Can AARRR Pirate Metrics Boost Your SaaS Growth Strategy?

Want to save your SaaS startup from walking the plank?
Say hello to ARRR pirate metrics!

The AARRR pirate metrics framework is popular among SaaS and product-led businesses. It helps identify what’s going well, what’s going wrong, and the reasons behind both. 

Wondering how to implement and use the AARRR model? 
And what’s the bit about pirates? 🏴‍☠️

Don’t abandon ship. Just keep reading!

We’ll reveal what AARRR metrics are and how you can use them, how they originated, and how you can track them. We’ll also share the difference between AARRR and RARRA.

Further Reading

  • Clarify all your doubts related to the Rule of 40 in our detailed guide. 
  • Track these 6 crucial SaaS Activation Metrics to assess your product’s popularity among users. 
  • Improve customer responsiveness and engagement by creating the best Net Promoter Score surveys.

This Article Contains

What Are AARRR Pirate Metrics and How Do You Use Them?

The AARRR model is an acronym for acquisition, activation, retention, referral, and revenue. 

Aarrrr…matey 🏴‍☠️🦜 Geddit…?

These metrics together analyze a company’s performance and product market fit with actionable insights into the customer life cycle at different stages. 

This way, your company can identify areas for product enhancement and revenue generation.

Your business can use this framework to measure conversions and ask critical customer-related questions. 

The AARRR framework has become a valuable tool for businesses seeking rapid and sustainable product led growth

But remember, each step within this framework has vanity metrics that appear impressive and impactful (like social media followers) but may not offer meaningful insights into growth. 

Whether you’re a founder, CEO, product manager, marketer, growth hacker, or investor, the AARRR funnel is important to every role. 

Broadly, the AARRR pirate metrics framework 🏴‍☠️ breaks down into:

  • Acquisition: How is a potential customer learning about your company or product?
  • Activation: Is your new user having a good first experience with your product?
  • Retention: Do these users come back to engage with your product?
  • Referral: Are these customers likely to refer others to the product? 
  • Revenue: Can you make money?

In the end, it’s all about that booty 💰 

Who Needs to Use the AARRR Pirate Metric?

The AARRR pirate framework is ideal for product-led startups and SaaS businesses. 

Here’s why:

  • Product-led startups and SaaS businesses typically operate in highly competitive markets where growth is crucial for survival. The AARRR framework is designed to prioritize growth by providing a clear structure to identify and measure key metrics at each stage of the user journey. This enables startups to focus on driving growth systematically and optimizing their efforts accordingly.
  • Startups and SaaS businesses often rely on acquiring and retaining a large user base to scale their operations. The AARRR framework emphasizes understanding and catering to the needs of the users at every stage of the funnel. 
  • The SaaS space is fast-paced and continuous learning and improvement are essential, particularly for startups. The AARRR framework facilitates this by providing a structured approach to measuring and analyzing key metrics. By tracking and optimizing the metrics related to acquisition, activation, retention, revenue, and referral, businesses can identify bottlenecks, experiment with different strategies, and make data-driven decisions to improve their product and grow their user base.

Stick around if you want to learn how to make a fortune!

How Did the AARRR Pirate Metric Originate?

The AARRR framework was introduced in 2007 by Dave McClure, a Silicon Valley investor and founder of the company, 500 Startups.

In a talk, ‘Startup Metrics for Pirates: AARRR!’ (all puns intended!), Dave McClure shared his insights on the five key customer behavior moments that SaaS businesses can use to their advantage.

Although this key metric was introduced in 2007, it remains a popular product management tool among SaaS businesses today.  

How to Track AARRR Pirate Metrics

Identifying the AARRR metric framework can help with user behavior and product led growth of your SaaS company. 

So raise the Jolly Roger, and let’s dive in!

1. Acquisition

Acquisition is when a potential customer or user discovers your online presence via social media platforms, emails, SEO content, etc. 

Aye, your digital presence can create brand awareness and drive new customers. 

But when identifying acquisition metrics to measure, don’t fall for vanity metrics like how many times an app was downloaded or a social media post was shared. 

