Last updated 13 August, 2022.
"I'm a pirate; hear me roar." Feels like that's the talk of the marketing town these days. And actually, not just these days, but for quite a while now.
Before we look closer at the so-called pirate funnel — or the AARRR framework — let's take a moment and recap that funnels are nothing new in marketing.
At least as long as I can think back, there has always been some idea of a funnel or framework for how customers move through the respective stages of their buyer's journey.
And in its essence, mapping out a buyer's journey is what all that funnel talk is really about.
Back in the days, AIDA was all the rage — and in my golden uni days, that was the framework we learned. (Does that reveal my age now?)
AIDA stands for attention, interest, desire and action.
The philosophy is that you try to get the attention of a reader or someone who sees the ad. Then, you hopefully peak their interest and desire and lead them to action, typically a purchase action. More details in this blog post by mindtools about using the AIDA framework for copywriting.
Later on, Google chimed in and adjusted the model toward ACID (no, not that acid, this isn’t some techno club, nor the 60s.)
ACID stands for Awareness, Consideration, Intent and Decision, and can be used to classify, for example, Google ads terms or keyword searches based on the buyer's journey stage.
Of course, somewhere along the way, HubSpot added its take on mapping out the funnel. They initially started with the TOFU, MOFU, BOFU approach which was predominantly used to classify content in terms of buyer's journey stage.
In other words, from raising awareness to bringing about a decision, and how content can move people along.
And psst: If you’re interested in this topic, stay tuned for more (and subscribe to our Advance Insider newsletter to make sure you won't miss any future posts! 👇)
Where does the pirate funnel come from
The pirate funnel comes originally from product-led growth companies. Or companies with a low-touch sales model that enables people to sign up in a friction-free self-service process online may even have a free trial option.
The funnel is attributed to Dave McClure, the founder of 500 startups, a startup accelerator. The idea was to find a way to pinpoint bottlenecks in these startups’ user journeys that prevented them from growing exponentially.
Or, in other words, to be able to figure out where most users are lost to be able to adjust marketing or product development.
Initially, the funnel was only referred to as AARRR, and awareness was part of it. I promise I won’t digress too much, but considering this was coming from a highly product-led approach, this is a little surprising.
Actually, awareness seems to be the stepchild of all buyer’s journeys, because regardless of if you are sales or product-led, it is commonly undervalued and proverbially (and sometimes even literally) put into a corner.
The only approach that sees its true value would be a customer-led growth company, but now we digress substantially, and we shall save this rant for a separate blog post. Stay tuned.
I believe the funnel works for any type of company. And you can map your customer journey following these stages. Don’t believe me? Book a time to argue with me about it or spar ideas about how your customer journey would look like in the AAARRR framework.
Before we take a closer look at why to use this framework, let’s take a look at the funnel stages and their typical meaning. And how their definitions may change based on the company type.
As mentioned, Awareness was added to the framework because, in the end, this is where a buyer's journey starts.
Especially if you look at it from the business side, it’s the stage where you may have bottlenecks, for example, if you enter a new market, or if you have a new product altogether.
Awareness is all about reaching potential customers and having the initial touchpoints with people. People that you interact with during the awareness stage may not know your company at all.
However, buyers' journeys are not linear, they may also very well have heard about the company or product before but are still engaging at this level.
The questions we need to ask at this stage are:
- How many of these potential customers can we reach or are we already reaching?
- What is the best way to reach these people?
- How many people interact with our current channels?
Metrics you may want to follow at this stage are impressions on Google (either for ads or brand name searches,) social media impressions, reach, shares, or simply just website traffic.
Awareness is typically measured like this but — spoiler alert — it always depends. And here’s one example where the awareness stage may look different.
Let’s imagine a company that has several products. Maybe they have customers from one product, but they’d like them to buy the second product, which is completely separate — hell, even a whole different business model.
Let’s say the first product is a service product, like consulting (growth marketing retainer, maybe.) But then the company also has a SaaS product that they’d like to exclusively sell to their existing consulting customers.
