Pirate Metrics for Scaling Tech Companies
Pirate metrics were devised by business guru Dave McClure as a five-step framework to tracking metrics that help drive business growth. It’s called pirate metrics because the five steps form an anagram that spells AARRR. The steps are acquisition, activation, retention, referral, and revenue. Although these metrics were designed to help start-ups, they also apply to scaling companies of all sizes.
The Five Metrics That Matter
According to McClure, the pirate metrics are the ones you need to optimize if you want to scale successfully. Here’s a basic primer on the five metrics:
- Acquisition: This is arguably the most important step, because if you don’t have customers to buy your product, then you can’t achieve any of the other steps. Need a quick and dirty tip for tracking acquisitions? Use website analytics like Google Analytics to track website traffic from a variety of sources.
- Activation: This step could also be called conversion, but that doesn’t fit the fun AARRR The key to this metric is finding out exactly when, where, and why your customers convert. Again, studying Google analytics to learn what sources of traffic are actually converting is key to understanding where to focus your efforts.
- Retention: This is where you fuel sustainable growth. The keys to retention include collecting data, analyzing data, and using email marketing strategically.
- Referral: The majority of customers these days rely on referrals, testimonials, and reviews when making purchasing decisions, so if you can leverage happy customers to generate more happy customers, then you’re on your way to achieving long-term growth.
- Revenue: There are a number ways you can increase revenue – by upselling, getting referrals, and opening up new acquisition channels – but it often boils down to increasing the lifetime value of your customers and decreasing the customer acquisition cost.
Determining Your Important Metrics
Marvin Liao of 500 Startups is an early-stage venture capitalist that has worked in start-ups and large businesses. He’s also one of the experts in the Lazaridis Scale-Up Program. Marvin agrees that pirate metrics are an important framework to any tech company that’s looking to scale.
Every tech company is unique, so each company will have what Marvin calls “the one metric that matters.” Some companies, for instance, may focus on leads, while others focus on revenue, but either way you must have “that one metric to show everyone in your company to let them understand…the one thing your company should be doing to focus on growing,” says Marvin.
The problem that many companies face when they scale is that they don’t systematically focus on that one metric, and it’s usually because they haven’t established what it is. Your metric that matters shouldn’t be arbitrary, but rather determined by where in the funnel your company is falling short. For instance, some companies have a retention issue, and in that case, the “worst thing you can do is actually get more customers,” says Marvin. “You should be focusing on fixing the retention issue that you have, and before you get new customers, understand what the biggest gap and issue is.”
Once you understand pirate metrics, you can assess your own company’s performance to determine where you’re succeeding and where you still need to improve. This type of in-depth examination can save your ship from sinking when you’re in the start-up phase, but it can also help lead to success when it comes time to scale.
Determining and tracking the important metrics for your scale-up company is just one of the topics we discuss in detail as part of the Lazaridis Scale-Up Program. Find out more at http://www.scaleupprogram.ca