One metric to rule them all
If there is one thing important for startups, it is focus. The same applies to analytics. Startup life is chaotic enough and you can not have an overview of everything at the same time. To effectively apply analytics to your startup, it is important to focus on one metric at a time. We are basically talking about your KPI’s, but for the sake of clarity, let’s use the term Key Metric.
In the previous blogpost we introduced the Pirate Metric framework. Pirate Metrics are called Pirate metrics because they focus on AARRR. Acquisition, Activation, Retention, Referral and Revenue. We do not only call it AARRR because it sounds like pirate talk, but also because it follows the typical user journey. A user gets acquired, activates, comes back, talks about your product with their friends and starts spending money.
It is, however, not the right order in which you start optimising each part. It is useless to optimise your acquisition funnel when none of those users perform your key activity. The right order would be RARRA. Retention, Activation, Revenue, Referral and Acquisition. (But that does not sound very catchy, does it?)
Why start with Retention? Because retention is the formula to user happiness. Only happy users will keep using your product. Happy users spend money, happy users spread your product via word of mouth. To be able to optimise retention you need some users, but you can easily solve that via Facebook Ads or Adwords. For a couple of euros a day you have a fresh batch of users a day to experiment on.
Please note that a low retention can either mean your product is not solving your users problem or that you are not targeting the right user segment with your acquisition. Getting featured on Techcrunch normally screws up your whole funnel because the average TC reader is not your ideal early adopter. Optimising retention involves searching for a way to make the right users happy and normally involves a lot of customer interviews. A great retention is a clear signal that your product is solving your user’s problem.
When you are happy about your retention it is time to optimise your Activation. That way you can easily grow your user base while not spending more effort and money on your acquisition. And since your retention is great, those users will also keep using your product.
Only when your activation, retention, revenue and referral rates are good it is time to start focussing on acquisition. Your product is working and it is time to optimise your cost of acquisition and your acquisition channels. After that, you start spending like there is no tomorrow. Every euro spent in acquisition should create more than a euro in revenue. Congratulations, you are scaling! By focussing on one metric at a time.
Timan Rebel has over 20 years of experience as a startup founder and helps both independent and corporate startups find product/market fit. He has coached over 250+ startups in the past 12 years and is an expert in Lean Innovation and experiment design.