In this case, the target segment for the SaaS product is only existing customers.
One can argue that awareness here would be defined by existing consulting customers. Why should you not look at website visits or any of these awareness metrics? You can probably do that, too, but the business works so differently here.
The reason we are using the funnel framework is to identify bottlenecks and set goals.
In this case, the SaaS product is solely for consulting customers. The total amount of website traffic would not be as relevant nor an indicator of the awareness level of existing customers of the SaaS offering.
If we look at the AAARRR funnel in the traditional way, acquisition means sign-ups. And the questions to follow in the acquisition phase are for example:
- Where do the sign-ups come from?
- What drove the person to come to the product?
- Which channel drove them to go sign up?
You want to know two important things at this stage:
- Which channel brings in the best conversion rate?
- Which channel(s) has the lowest cost per acquisition— CAC?
If you keep a close look at your acquisition metrics, you will, over time, find the channels that help you drive acquisitions. Typically, one or two channels are likely optimal. You can discover these channels for example through experimentation.
The Bullseye Framework is also an excellent method to figure that out and map out your channels. According to the framework, there is an inner, a middle, and an outer circle. They, respectively, stand for channels with the best results, promising channels, and the least potential channels.
Just remember that you need to look at the acquisition stage holistically. See the full path, picture, or whatever you call it.
You can’t only think about where your customers come from.
But, we need to consider every step that your customers take until they purchase your product. We can call these micro-conversions.
Let’s walk this through how we imagine it may look like for our customers at Advance B2B:
How it normally would go is that a potential customer, maybe, types something into the Google machine. That’s the first micro-conversion in Advance B2B’s acquisition process.
They found us through Google, through search engine optimization. What term may they have used? So glad you asked: Super Awesome Growth Marketing Agency — of course.
Let’s say they browsed our website and signed up for our newsletter. That’s the second micro-conversion.
They then left our website but came back because there are awesome marketers at Advance, who then started sending them a welcome email series after a while.
In the third email of the welcome series, the visitor decided to click and came back to our website. And that would be the third micro-conversion.
They browse our website repeatedly and then contact us through our chat to ask a few questions, which would be the fourth micro-conversion.
They still don’t purchase, but after a few days or weeks, they see a great retargeting ad with one of our customer quotes on LinkedIn, and they click on that (and that’s the fifth micro-conversion).
They ask for a call or demo and end up buying. That’s their sixth micro-conversion.
Before converting, be it to sign-up or to becoming a marketing-qualified lead, all those steps count as micro-conversions and should be measured to a) understand your customer’s journey, and b) optimize your customer’s journey.
Now, here is an important point. While in a low-touch company, the first sign-up would be the acquisition (sign-up to the product that is) — in a more high-touch sales company, it probably makes sense to set acquisition as the moment a person becomes marketing-qualified.
When is that? That entirely depends on how you are using definitions in your company.
Some companies set MQL around several activities and criteria, others may choose to define MQL solely as contact request/demo request in addition to meeting criteria that ensures the company is not only actively interested (reaches out) but also is the right fit.
Here comes a tangent:
Did I promise I wouldn’t digress too much? That must have just been just my imagination.
If we continue to look at our own funnel at Advance B2B, one possibility to define acquisition would also be ‘won deals’.
After all, this is the closest to what acquisition in its original form means. We have acquired a customer, a new customer. Now how does the activation phase then look? Read on, my friend.
The activation phase is for people to discover how valuable your product or service is.
Only this and nothing more [yes —Edgar Allan Poe’s ‘The Raven’ is one of my favorite poems, and I can recite it by heart any time of the day. And there’s nothing that makes me quite as happy as sneaking in random quotes here and there — nameless here forevermore.]
It’s all about the first experience with your brand and product.
The better it is, the happier the customer. Activation is about the aha moment, the moment a customer gets that your product is fantastic, and why they should love it, and how it will help them in their daily life.
And, it is really about how quickly and smoothly you can get them to that moment.
