"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 ensure you won't miss any future posts!).
Where does the AAARRR/ pirate funnel come from?
The pirate funnel comes from product-led growth companies (or companies with a low-touch sales model that lets people sign up in a frictionless self-service process online and may even offer a free trial option).
The funnel is attributed to Dave McClure, the founder of 500 Global, a startup accelerator (formerly 500 Startups).
The big idea?
Find a way to quickly and clearly pinpoint bottlenecks that could prevent exponential growth in the user journey.
In other words, the purpose of the pirate funnel was to find a way to determine a which point (too) many users would fall off the funnel so that marketing or product teams would know how to react to correct the course.
I strongly believe that this funnel model will work for any type of company, and you can map your customer journey following these stages.
Awareness (AAARRR)
If you look at it from the business side, awareness is the stage where you may have the biggest bottlenecks, especially when trying to enter new markets or when launching new products.
Awareness is all about sharing key messages to get on the radar of your potential customers.
The thing is, most of the people you interact with at this stage probably have never heard of your company before.
However, buyers' journeys are not linear.
For instance, in some cases, awareness could also mean reaching people who have heard of your organization, but have the wrong idea about it (or didn't really understand what you were all about, to begin with).
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 them?
- 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 it's not always the case.
An example of a 'sometimes, it's just not that simple' case of awareness
Imagine a company with several services and products.
- They have a bunch of customers purchasing their consulting services.
- But they’d like them to also buy something completely different; a SaaS product designed for their existing customers.
In this case, the target segment for the SaaS product is only existing customers. And so, one could argue that awareness here would be dependent on the existing consulting customers knowing about the above SaaS product.
In this specific scenario, 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.
Acquisition (AAARRR)
If we look at the AAARRR funnel in the traditional way, acquisition means downloads, registrations or sign-ups.
The acquisition stage comes with its share of questions:
- Where do leads come from?
- Are they really interested in what we have to offer?
- Which channel did they come from?
- Which channel brings the most leads?
- Which channel brings the best leads? (this is two very different things)
- Which channel(s) has the lowest CAC (cost per acquisition)?
- Which channel(s) has the best ROI?
When you examine your acquisition metrics over a long enough period, you should be able to identify the channels that can feed your pipeline with the most valuable contacts.
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 for determining and mapping out those channels. According to the framework, there is an inner, a middle, and an outer circle. They stand for channels with the best results, promising channels, and the least potential channels, respectively.
Just remember that you need to look at the acquisition stage holistically. See the full path, picture, or whatever you call it.
You need to consider every step your customers take until they purchase your product. they are called micro-conversions.
Let’s walk this through how we imagine it may look like for our customers at Advance B2B:
- A potential customer types something on Google: That’s the first micro-conversion in Advance B2B’s acquisition process (they probably looked for "best b2b strategic marketing agency").
- They browse our website and sign up to Advance Insider, our newsletter before taking off. That’s the second micro-conversion.
- They eventually came back after clicking the third email they receive from us. It piqued interest and they wanted to learn more. And that would be the third micro-conversion.
- They browse our website repeatedly and then fill out our contact form to ask a few questions, which would be the fourth micro-conversion.
- They're still not a customer (yet). A couple of weeks later, they notice one of our ads on LinkedIn, featuring a customer quote. They click on it — and that’s the fifth micro-conversion.
- They book a call and end up buying a few days later. That’s the sixth micro-conversion.
Considering how complex B2B customer journey can be, it is paramount to track and measure all micro-conversions to:
- Understand your own customers’ journey
- and optimize it by focusing on what really drives your growth.
Of course, the intricacies of acquisition will vary based on your business model. For a low to no-touch SaaS company, acquisition may mean getting new users in your product. For a high-touch company, acquisition could englobe downloads, webinar registrations or contact form fills.
Activation (AAARRR)
The activation phase is for people to discover how valuable your product or service is.
It’s really about providing the best experience and creating the conditions for your contacts to get their aha moment (or the moment they fully understand how valuable a product or service could be for them).
And, it is really about how quickly and smoothly you can get them to that moment.
Some questions that would help you in the Activation stage are:
- How quickly do potential customers or users find the 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?
Should a demo request count as "Activation"?
The short answer: No (or, at least, not on its own).
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 may count as activation.
After all, a demo request is someone going out of their ways to actively reach out. But considering the entire AAARRR funnel, a singled out demo request doesn't mean anything.
Just to repeat it once more, activation is when your potential customers or signed-up users reach their aha moment.
In other words, when they go ...
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Let's recap
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 people) is not yet visible, and there is no aha moment. In a second call, often one of our marketing, 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 our marketing strategy to our customers (at which point, the customer has signed a contract and been with us for roughly 2 months, but still terminate our partnership if we don't meet their expectations).
In these first two months of working with a new external partner, there are always questions:
- Will it work out?
- Will 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 the moment our experts present the strategy to their customers.
Tips on how to find the aha moment:
Now, how can you find the right aha moment and not let the easiest road lead you astray? One way to do this is 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. For the latter, it could be best to involve a third party—so that you don't let your biases cloud your judgment (and, therefore, your conclusions)—and identify their aha moment.
But how does this work in companies that don't offer free trials or freemium? And what about enterprise companies, where implementation can sometimes take more than a year?
Don't take my word for it, as every situation is unique, but in such cases, the aha moment usually comes when your potential customers see the actual product through a test or a demo.
Which metrics to follow?
Considering what I said above, you'll understand that activation metrics will likely vary from one company to another.
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.
Retention (AAARRR)
Retention is a crucial metric (especially for subscription-based models) as 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 customers?
- 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. In short, you want to ensure that your churn rate is smaller than your customer acquisition rate.
Revenue (AAARRR)
No matter how noble your mission is, in the end, we're all in it 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 (CLV), 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 would an annual plan work better? Can you bundle features? The options are really 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, paying an annual fee of 1,000 EUR.
In addition, I made three 1,000 EUR one-time purchases, which would make my customer lifetime value 6,000 EUR.
Referral (AAARRR)
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 or service 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 at Advance B2B work with the funnel during the strategy and define focus areas
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.
TL;DR:
- 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.