Instead, find out what brought the best ROI by identifying:

  • The platform or channels with the largest volume of potential customers.
  • The channels that lead to the highest number of conversions.
  • The cost-per-acquisition for each channel.
  • Where your audience is consuming the most content.

Acquisition Metrics

i. Bounce Rate
  • What it is: This is the percentage of website visitors who leave after viewing only one page. 
  • How to measure it:
    Bounce Rate = (Total number of visitors who bounce / Total number of visitors) x 100
  • Example: You have 1,000 visitors to your webpage, and out of those, 400 visitors leave without taking any further action.

    The bounce rate can be calculated as (400/1,000) x 100. So, your bounce rate for your webpage would be 40%. 

    Generally, a high bounce rate indicates visitors aren’t engaging with your content or finding what they’re looking for. A low bounce rate suggests better engagement and user experience.
  • How often should you measure it?: Weekly or monthly, depending on your business objective. 
ii. Click-through Rate 
  • What it is: This is the percentage of people who click on a link or ad compared to the number of total users who viewed it.
  • How to measure it: 
    CTR = (Number of Clicks / Number of Impressions) x 100
  • Example: Say you run an online ad that receives 1,000 impressions, and out of those, 100 people click on the ad.

    CTR would be calculated as (100/1,000) x 100. You arrive at a CTR of 10%.

    A high CTR suggests your content or ad is compelling and relevant to your audience. A low CTR indicates you need to optimize or adjust your content. 
  • How often should you measure it?: Weekly or monthly
iii. Customer Acquisition Cost
  • What it is: Customer acquisition cost is the amount of money an organization spends to get a new customer.

  • How to measure it:
    CAC = Total Cost of Sales and Marketing / Number of Customers Acquired
  • Example: Let’s say your total cost of sales and marketing expenses in a quarter were $50,000, and you acquired 500 customers during this period. 

    Your CAC would be $50,000/ 500. This will give you a CAC of $100 per customer. 
  • How often should you measure it?: Depending on your business needs, you can track CAC monthly, quarterly, or annually. If your CAC is higher than your ARPU (Average revenue per user), it could indicate an imbalance. 

    You can consider ways to cut down on marketing spending to fix this. 

2. Activation

This part of the customer journey is when the customer sees the value in your product and becomes an active user.

This can look like checking out additional features or spending a certain amount of time on your app.

For example, Facebook would measure activation at the onset when a new user made seven friends within the first 10 days of getting on the platform.

Activation Metrics

i. Product Qualified Leads
  • What it is: Product Qualified Leads are the number of users taking advantage of your free trial and deriving active value from it. 
  • How to measure it: How you calculate this metric will depend on your business and how you define a qualified lead. For example, if you offer a project management software, a qualified lead could be a project manager who actively uses your free demo.

    Once you define the PQL criteria (like engagement metrics or specific user actions), identify these leads who meet the criteria. Then calculate the total number of PQLs within a certain period (daily, weekly, monthly) depending on your business goals. 

    Next, you can calculate a PQL Conversion Rate: 

    PQL Conversion Rate = (Number of PQLs who convert / Total number of PQLs) x 100
  • Example: If you had 100 PQLs and 20 converted to paying customers, the PQL Conversion Rate would be (20/100) x 100 = 20%. 
  • How often should you measure it?: On average, a monthly calculation provides a good balance between capturing meaningful data and keeping up with changes in user behavior and product engagement.
ii. Time to Value
  • What it is: This is how long it takes your new users to get value from your product.  
  • How to measure it: To calculate this, you need to:
    • Identify the moment when a user first engages with your product or service. This could be the sign-up or onboarding process.
    • Establish the key actions or milestones that indicate the user has achieved value or success with your product. This could be completing a tutorial, setting up an account, or using a core feature.
    • Track the time it takes for a user to reach the defined value criteria from the starting point. 

Next, calculate the Time to Value. 

Average Time to Value = Total Time to Value / Number of Users

  • Example: Let’s say you track the TTV for 100 users, and the total time it took for them to achieve value is 10 days. 

    The average Time to Value would be 10 days / 100 users = 0.1 days per user.

