARR)
- Monthly recurring revenue (MRR)
Referral stage metrics example
The referral stage is about tracking customer satisfaction so you can understand the likelihood of your customers recommending you.
Start by tracking:
- Net Promoter Score (NPS)
- Customer Effort Score (CES)
- Customer Satisfaction Score (CSAT)
That is quite a lot of metrics, right?
Before you feel overwhelmed, know that tracking a bunch of metrics across each stage of the journey doesn’t have to be a burden.
This leads me to the next step in how to use the pirate metrics framework.
Step 2: Track pirate metrics using analytics
To properly track all metrics, the simplest solution is to start using a product analytics tool.
Below are some tools worth considering to get this job done.
Userpilot helps you track and improve product adoption through onboarding users across the AARRR stages.
Heap is a comprehensive product analytics tool for high-level insights into what users do in your app.
Once you have your tools set up, there’s one step left before you can say you are properly using the pirate metrics framework.
Step 3: Run experiments and improve pirate metrics with A/B testing
Track metrics are only relevant when you act on the insights collected too.
Otherwise, what’s the point in going through the process of using the Pirate Metrics framework?
You need to use it and remove friction points in the user journey and discover upselling opportunities for account expansion.
There you have it. You should now be ready to start using the pirate metrics framework right away.
No matter which way you choose to use the framework (either the original one developed by Dave or the one I suggested here) you will still have to start by understanding what each stage means for your users and product, and what metrics are relevant at each stage.
Are you ready to start driving growth for your SaaS? Get a Userpilot Demo now and see how a product adoption tool can help.