The Pirate Funnel: Finding growth for your business
What is the Pirate Funnel?
The Pirate Funnel, also known as, AAARRR funnel (hence the name Pirate), is a framework used by growth hackers & businesses for understanding the complete funnel of a company and to find opportunities for growth hacking. The funnel consists of 6 steps that go as following,
As you can see, a metric is connected to each step in the funnel. This metric can differ per company. Also, the order of the steps within the Pirate funnel can change depending on what kind of business it is being used for. But before I show you the ways that you can use the Pirate funnel, let’s look back into its history.
Where does the Pirate Funnel originate from?
There is no doubt, the Pirate Funnel is a key framework within the of growth hacking world. Although growth hacking hasn’t been around for too long, the funnel though, dates back to 1898. That’s right, more than a century ago. Before we were all born (I assume) E. St. Elmo Lewis, for the first time in marketing history, broke the customer journey down into AIDA’s 4 steps:
Now, jump cut 109 years. It’s 2007 and Dave Mc Clure, Founder of 500 startups, introduces the Pirate Funnel as we know it. Truth be told, not entirely as we know it, awareness was initially left out of McClure’s picture but was rightfully added later on. There was, and still is, some confusion around the order and the number of the steps, partly due to the fact that the pirate funnel kept changing and adapting to suit the time and the kind of business it served.
What are the steps in the Pirate Funnel (AAARRR)?
Awareness: How many are reached?
Is about making the audience aware of the fact that your product even exists. Therefore, ask yourself how many people you reach in certain timeframe?
How? Use the 19 traction channels to your advantage.
Acquisition: How many people visit your website?
Is about turning visitors into customers, it’s essential to start creating your user base. So measure for example how many weekly visitors or app users come through.
How? Build growth engines, using organic, CPC and social channels
Activation: How many take the 1st important action on your website?
What is the user’s first important interaction with your product? This could also be the completion of a sign up form or putting a item in their cart.
How do you find this metric? Define the Aha moment for your visitors.
Retention: How many people return or stay customers?
Is about retaining your users. Find the bottlenecks where visitors drop off the most and discover the reasons why your customers churn. Counter this by implementing changes that serve their needs.
How? Take a look at The Hook Model
Referral: How many customers are acquired through other customers?
Your customer can be the perfect channel to grow your business. So the amount of people buying through another’s referral code, is a metric that deserves its attention.
How? Build referral systems that motivate your customers to tell others about your product.
Revenue: How much do you earn per customer?
Measure the amount you earn per customer and also how many new paying customers you have acquired over a certain time.
How can you optimize revenue? Think about pricing, upsells and cross-sells.
Why you should use the Pirate Funnel
At Sprints & Sneakers we use it at the start of new projects. It helps us find the bottlenecks of a business and therefore one of the first points of attention.
This is why the Pirate funnel is so valuable, it guides you to the right direction for growing a business.
For example, if you see that a lot of customers are not returning to your business after one purchase, what do you do? Consider activities that focus on retention. Maybe your website is not offering enough products or maybe your product is not providing enough value for your target audience. These are questions you need to find answers to.
Growth hacking vs Traditional Marketing
Traditional Marketeers’ approach to the pirate funnel can be easily described as “Top of funnel focused”. That’s the main difference between traditional marketing and growth hacking when approaching the funnel. Traditional marketeers are dedicating their time and energies mainly on the start of the funnel, stressing the importance of awareness over the other phases.
As a growth hacking agency, we see this kind of approach to be limiting, to say the least. Our primary intent is to be present in every stage of the funnel, from the very first touchpoint to the achievement of loyal, referring clients.
When focusing solely on the top of the funnel you will certainly end up missing big growth opportunities that lie in the other phases. And you should know it by now, growth hacking means running experiments across the whole funnel, identifying strengths, weaknesses and the areas to optimize in order to achieve sustainable growth.
Which metrics to use in the Pirate funnel
As you might know (if you don’t, this is the blog you need to read asap) the very first thing to do in your growth hacking process is defining what the North Star Metric for your business will be.
That one metric everything revolves around, the one you’ll use to measure if something is a success or a failure. Is the key to sustainable growth, the one thing you should be always looking at, what drives every decision.
The NSM should be communicated and shared, the common goal everyone is working towards.
“Is the NSM the same thing as an OMTM?”
To cut it really, really short, the NSM is the most critical metric, it represents the value you’re delivering, while the OMTMs are specific for each funnel phase and they work in function of the NSM.
Let’s just quickly go through some typical metrics in the Pirate funnel:
- Awareness – Cost Per Thousand (CPM)
- Acquisition – Customer Acquisition Cost (CAC) and (CPA)
- Activation – Activation rate
- Activation – Time until activation
- Revenue – Average revenue per user (ARPU)
- Revenue – Customer Lifetime Value (CLV)
- Retention – Churn rate
- Retention – Net Promoter Score (NPS)
How to start using the Pirate funnel
1. Choose the steps within your Pirate funnel
As mentioned before, the exact composition of the Pirate funnel depends on the kind of business it is used for. So start with describing your business and how people flow from the awareness, all the way to revenue.
These steps could for example be a visit to a landingpage, leaving a comment, creating an account or subscribing to a newsletter.
Did you define every step of the AAARRR funnel with a metric? Good, let’s move on!
2. Implement the data for each step in the AAARRR funnel.
Of course, you need to have the insight first. So in the case that the data is not tracked yet, start with setting up the tracking and defining the metrics. But be careful though, don’t get lost in all that data! 😉
After you’ve set everything up, give it some time to gather a sufficient amount of data.
Tip: Make sure to use UTM tracking for all your campaigns. This way you will also see what is working well in the awareness phase.
3. Identify the bottleneck
Take a look at the overview you just made, each step should have a number to it. Up next is to divide the next step with the previous step.
5.000 clicks / 50.000 impressions. = 0.1
This means 10% of the impressions clicked.
Do this for all steps in your Pirate funnel. Eventually you will have percentages which you can compare next to each other. Then you can ask yourself, between which steps is the highest drop-off?
Found it? Dive deep into what might cause the problem. After that, move on to the next step.
4. Finding solutions to your problem
Once you’ve identified the root problem. Start gathering ideas for solving this problem.
One tool we use at Sprints & Sneakers for ranking our ideas, is the ICE model.
ICE Stands for:
For each of these aspects, rate the ideas you have from 1 to 10. Sum the numbers and you will have your ICE score.
Do this for every idea you write down. Afterwards you can start ranking all the ideas and pick one that provides impact, which you feel confident about and is easy to implement.
5. Shift focus - Squeeze!!
You might wonder when to start shifting your focus on another metric. One way to think about it is the squeeze toy.
Once you squeeze on one side, the other side starts to bulge. Think like this when using the Pirate funnel. Look for another metric in your funnel which is changing the most. This metric should be your next point of attention.
So first focus all your effort on improving the percentage between the steps wherever the highest drop- off is. Eventually, you’ll see that metric improving and at that moment, after the squeeze, look for the bulge.
We hope that you are ready to start implementing the Pirate Funnel in your projects! We believe that this framework is one of the most useful for growth hacking a business. The AAARRR funnel provides a solid foundation which you can always look back to whenever in doubt of what to focus on next.
Hesitant about implementing this tool for your own business? Feel free to ask us for help.