    This indicates that users, on average, achieve value within a very short time frame.
  • How often should you measure it?: You can measure Time to Value weekly, monthly, or quarterly, depending on the nature of your product. The shortest possible Time to Value paves the way for high user adoption.
iii. Conversion Rate
  • What it is: Conversion rate is the percentage of free users who convert to paying users. You calculate it as follows: 
  • How to measure it:
    Conversion Rate = (Number of Conversions / Number of Visitors or Opportunities) x  100
  • Example: If you had 500 conversions and 10,000 visitors monthly, the conversion rate would be (500 / 10,000) x 100 = 5%. 

    This means 5% of visitors converted or took the desired action.
  • How often should you measure it?: How often you calculate it depends on your business model. If the conversion rate is a critical metric for tracking the effectiveness of your sales or marketing efforts, you may want to calculate it weekly or monthly. 

3. Retention

The next step, retention, identifies how many new users continue to use and show interest in your product.

You can craft a solid retention strategy that includes automated emails sent at intervals after a user signs up. For example, take Grammarly’s personalized weekly emails sharing writing stats and common mistakes. 

Tracking such a retention metric is a great way to ensure customers download the tool. It’s also a convenient way to stay connected with your user.

Retention Metrics

i. Retention Rate
  • What it is: This is the number of customers who continue to pay for your product over a certain period. This is how you calculate it:
  • How to measure it:
    Retention rate = (No. of Retained Customers / No. of Customers at the Beginning of the Period) x 100
  • Example: If you had 1,000 customers at the beginning of the month and 900 customers at the end of the month, the retention rate would be (900 / 1,000) x 100 = 90%.

    This means that 90% of the customers were retained or remained active during that month.
  • How often should you measure it?: You can calculate the retention rate on a monthly, quarterly, or yearly basis. 
ii. Churn Rate
  • What it is: This is the rate at which customers stop using your products. You calculate it as follows:
  • How to measure it:
    Churn rate = (No. of Customers Who Left During the Period / No. of Customers at the Start of the Period)x 100 
  • Example: If you had 1,000 customers at the beginning of the month and 50 customers ended their relationship with your business during that month, the churn rate would be (50 / 1,000) x 100 = 5%.

    This means that 5% of the customers churned or ended their relationship with your business during that month.
  • How often should you measure it?: Monthly, quarterly, or annually.
iii. Login Frequency
  • What it is: This refers to the number of times users access their account within a specific period.
  • How to measure it:
    Login Frequency = Total Number of Logins / Number of Unique Users or Customers
  • Example: If you had 1,000 logins in a week and 100 unique users logged in during that week, the login frequency would be 1,000 / 100 = 10 logins per user

    This means that, on average, each user logged in 10 times during the week.
  • How often should you measure it?: The frequency at which you calculate login frequency for retention analysis should align with your business objectives, data availability, and the speed at which you need to respond to retention-related insights. 

    Regular monitoring will enable you to track user engagement, identify trends, and take proactive measures to improve retention and enhance the overall user experience.

4. Referral

These metrics track when a user recommends your product to others and measures how valuable your product is to the end user and its potential virality.

You can reward referrals with special discounts, cash, or credits.

Referral Metrics

i. Referral Rate
  • What it is: This is the percentage of the users who refer your product to others in their circle. It’s calculated as follows: 
  • How to measure it:
    Referral Rate = (Number of Referrals / Total Number of Customers or Users) x 100
  • Example: If you received 200 referrals in a month and had 5,000 customers or users during that month, the referral rate would be (200/5,000) x 100 = 4%.

    This means that 4% of your customers or users referred others to your business during that month.
  • How often should you measure it?: On average, calculate it every month.
ii. Purchase Rate of Referred Customers
  • What it is: This refers to the percentage of customers purchase after being referred by another customer. This is how you calculate it:
  • How to measure it:
    Purchase Rate of Referred Customers = (No. of Referred Customers Who Made a Purchase / Total No. of Referred Customers)x 100
  • Example: If you had 300 referred customers during a month, and out of those, 60 made a purchase, the purchase rate of referred customers would be (60 / 300) x  100 = 20%.