Think about a product you sign up for, or an app you download. It’s not enough that the customers sign up for your product or download the app. Because if they sign up or download, then open it only to hate it and close it, you didn’t achieve activation.
You didn’t get them to the point where they understand why they should be using your product.
Some questions that would help you in the Activation stage are:
- How quickly do (potential) customers or users find the added value of your product or service?
- What do customers find the most valuable about your product or service?
- What does activation mean for your product or service?
Tiny Rant alert:
I have to start this rant with a confession: when I first used the pirate funnel for sales-led companies to map out a customer journey, I found myself ever so inclined as to decide a demo request maybe counts as activation.
After all, a person somehow seems activated, has an intent to actively reach out. But it’s just not right. The activation stage really will help you distinguish the AAARRR funnel from merely mapping out your sales funnel.
Just to once more repeat it: activation is when your potential customer or signed-up users reach their aha moment. In other words when they go like
And let’s face it, your website may be the greatest, your texts the best, your visuals ever so compelling, but at the time of sending in a contact request, a person has only inched closer to your product’s aha moment.
If I continue the example from earlier about our own funnel at Advance B2B, I stated that maybe the true acquisition stage is when we win a new customer.
Now, what would activation then be?
Let’s look at how the customer journey continues. The customer has decided to go with Advance B2B. Signed the contract and met their new team. We have an introduction call, a kick-off workshop, and an ICP call.
We will conduct customer interviews and dive deep into our new customers' data in order to come up with just the right strategy for these customers.
You can read more about the details of the strategy phase in this blog by our customer, Mira Leinonen from TalentAdore.
But in short, after roughly two months it all comes down to the ‘Growth Marketing Strategy Walkthrough.’ In this call, the Growth Marketing Strategist and the customer team present the playbook to the customer.
This is the moment the customer first will see the true value that we bring to them. Before that, they may already have an idea, but I believe customers may still wonder if they made the right choice and found the right partner.
If all goes well, after the walk through their feelings are confirmed and they understand the work we put in to find the right strategy and tactics just for them.
At this point, we also ask them the first time for a sprint happiness score (it’s a number from 0-10 that we ask at the end of each sprint to be able to understand if we managed to deliver a great service level to our customers in terms of results, working together, communication and accountability.)
By this example, it becomes clear that the customer journey and sales process are not the same, and it’s good to resist the inclination to use the sales process as an outline for the funnel.
Tiny recap alert
For us at Advance B2B, it may look like this: a potential customer sends in a contact request and books a meeting with one of our sales reps. They have a call and the sales reps evaluate if the potential customer would be a good fit for us.
The product (which in our case awkwardly is us, the different people working with our customers) is not yet visible, and there is no aha moment. In a second call, often one of our growth marketing strategists or content or advertising strategists joins, and we have prepared a few suggestions for the potential customer.
Maybe that is an aha moment? Maybe. Or maybe in our case, the aha moment only comes after the initial purchasing decision is made, and we have presented the growth marketing strategy to our customers.
At this point, the customer has been with us for 2 months. They signed an ongoing retainer, sure, but they can always terminate the contract within a notice period.
In these first two months of working with a new external partner, there’s always a question: will it work out, does the investment pay off? Do they understand our business? And will they really make a suggestion that is exactly right for our company instead of just coming up with some cookie-cutter standard consultancy bullshit?
This is why I strongly believe that the real aha moment for Advance B2B’s customers is at the moment the team presents the strategy to the customers.
Tips on how to find the aha moment:
Now, how can you find the right aha moment and not let yourself be led astray by the easiest road? One way to do this would be to sign up for the product yourself.
This is particularly easy if you either have a demo account, or if we are talking about a product with a Freemium version or free trial. In this case, you may even want to ask someone else — who is not so mentally involved with the product — to sign up and let you know when they reached their aha moment.
But how does this work in a company without a free trial or Freemium, or even a company where the implementation takes up to a year or more (enterprise I hear you trapping)? Well, in this case, find your comfortable position, maybe sit upright, or lie down flat.
