The AARRR metric model is one of the most reputable models for measuring a product’s success. It was developed in 2007 by Dave McClure, founder of 500 Startups and was originally promoted as “Pirate Metrics” for startups. Over the following few years it became the standard way of measuring success for startups. Since, it has been adapted to a wider range of business activities and even physical products.
There are 5 components of AARRR that track the success of a product from first contact with a user all the way through until revenue generation.
A – Acquisition refers to the effectiveness of your product at converting visitors into users.
A – Activation involves the ability to deliver value to first-time users and ultimately convert them into recurring users.
R – Retention is the metric that represents value of recurring users through the frequency of their interaction with your product.
R – Revenue is simply the ability of your product to generate financial buy-in.
R – Referral represents how well your product performs at using existing users to recruit new users.
The AARRR model’s name is slightly misleading as the letters of the acronym represent the order in which users interact with your product. As a product person, however, the order in which you treat these metrics is completely distinct from the order in which your users interact with your ecosystem.
As we’ve seen, your product’s value is primarily linked to its ability to generate turnover. And while revenue is the main goal of a commercial enterprise, many products are unable to generate cash, but are rewarded for the perceived market value of high usage.
Because of the way value is organized we favor an approach that begins with a focus on revenue. Clearly, because the primary goal of a business is to generate cash, the revenue metric is most representative of this concept.
Second in line is retention. Retention is the core value you are proposing to users. It’s why they come back. If you’re able to retain users it means that they’re finding a recurring value in your product. It also creates opportunities for you to monetize on their usage.
In order to get to retention though, you’ll need to make sure your users quickly understand how your product can help them. This is why activation is your third priority metric. By quickly delivering value to new users, you open a window for them to come back and be retained.
And finally, but just as importantly, your product will need to grow. Growth should follow all of the previously mentioned metrics. In the AARRR metric model, growth is represented by acquisition and referral. Acquisition encompasses your explicit, direct marketing efforts to which you commit resources, specifically time and money. Referral, however, is free marketing done on your behalf by your users. It’s the holy grail of growth, and is considered a key component of what has come to be known as growth hacking.
In our next article about the AARRR metric model, we’ll talk about a product’s ability to generate financial buy-in, or revenue. To get notified when our next article is out, sign up for our newsletter.