There are quite a number of Marketing Frameworks followed by organizations all over the world. In 2007, Dave McClure, an entrepreneur based out of San Francisco, devised one of the high growth yielding frameworks — AARRR. This has become the standard framework used by SaaS companies today.
A — Acquisition
A — Activation
R — Retention
R — Referral
R — Revenue
Let’s go through an overview of each level.
From where do your ideal users come from? (or) What’s the most successful channel through which you acquire users? What’s the channel with the minimum acquisition cost? Figuring this out is critical for any business.
For most businesses, their website is the hotspot for user acquisition. For a few other businesses, the app downloads in the app store are their acquisition channels. Whatever the channel, the marketers need to identify the metric that matters the most and keep working on it to push the numbers higher.
Let’s take the example of a SaaS business. An ideal acquisition flow would be,
SEO/SEM -> Website Visit -> Product demo/Marketing collateral download -> Sign up
The ‘aha’ moment activates your newly acquired users. What’s the ‘aha’ moment? It’s a series of actions made by your users to fully understand the product. You’ll be able to zero in on the path to awesomeness by studying the usage pattern of your users.
Post reaching the ‘aha’ moment, the user would start using your product regularly. To make your users reach the ‘aha’ moment as soon as possible, you need to set up customized onboarding flows, send drip emails, implement in-product tours, etc.
Once you’ve acquired new users and activated them into recurring users, the next step is to retain. For any SaaS business, user retention is a very crucial metric. A SaaS business’s growth depends on the number of users they retain and convert. The marketers need to go all out on keeping their user subscribed to their product.
When your users leave your product permanently, it’s called as churn. Churn is the evil monster that’d kill your business. The easiest way to reduce churn and increase retention is to stay in touch with your users and customers regularly. This can be easily facilitated by using email marketing campaigns.
Word-of-mouth and referrals work out well for any product. The challenge here for the marketers is to turn their users and customers into loyal advocates. All businesses implement a referral model to bring in more users. In most cases, these referrals are incentivized. Referrals are a way to exponentially increase your user base within a short time span.
When all the above levels are set in motion and tracked, we get to the last part of the framework. How are we going to increase the revenue of the product? A lot of factors determine the revenue generated by a product. For now, let’s look at one of the common methods followed.
The two important metrics you need to know are,
- Customer Acquisition Cost (CAC) — It’s the average amount of money you spend to acquire a customer.
- Customer Lifetime Value (CLV or LTV) — The average number of months a customer pays for your product.
Revenue can be increased by reducing the CAC and increasing LTV.
That concludes our overview of the AARRR framework. It works best when you optimize and refine each level in this model. Ensure that you always focus on one metric at a time.