Focus on your breathing for a few breaths. Breathe in through your nose, out through your mouth, and relax. Now, slowly close your eyes and envision how a potential customer comes to your website, prods around, maybe reads a few blogs.
If you feel yourself getting distracted and thinking in terms of technicalities such as marketing or sales-qualified leads or god-beware deals at this point — it’s fine. Simply acknowledge it, and focus back on the customer you are envisioning.
Ok, the customer sends a demo request and after a bit of email back-and-forth ends up having a call with your salesperson. Breathe in and breathe out. Focus on the customer.
Now, is this a call where your sales rep is asking discovery questions or are they already giving a demo? If there is a demo, you can define the time they see the product’s aha moment.
If not, keep breathing in and out and think about the customer journey further. If it’s just your colleague in sales having a discovery call, then you need to go on. What happens after.
When does the potential customer get to see the actual product, and be it with a test instance or a demo? That is your aha moment.
Which metrics to follow?
This means that activation metrics can be really different for each company.
For some companies, it might be what they define as product-qualified leads, certain in product behavior, and for other companies the moment they see a demo or get to test drive the product.
If there would be one metric we could start SaaS and subscription companies with, then it would be Retention. It’s, by far, in my opinion, one of the most critical metrics. Customer retention can be what makes or breaks a successful SaaS company.
Retention is a crucial metric, especially for subscription-based models.
Because it gives you insight into whether your business is doing well or not. In the end, you can always find ways to get a lot of new users. Don’t believe me? Here’s the late and great HBO Show Silicon Valley.
How are you taking care of retention - here are some questions you can ask yourself:
- How do you keep customers informed?
- How do you improve your relationship with your customer?
- How many active users do you have?
- Is your service something that provides value through continued or one-time use?
So, take a good look at the retention metric, or the churn metric, which is the opposite of Retention. You want to ensure that your churn metric rate is smaller than your customer acquisition rate.
How do you define churn? Well, that is a whole other topic and, in fact, we even have it covered.
But in short, the churn rate shows the total percentage of customers who stop doing business with you over a certain period of time. For example, if you have 100 customers and 5 of them leave, your churn rate is 5 percent.
Advance B2B as example:
In our case, the revenue stage comes before retention, as customers pay for our services from the moment we start working together. However, retention could be defined as staying over a certain amount of time.
No matter how noble your mission is, in the end businesses are around to make money. Money = revenue. What does revenue mean for you? In most cases, it means the sweet spot when your customers start paying for your product.
If you have a Freemium product, that would be the moment they upgrade to become paid subscribers.
And, naturally, the conversion rate from acquisition to revenue will be very interesting to watch and can and should be one of the key metrics for you to aim at.
Questions that can help are:
- What is the Customer Lifetime Value (CLTV), and how can we increase it?
- What revenue models/prices could you test that would make it easier for your customers to generate revenue? Maybe your pricing is monthly, but annual could work better? Can you bundle features? The options really are quite limitless.
For Revenue, we need to look at two metrics and how they stand in relation to each other.
- Your customer acquisition cost – CAC
- Your customer lifetime value – LTV
And of course, classic revenue metrics are also ARR (annual recurring revenue) or MRR (monthly recurring revenue).
Some other metrics that could be relevant:
- Trial to paid conversion
- Freemium to paid conversion
- Average Revenue per user – ARPU
Let’s say I am your customer, and I’ve been with you for three years. Maybe I paid an annual fee of 1,000 EUR per year. In addition to that, I also made three 1,000 EUR one-time purchases. In that case, my customer lifetime value would be 9,000 EUR.
But let’s say your customers stay with you on average 10 years (a dream, I know) and make, on average, additional one-time purchases of 3,000 EUR. Then, my customer lifetime value would already be 90K EUR.
Keep that in mind when you may obsess over the fact that I originally became a customer through a LinkedIn ad you ran, and your CAC for Linkedin is around 20K EUR.
The Referral stage is all about customers or users who will refer their network to you. And the eternal question we may all ask each other right now is: How can we turn our customers or users into advocates?
