Pirate Metrics Funnel
Pirate Metrics capture a typical customer lifecycle for consumer products in five stages: Acquisition, Activation, Retention, Referral and Revenue. The name of the method comes from the initial letters of the five stages (AARRR) and its resemblance of how stereotypical pirates talk in cartoons and comedy movies.
Dave McLure introduced this method in method in 2007 as a way to group all the different types of metrics for product marketing and product management at startups, and provide a structure to sales funnels.
Pirate Funnel: Example
In effect, the Pirate Metrics are an instance of a Hierarchy Of Effects. The metrics categories are typically used to design a custom set of steps that describes a product sales funnel. It is an idealised version of key events through which a typical customer goes through, helping product management track the current customer base, and focus further marketing and product management work. An example funnel is below, based on McLure’s original slides:
| Category | User Status | Conv % | Est. Value |
|---|---|---|---|
| Acquisition | visitor (eg. web page view) | 100% | $0.01 |
| Acquisition | interested (views 5 pages, reads key use cases) | 70% | $0.05 |
| Activation | engaged (reads key use cases, explores demo videos) | 30% | $0.25 |
| Activation | linked (signs up for newsletter or via social media, leading to repeat visits) | 5% | $1 |
| Activation | registered (creates an account on our system) | 2% | $3 |
| Retention | returning (visits again via social/news links) | 3% | $2 |
| Retention | frequent visitor (returns 5+ times per month) | 2% | $5 |
| Referral | inviter (referred at least one additional visitor) | 2% | $3 |
| Referral | active inviter (referred at least one additional registered user) | 1% | $10 |
| Revenue | customer (made an initial payment) | 2% | $5 |
| Revenue | profitable (break-even revenue) | 1% | $25 |
Each product will have different user statuses and metrics to detect when a specific status is reached, but in general the stages should progress in sequence from Acquisition to Revenue, the conversion rate should drop from top to bottom and the value should increase as users transition from visitors to profitable customers.
It’s important to keep in mind that the conversion drop might not be linear (e.g. that doubling the number of visitors might not actually produce the same effect on the number of profitable customers). A funnel such as AARRR usually helps to capture bottlenecks, and helps you focus marketing and product improvement work for biggest impact. The visual metaphor of a funnel and the linear progression of metrics might also suggest that everyone who comes in on one end will eventually progress to the bottom, which is untrue.
Keep in mind that the model itself is an idealised abstraction, and that some users will skip certain parts or go through them in an order you did not expect (for example, some people will sign up to your product without first linking via social media, some will purchase a commercial subscription on the first visit and so on…). The model is most useful for tracking where a bulk of people are getting stuck, and then helping them along the way or widening the funnel at that point.
Variants and modifications to the Pirate Funnel
In the Product Led Growth framework by Wes Bush, the referral and revenue stage are inverted, and Bush suggests tracking when paid customers bring their team members or increase individual subscriptions to groups as a way to improve long-term retention.
A 6-step variant of the pirate funnel adds an Awareness step at the start, before Acquisition, and is known as AAARRR. The Awareness step is used to plan and track outreach activities, such as outbound marketing, brand promotion and engagement on social media that can lead to acquisition. In the original five-step model, those activities would just fall under the Acquisition step. This variant is most useful for organisations that heavily depend on outreach activities, and want to track that part of the funnel separately from visitors/interested users (for example, because the two steps are handled by different parts of the organization or external contractors).
A 4-step variant removes Referral from the list, and is known as AARR or AARM (Revenue replaced by Monetization). It might be more suitable for enterprise products that grow through outbound sales or paid advertising, and do not need to track referral activities. (This is very similar to the REAN model).
Jeff Gothelf suggests replacing the traditional funnel visualization by using a “metrics mountain”, effectively defining a set of stages that the uses progress through during the lifecycle, to avoid the notion that everything that comes into a funnel will eventually come out on the other end, even on a delayed cycle. In Gothelf’s visualisation, different stages of AARRR become steps on the way for groups of users, and the goal of product management is to get as many users as possible to the top of the mountain. At different stages, some people will drop off for different reasons (Gothelf says “Realistically though, we’re going to lose people along the way. They’ll get tired. They’ll get bored. They’ll get distracted. They’ll defect to a competitor.”).
Applicability and limitations of the Pirate Funnel
AARRR metrics are useful for tracking the initial engagement of users and their transition to becoming customers, but it may not be as useful for managing and optimising more mature products, where continued customer engagement and retention plays a big role. (In theory, you could extend the “revenue” stage with more events but in practice the customers are no longer progressing through a funnel but stay on a renewal/engagement cycle).
Learn more about the Pirate Funnel
- Presentation on startup metrics by Dave McLure
- Startup Metrics for Pirates, presentation at Ignite Seattle by Dave McLure (2007)
- Metrics Mountain by Jeff Gothelf