The Most Transferable Conversion Funnel of All Time

The Pirate metrics explained (AAARRR)

Conversion Funnel

I have mentioned these metrics a lot in almost every essay, because they are THAT important.

The pirate metrics were coined by veteran (now disgraced) VC, Dave McClure from 500 Startups with the vision that they are the only true metrics that prove the health of a startup. They form a very adaptable conversion funnel that can be used for every business model. I literally can't think of one that won't work.

A B2B, B2C and B2B2C will have the exact same stages on this funnel, just focusing on different OMTMs (e.g. messages sent, uploads, games played, ARPPU). 

McClure was tired of seeing startups choose a vanity metric as their OMTM, like installs, followers, page-views etc when they would pitch. This wastes time, doesn't provide value and can lead a startup to their demise.

This conversion funnel can provide great structure and light into the overall health of your startup, but also give actionable insight into where you need to direct your time and money within your growth strategy. 

With that said, you should have the metrics to each stage of this funnel at the tip of your tongue. Not to tell everyone you meet, rather so you constantly have best picture of your startups health. 

Editor's note: I have added a stage and changed the order of Dave McClure's original conversion funnel

Awareness = megaphone

Spread the word

Description

The very top of the funnel. The total reach of your company. Goal here is to spread the awareness net as wide as you can to capture the most amount of people in stage two. However, that doesn't mean doing a shotgun styled growth strategy, because those never work. It means understanding your target market, your user-profiles and more importantly where they are en-mass.

Tracking

Depends on what type of awareness you're raising (website views, brand awareness, social chatter etc). Google Analytics, Twitter analytics, Facebook, etc. Mention is a social listening tool.

Measurement

One can look for social mentions, retweets, likes, shares, pageviews, app store views, tagging etc. 

For tips in seeking out best ways to answer these questions, you can see my essays on the 19 channels for growth and how to prioritise your growth strategy. 

Acquisition is the mission

Up and to the right

Description

Since we've just raised awareness of the product/service, it's time to convince our potential users to take their first action, such as, subscribing or installing. It is the very first step of the actual conversion process. Awareness has told the user about your business, but acquisition means they started to convert. You convinced them. 

Tracking

Tracking at this stage can be done through a variety of analytics platforms. Personally I've used Fabric for real-time info, App Annie for more detail (although it's normally delayed) and any platform your channels run through, e.g. Facebook.

Measurement

Measure in numbers or rate (%). Up to you. We tracked registrations in both number and % growth rate.

Testing

Run growth experiments using the 19 channels for growth to find your core channels. Continually optimise and iterate those channels until saturated. I have an upcoming essay on Facebook Ad strategies you can use as a template for optimising and iterating your core channel. 

Activation for the nation

A-HA!

Description

The a-ha moment! When your users find the true value of your product and therefore want to stick around (a-ha moment). It can also be when your users have performed a desired outcome e.g. become invested into the product by depositing money (which is not yet revenue), or if the users have played a game/sent a message. 

Tracking

Use any top tier BI software to help map out every single user interaction in your product / service. Personally, I used Amplitude and Metabase - which are both independent of each other, and amazing.

Measurement

Measure the activation rate in %. This is the north star of this stage. You want to continually improve the activation rate and make it as high as possible, so there is minimum time from install to a-ha moment, therefore less time to see value prop and less churn. 

Testing

Tip to find said a-ha moment:

• Track every single event in your product/service

• Segment users who started the user-journey with action X, Y and Z

• Over time you will see which segment was more valuable and positively affected your OMTM - iterate starting points until you find the clear a-ha winner

Retention is king

Graph courtesy of Alex Schultz, VP Growth @ Facebook - the 30 is supposed to be a 0. Blue line shows viable business, red line shows failing business

Description

Shows the true health of your product. It is how you turn the acquisition and activation into growth. If people enjoy your product/service or it truly solves a problem then you will have returning users. As mentioned in a previous essay, you will start with low retention and a leaky product. Plug these holes through a number of tactics (shown below). 

Key thing to look out for is whether you retention curve flattens after it tapers down from day 0. If it is flat you have a viable business, and have reached some level of product-market fit, for some small cohort of your total user-base. This is great news. Now it's time to grow that user-base! 

Tracking

Personally, my product used Amplitude to understand our retention curves. We were able to segment users based on actions performed (such as the activation test mentioned before), to see if any action resulted in higher retention. 

Measurement

Measure the retention rate in %. Whether you choose to measure in a daily, weekly, monthly or yearly rate depends on your business type. We were a weekly fantasy football game so focused on WAUs. An insurance startup might only need annual renewals so would focus on YAUs since their daily numbers would be awful.

Testing

This stage is where you streamline the product/service as much as possible so as to stop churn. In the past I've used:

• Scheduled social retargeting - Facebook

• Scheduled and event-triggered email retargeting - Sendgrid and Customer.io

• Scheduled and event-triggered push notifications 

• Introducing new features

For the latter, analyse where there is drop-off in the product and brainstorm how a new feature or flow can resolve the issue. Try segmenting users based on behaviour or usage, e.g. top 5% of paying users, then beta test the new solution tailored to stop churn. If this works, rollout. If not, use data acquired as background knowledge to help optimise feature or flow and test again. 

Revenue for the win

Make it rain

Description

Obvious. The monetisation of your users. The fruits of your labour. The revenue made through your business model, be it advertising, subscriptions, gambling or in-app purchases. It's what keeps the lights on. 