Well, it’s a good question. With no good answer. The most important thing is to have a product that provides real value and the second step is to think of ways to incentivize customers to share the love.
They also let you know how happy people are with your product.
If someone is raving about your product, they will tell other people about it. If they’re kind of mad about your product, they’re probably not going to go out and tell their friends about the best thing they have experienced.
Or even worse — they will tell others about it, and the old adage of ‘All publicity is good publicity’ may not quite apply here.
Referrals are a really powerful way to spread the word about your business at a very, very small cost. All of us marketers probably sometimes dream of being able to create a customer base through word of mouth, and the likes.
And while we may not immediately achieve this, thinking how we can delight customers and help them feel a sense of belonging will get us there.
Useful questions to ask are:
- Why would someone refer an acquaintance to you?
- At what point in the customer journey is someone most willing to refer to someone?
When it comes to referrals, there are two metrics you want to look at:
- Net Promoter Score – NPS
- Viral coefficient
It may also be that you are measuring referrals in a different way.
In practice: How we work with the funnel during the strategy and define focus areas
Now, we spent a good amount of time discussing how the funnel stages can be defined, what metrics to measure and what the different stages may mean for different types of businesses.
But how can you use all this in practice? In this chapter, I’d like to elaborate a bit on how we usually work on the growth marketing playbook for our customers. Mapping out the funnel is an essential part of it.
It all starts with defining the funnel stages for our customers. What does this stage mean for their customers? We often do a task in one of our workshops where we ask customers to define, from their perspective, what these stages look like. During the customer interviews, we ask our customers’ customers how they move through the buyer's journey.
All this information equips us to define the different funnel stages for our customers. In the next step, we look at the data points for the funnel stages’ main KPIs. I usually take the data from the entire previous year and add it to the funnel.
Once all of that is done, we look at the conversion rates and this is what will inform the strategy we build because here we can see where the true bottlenecks are.
Often customers come to us and say they need more leads, more sign-ups — but when we analyze this, we find out where the real problem is. For example, if a customer has a lot of sign-ups but none of them convert to paying customers it should at least be one of the focus areas of our strategy to tackle this question.
Understanding the customer funnel, knowing the data helps to identify where the real impact lies.
And it goes back to what growth marketing is: Growth marketing (among other things) works across the entire funnel and in order to choose where to start, what to prioritize, we need to know the funnel and pinpoint bottlenecks.
Other funnel types
Now we covered how to define the stages and how to use the funnel in practice.
Let's take a brief moment and reflect that while the AAARRR funnel is a widely used framework, it is not the only one.
Some may argue that especially the AARRR framework (remember awareness was left out here) dates back to a time when acquisition was cheap, and that’s why companies started with it.
It may be argued, as also mentioned earlier, that retention is the real key to business success. It’s not enough to get new users, it’s even more important and the real key to growth is to keep them.
This is where the RAARRA (Retention, Activation, Referral, Revenue, Acquisition) model comes from.
And it’s worthwhile to consider this model, especially if you already have a number of customers. For companies that sell to enterprises this, at least at the moment, may not be the right model, though. This is because typically once an enterprise customer is sold, the product comes with a somewhat heavier implementation, which makes it less likely for the customer to churn quickly.
But if you are a company that has a sizable customer base, this may well be the place to start.
Personally, I’d love to add another A somewhere on this funnel, maybe we could consider the ARARRA model. Awareness, Retention, Activation, Referral, Revenue and Acquisition. I’d love for this to become known as the parrot funnel (forget about pirates, it’s all about their parrots).
No matter what funnel model you end up using, though, the most important thing is to make sure to use the funnel to map out your true customer journey.
- Your sales process is not the customer journey, don’t treat it like that.
- Focus on really understanding when your customers reach their aha moment, no matter how enterprise, high touch sales, non-SaaS you are. Hell, even if you are the love child of IBM and SAP, your customers will have a point when they discover the value of your product.
- Don’t settle for anything less than that.
- Parrot funnel for the win: ARARRA - Awareness, Retention, Activation, Referral, Revenue and Acquisition.