    This means that 20% of the referred customers made a purchase during that month.
  • How often should you measure it?: Monthly or quarterly
iii. Net Promoter Score
  • What it is: Net promoter score tracks how loyal customers are by asking the question: “On a scale of 1–10, how likely are you to recommend us to a friend?”
  • How to measure it:
    After you’ve done the survey and collected responses, categorize the respondents into three groups based on their ratings:
    • Promoters: Customers who respond with a 9 or 10. They’re loyal and highly likely to recommend your product. 
    • Passives: Those who respond with a 7 or 8. They’re generally satisfied but not overly enthusiastic.
    • Detractors: These are customers who respond between 0 and 6. They’re generally unsatisfied and less likely to recommend your product.

Now you can calculate the NPS:

NPS = % Promoters – % Detractors

  • Example: If you received responses from 200 customers and the distribution was as follows:
    • Promoters (9 or 10 rating): 120 customers (60%)
    • Passives (7 or 8 rating): 50 customers (25%)
    • Detractors (0 to 6 rating): 30 customers (15%)

The NPS would be: 60% – 15% = 45

In this case, the Net Promoter Score would be 45. 

  • How often should you measure it?: Monthly, quarterly, or yearly 
iv. Viral Cycle Time
  • What it is: This refers to the time it takes to attract/invite another user to a website. 
  • How to measure it: 
    To calculate this metric:
    • Identify the start point when a customer makes a referral. 
    • Track the time it takes a customer to refer someone and the time it takes for the referred person to become a customer and refer others. 
    • If you have multiple referrals, track the time it takes for subsequent referrals to convert into customers and make their own referrals. 

      Then, you’re ready to calculate: 

      Viral Cycle Time = Total time for all referral cycles / Number of referral cycles
  • Example: If you track three referral cycles with the following times:
    • Referral Cycle 1: 7 days
    • Referral Cycle 2: 10 days
    • Referral Cycle 3: 5 days

      The total time for all referral cycles is 7 + 10 + 5 = 22 days. Since you have three referral cycles, the average Viral Cycle Time would be 22 days / 3 = 7.33 days.

      Here, the average Viral Cycle Time is approximately 7.33 days.
  • How often should you measure it?: Monthly or quarterly, depending on the nature of your product or service. 

5. Revenue

The revenue stage starts the moment a user takes a money-making action and becomes a paying customer. 💲💲💲

This action will depend on the nature of the product. For example, a customer can transition from a free trial to a subscription on a streaming platform or make a one-time in-app purchase. 

Consider benchmarking revenue metrics against:

  • Minimum viable revenue: The minimum amount of revenue a business needs to cover its expenses and sustain operations.
  • Break-even point: The level of revenue that helps you cover all expenses of running the business. 

Doing so can help your business evaluate performance, adjust, and aim for growth.

Revenue Metrics

i. Customer Lifetime Value
  • What it is: Customer lifetime value is the predicted revenue a business can expect to earn from a paying customer throughout their relationship.
  • How to measure it:  
    This is how you calculate it: 
    • Identify the specific period you want to measure CLTV for (a year, 3 years etc).
    • Calculate average revenue per customer, which is Total Revenue divided by Number of Customers.
    • Determine the average customer lifespan (duration a customer remains engaged with your business), which is Total Length of Customer Relationships divided by Number of Customers. Then, you’re ready to calculate CLTV.

Customer Lifetime Value = Average Revenue per Customer x Average Customer Lifespan

  • Example: If you have a SaaS business with 500 customers, and in a year, the total revenue generated from those customers is $500,000, and the average customer lifespan is estimated to be 3 years, the CLTV would be:
    • Average Revenue per Customer = $500,000 / 500 = $1,000
    • Average Customer Lifespan = 3 years

The Customer Lifetime Value would be $1,000 x 3 = $3,000

  • How often should you measure it?: You could employ the historic CLV based on past data or the predictive method to forecast customer behavior based on value-generating touchpoints and how a user transitions between them.
ii. Expansion Revenue
  • What it is: This is the revenue generated from existing customers through upselling, cross-selling, or increasing product usage.
  • How to measure it: 
    To calculate it, first determine the time period (month, quarter, year) and calculate the total revenue generated by existing customers at the beginning of the chosen period. 

