Growth hacking is not just for Growth Hackers, it’s a mindset. A mindset available to everyone thanks to AARRR funnel.
In fact, Sean Ellis, the guy who coined the term in 2010 (and co-founded growthhackers.com) gave this definition of a Growth Hacker:
“A person whose true north is growth.”
You’ve got it right, growth hacking is all about hacking growth and it applies to anyone who wants to grow their company. It’s at the intersection of creative marketing/experiments & data/automation and engineering.
As growth is measured with numbers, data is core to growth hacking. But what numbers and in what order?
Meet the AARRR funnel
Salespeople talk about it all the time: it’s all about the funnel. For growth hackers, this tunnel is called the AARRR funnel which stands for Acquisition, Activation, Retention, Referral and Revenue.
Introduced by Dave McClure in his famous “Startup Metrics for Pirates” deck, it has proven very effective for startups that have used it. With this funnel, you’re in fact following your users in every step of the way and have a chance to optimize their experience of your product!
I would lie if I said I also was not greatly influenced by Neil Patel’s Definitive Guide to Growth Hacking where he sums this AARRR funnel into Get Visitors (Acquisition), Activate Members (Activation) and Retain Users (Retention).
I like to think of it as a framework for core growth metrics that also helps to organize KPIs. In fact, it won’t always apply to your business model and that’s ok, you can make it yours!
- Dropbox has an incentivized referral program (free storage if your friends join) and referral comes before revenue
- For a classic Ecommerce website like Amazon, we won’t usually talk about retention before users make a purchase (revenue)
Be sure to keep one thing in mind: it’s all about optimizing your funnel.
Now let’s jump in the five steps and go through them with adapted examples and KPIs (key performance indicators) to watch.
This is how your funnel starts.
Ask yourself how do your users/customers come in contact with your product? Answering this will give you an idea of your different acquisition channels. In the book Traction: How Any Startup Can Achieve Explosive Customer Growth, the authors talk about how to get traction through finding and optimizing your acquisition channels. Done properly with constant user testing, it seems to be a secret formula for startup success aka growth.
In the venerable Neil Patel’s words:
“Getting a visitor is like going on a blind date.”
There are three main types of acquisition channels. Here are some:
- Targeted audiences
- Referral programs
As an example, Warby Parker (they sell glasses online) have an ecommerce website with a blog (SEO), are awesome at social media and have a smart email marketing strategy.
KPIs to watch for acquisition:
- Page views (#)
- Acquisition cost ($)
- Conversion (%)
How does you user react when he/she sees the pull/push/product initiatives you offer? What action do they take, and does it benefit you?
You often have to define what activation means for your situation whether it is creating an account or downloading a free ebook.
That is the part of the AARRR funnel where you begin to optimize with A/B tests based on the usage data you get. With as little as Google Analytics, you can begin testing different versions of the same page! If you’re fancier and more serious, Optimizely can help you run pretty advanced tests effectively. As long as we talk A/B tests, please keep in mind you need a minimum number of users in order for your test to be “statistically significant”. Optimizely offers a nice tool to calculate that.
In Neil Patel’s words:
“Activating a member is like being in a relationship with someone”
You often have to define what activation means for your situation. If we take the example of a restaurant, activation could be someone in the street who sees your menu outside and decides to come in.
KPIs to watch for activation:
- Account creation
- Newsletter subscription
- Usage stats
Did your users only came once? Or come back only once a month?
Retention is all about the usage of your service or product over time. That’s where you will see they like what you have to offer and come back for more. That’s the “returning visitors” of your Google Analytics (if you want to keep it simple). If you want to go further, this is where you’ll dig into cohorts analysis (data sets regrouping similar users ) to analyze users entire life cycles, frequency, etc.
Another useful thing is to conduct retention analysis based on weekly/daily cohorts, which will allow you to see how much of your users stick around after activation (or any action).
In Neil Patel’s words:
“Retaining a user is like getting married.”
If we’re talking mobile apps, retention is often measured with MAU (monthly active users) and their frequency. If you’re like Facebook and have 1.13 Bn DAUs (daily active users) you’re doing fine! A great way to increase retention on mobile is to send targeted push notification to remind your users of your app and make them come back.
KPIs to watch for retention:
- MAU: monthly active users
- Session time
A working referral is the St-Graal of every growth hacker. It means that every user/customer is bringing you some more users/customers. There is in fact a viral coefficient K and if it goes over 1 (pretty rare), you’ve gone viral!
But not every viral loop is born equal. It can either be:
- a network effect viral loop like with social media: you want more of your friends on the platform because it benefits you
- a rewarded viral loop in which you incentivize the user to refer friends: Airbnb is a good example.
KPIs to watch when it comes to referral:
- K: viral coefficient (K > 1 = viral)
Depending on your offering you can have very different revenue models: this is an important part to figure out. It can be ad-based (Facebook), subscription-based (Evernote), one-time payment (WordPress themes), hybrid with subscription & fees (Shopify), you name it.
The important thing here is that it has to be part of your funnel somehow. It’s your bottom-line and what makes your company thrive (or stay alive). Your whole AARRR funnel indeed has to be optimized for this specific revenue step.
KPIs to watch for revenue:
- Average Revenue per User (ARPU)
- User Lifetime Value
But how do I compare?
Fair question. It’s hard to compare since each company is unique but there are still good benchmarks out there like this one for SaaS.
Be smart about your numbers, they might not be possible to compare with other industries or business model.
Just make sure your numbers are always on the upward trend and you’re headed in the right direction!
With a flexible growth framework like the AARRR funnel, you can pretty much growth hack any business you want. It’s all about experimenting and keeping growth in mind along the 5 main steps of the funnel:
Have you experimented with the AARRR funnel yet? Let me know in the comments 🙂