A Model to Identify Startup KPIs

At Simpleweb we have a product exercise that we do with clients that enables everybody involved on a product to be on the same page.

The exercise is made up of smaller exercises that we’ve found to work best over the years. One of these is the AARRR or “pirate” (get it?) metrics model.

The AARRR startup metrics model was developed by Dave McClure as a 5-step model for creating a metrics framework for your business and customers. You can watch the original talk and view the slides here.

Dave McClure first spoke of the AARRR model back in 2007 and it’s something we often recommend to clients or other entrepreneurs who ask for our help due to its simplicity. However, we’ve made some changes along the way, and adapted the model (or at least the way of explaining it), to better suit the entrepreneurs and businesses we’ve met over the years. In this post, we’re going to explore and explain the AARRR model as we see it to be the most helpful.

The AARRR model

The point of the model is to help entrepreneurs to identify the most important and desirable things you want your customers to do with your product. By identifying these key behaviours, you will be able to create a strategy to help you optimise the KPIs related to each behaviour.

The belief behind the model is that every behaviour a customer can do with your product or service will fit into one of the following 5 categories. There’s generally a lot of ambiguity around these terms, so I’m going to explain them in the context of how they fit into the AARRR model as we see it. You might disagree, but this is the way of thinking that we find works best to help entrepreneurs use this model to its fullest potential.

The categories are as follows…

Acquisition

Acquisition is the term used to describe the things people must do to get inside your system. In this instance, acquisition does not necessarily mean becoming a user, but rather taking the steps necessary to become a user, such as viewing your landing page, browsing your content and creating an account.

Activation

There are two key steps to activation: onboarding and completing a desired behaviour for the first time. Activation is the step where a person goes from being someone interested in your product to an active customer.

This quote from Ash Maurya sums it up nicely…

“Activation actions typically start with your sign-up process and need to end with the key activities that define your product’s unique value proposition.”

It’s absolutely key at this point to figure out what an active user is to you. Onboarding (filling in a profile, going through tutorials etc) is a step towards being an active user, but is an onboarded user an active user? Think about Tinder – everyone has to sign up and fill out their profile, but are they activated once they’ve created an account, when they like someone or when they get their first match? If you run an online store, is an active user one who browses, or one who buys?

Generally, an activated user is one who has completed the core functionality of your product successfully for the first time. Anything before that is a step towards activation.

Retention

Retained users are those who continue to engage with your product in a meaningful way. If activation is completing the key task of your product for the first time, then retention is users coming back to complete that key task again and again.

If activation is a customer buying their first product, retention is the customer making repeat purchases. If activation is a customer uploading their first photo to your site, retention is the customer continuing to upload photos on a regular (to be defined by the entrepreneur based on the business model) basis.

Referral

Referral behaviours include things like sharing via social sharing buttons and inviting friends in return for rewards or a better experience.

You should be making it as easy as possible for your customers to share your product. Great referral features make it easier for your product to grow organically. A quick Google search of ‘viral marketing’ might give you some ideas for integrating referral features into your product.

Revenue

Simply what are your revenue streams and how do they relate to customer behaviour?

Example

With an understanding of what sort of behaviours the AARRR model focuses on, it’s worth looking at a couple of examples.

Gumtree

Gumtree is a website of classified ads that allow people to buy and sell anything from houses and cars to pets and furniture. If you’re reading from outside the UK, think Craigslist.

Under each of the five groups of behaviours described above, we need to identify the key actions a user can and should take. For Gumtree, that might look something a bit like this…

It’s not uncommon for people to consider an active user to be one that browses content, however, this provides little value to the business itself. Depending on your site (and the barriers to entry for content), browsing may be a step towards acquisition or activation (or both), but browsing content rarely makes an activated user.

At this point, it’s worth including everything you can possibly think of and trim down later. Once (and only once) you’ve filled in everything you can think of, consider which behaviours are absolutely key to your business’s success. These are going to inform your KPIs.

A note on channels

If you wanted to, you could add a column before “acquisition” called “channels”, detailing the ways people might find out about your product (e.g. social media, PPC, search). While this isn’t a key part of this exercise, it may help you to identify marketing metrics to narrow down on.

Metrics

The real key to the pirate metrics model is taking everything we’ve talked about so far, and turning it into something useful and actionable. It’s about finding the key metrics that will help you track your business’s success.

Based on the desired user behaviours you’ve identified, and user flow, you should be able to identify metrics that will help you understand if your users are doing what you want them to do and identify key areas for improvement. By tracking these metrics, you will be able to understand where users are dropping off and focus on optimising those areas.

Here’s where we need to slim down the ideas above. While it’s tempting to measure everything your users do, you ideally want to focus on 3-5 key metrics that indicate true success for your business. If you’re spending too much time getting wrapped up in vanity metrics, you’re likely to miss the real picture of what’s going on in your business.

Now, of the behaviours you identified above, pick 3-5 that are absolutely critical to your business model. Here’s what I might choose for Gumtree…

By tracking these five metrics, Gumtree can see where there’s customer drop off, and work on improving those areas, or pivoting completely. For example, if the site was getting lots of pageviews, but very few people posting items, they’d know to put more effort into campaigns encouraging people to post. If few people were using paid features, they’d know to push this more, perhaps to people who have posted a lot of items.

Conclusion

Typically we’d recommend going through all of this before you start building your product, but if you haven’t done it yet, it’s worth doing now. Not only will this help you pick out KPIs to measure your startup success, but it’s a really great exercise to get you thinking about how people will use your product, how you want them to use it, and what you want both your business, and your customers, to achieve.

This isn’t just a one-time job. Unless you’ve nailed it immediately (and even if you have), your business is going to adapt and grow over time, so keep track of the metrics you identify and revisit this exercise regularly (every month, every quarter, every year, depending on how fast your business is growing) to see how your goals have changed.