    Next, calculate the total revenue generated from upsells, cross-sells, or upgrades during this time. 

    Finally, calculate the expansion revenue: 

    Expansion Revenue = Total Revenue from Expansions – Initial Revenue
  • Example: Let’s say your existing customers generated $100,000 in revenue at the beginning of the quarter, and during that quarter, you generated an additional $30,000 from upsells and cross-sells. 

    The Expansion Revenue would be $30,000 – $100,000 = $-70,000.

    Here, the Expansion Revenue is negative, indicating a decrease in revenue from existing customers.
  • How often should you measure it?: Many businesses calculate this metric on a monthly or quarterly basis. 
iii. Revenue Churn
  • What it is: Revenue churn is the rate at which a company’s recurring revenue decreases due to cancellations or downgrades by existing customers. 
  • How to measure it:
    Revenue Churn = (Lost Revenue from Churned Customers / Initial Revenue) x 100
  • Example: If your initial revenue at the beginning of the quarter was $500,000, and during that quarter, you lost $50,000 in revenue due to customer churn, the Revenue Churn would be ($50,000 / $500,000) x 100 = 10%.

    This indicates that 10% of the initial revenue was lost due to customer churn during the quarter.
  • How often should you measure it?: You can calculate this metric monthly or quarterly. But remember, the frequency can be adjusted based on your business model. 
iv. Monthly or Annual Recurring Revenue
  • What it is: MRR/ARR is the predictable and recurring income generated from subscriptions or ongoing services monthly or annually.
  • How to measure it:
    MRR = Sum of Monthly Recurring Revenue
    ARR = MRR x 12
  • Example: Let’s say you have 100 customers with monthly subscriptions, and each customer pays $100 per month. To calculate the Monthly Recurring Revenue (MRR), it would be 100 customers x $100/month = $10,000/month.

    Annual Recurring Revenue (ARR) would be $10,000/month x 12 = $120,000/year.

    Here, the MRR is $10,000, and the ARR is $120,000.
  • How often should you measure it?: Calculate MRR monthly and ARR annually.

    Remember, you can use tools like Google Analytics or KISSmetrics to collect and analyze data from each stage of the AARRR funnel. 

    That’s the lowdown on the AARRR metric. 

    But great as it is, the pirate metrics framework isn’t the only one in SaaS town. 

Let’s learn about how the AARRR framework measures up against RARRA.

What’s the Difference Between AARRR and RARRA?

But first, what is RARRA?

RARRA (retention, activation, referral, revenue, and acquisition) is the metrics framework Growth Consultants Gabor Papp and Thomas Petit created — based on the AARRR framework. 

Sounds pretty similar to AARRR, right?

As you know, the AARRR framework uses a traditional conversion funnel to monitor marketing efforts where the priority is acquisition. It’s THE key metric for newbie products that must build a solid user base before considering retention and revenue. 

However, the bigger a product grows, the higher chances of customer churn. And as any seasoned growth marker will tell you — it’s cheaper to retain old customers than acquire new ones.

So the RARRA framework reprioritizes the phases so that customer retention is the focal point instead of acquisition. It paves the way for a different method to drive new customers through user engagement without depending on expensive marketing.

AARRR, Matey! Anchors Away to the Land of Growth

The AARRR framework is an excellent way for a product manager, growth hacker, CEO, or founder to achieve sustainable growth. 

By focusing on acquisition, activation, retention, referral, and revenue, companies can identify areas for product enhancement and create a solid growth marketing strategy. 

Looking for ways to expand the acquisition funnel to attract a broader range of users? Get in touch with Startup Voyager

We’re a content marketing agency that can help you create an effective SEO and content strategy to drive revenue. 

Together, let’s sail toward success!

About the author

Startup Voyager is a content and SEO agency helping startups in North America and Europe acquire customers with organic traffic. Our founders have appeared in top publications like Entrepreneur, Fast Company, Inc, Huffpost, Lifehacker, etc.