Tracking

An important metric to keep track of is the LTV (lifetime value) of your users. From a growth perspective, this is a guiding light to how much you should be spending to acquire new users. By using the ratio LTV:CAC (customer acquisition cost) you can keep a tight grip on growth expenditure. Research says strive for a ratio of 3:1 if you want sustainable growth for your SaaS startup. 

Used Metabase to scrape weekly revenue data.

Measurement

Knowing average revenue per user (ARPU) and average revenue per paying user (ARPPU) were most important for us.

Testing

Similar to the retention test, you can figure out ways to get the most revenue out of users. What worked for us was implementing a popup after someone had just created a lineup and entered into a fantasy football pool game to incentivise them in entering the same lineup in multiple pool games. First tested our top 5% paying users, analysed results and then rolled out. 

At this point in the funnel you can also try:

• Funnel optimisation - improving each step of the conversion funnel through understanding how users move between them

• Pricing optimisation - pricing can impact CAC through misplaced positioning, appealing to the wrong customer, and thus spending more to get the right customer 

Referral machines are the best machines

The holy grail isn't just an old cup

Description

When a user refers another user. An incredibly powerful way to grow your business. The referred users are already vetted by the existing user, and will have a greater propensity to stick around. Two types of referral: organic and artificial.

Tracking

New users generated by active users. Tracked through app events in BI tools. 

Measuring

Viral coefficient k>1 is the ideal scenario (like Dropbox viral growth) however, that is very unrealistic nowadays. We had a k factor of 0.36 which is pretty darn good in our space. 

Testing

If the users aren't sharing your product organically, then you haven't created a product worth sharing (but that doesn't mean it sucks). You can still create test incentives artificially, such as, discounted prices, more storage, pure cash etc. This all can create referrals. Build a natural referral machine that is integral to your business to continually incentivise new and recurring users to refer friends. 

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If you liked this, you can find more and subscribe on the homepage of Bright Fund. Feel free to check more essays on growth, strategy and user acquisition.

How To Run A Growth Experiment

Using the G.R.O.W.S method

Editor's note: I promised another prioritisation essay in last week's piece. This is it. Plus more. Much more. Similar to last weeks piece, best results from this approach happen when you have plugged as many holes as you can in that leaky bucket product of yours :)

In order to get the most out of your growth strategies, having a clear cut process in running growth experiments is paramount. As long as you approach this with some scientific methods - allowing any test to be analysed from a quantitative perspective - then you are on a good path. 

A simple scientific experiment outlined below can be found in any secondary school textbook.

Minimum viable experiment

We will use the same concept, just in a more scalable way.

The key here is to have an unbiased decision making process when focusing your time, effort and money into finding your core growth channels. Putting your trust into a scientific growth experiment allows you to follow the data rather than your gut (don't get me wrong, your gut is very intuitive, but it won't be able to consistently tell you whether your multivariate-tests-of-the-future will work). It will ultimately help you make the most informed decisions you can in un-earthing the growth for your business. 

There are a few ways (or anagrams) you can follow for your experiments, however, one that has worked for me is the G.R.O.W.S process, coined by the Growth Tribe out of Amsterdam. 

G.R.O.W.S

The G.R.O.W.S method

The G.R.O.W.S process follows this order:

1. G - Gather Ideas

2. R - Rank Ideas

3. O - Outline Experiments

4. W - Work

5. S - Study Data

Let's dive in to each stage.

G - GATHER IDEAS

Trello board for backlogged ideas across the Pirate Metrics

Creating a company-wide spreadsheet for ideas that popup anytime is great way to start. How I organised our growth backlog is by using the conversion funnel (or pirate metrics) as a guide, going from awareness, acquisition, activation, retention, revenue and referral.

You can take things further by setting up formal brainstorming sessions with the whole company or multiple teams depending on size of co. To get the most out of these sessions, it's best to learn how to brainstorm like a Googler.

Simply put, the growth team ask every individual to brainstorm on their own around a specific stage of the conversion funnel, e.g. user acquisition. Everyone then comes together to flush out the best, most creative and innovative ideas to start ranking. Each person must:

1. Know the user

2. Think 10x

3. Prototype said ideas

R - RANK IDEAS

Next step is to rank or prioritise your ideas. If you take a look at my previous essay on how to prioritise your growth, I map out a prioritisation framework (Bullseye). You can use that or, since we are focusing on experimentation, you can create any simple ranking system to help rank best ideas. Such as:

Who ate all the P.I.E.S

What I like about this system is the semi-scientific approach. Good tip is to make any decision a quant one. The image above shows a mixed variety, meaning ideas from different stages of the conversion funnel. It's actually best is to focus on one stage every time. 

O - OUTLINE EXPERIMENTS

Now that you have one highest ranked idea, you can start experimenting. Key here is to design a test that will verify whether the specific idea/channel/approach will be a success or failure. Best way to go about this is to build out an experiment sheet.

Minimum viable version:

Minimum Viable Version

• Top ranked idea: Create a popup page after created a lineup to incentivise users to play multiple paid games with one-click

• Research: Currently we have paying users playing 2 paid games per gameday. This popup page will make it much easier to play more

• Hypothesis: By using the popup page to incentivise more paid games, we will increase paid games per user per gameday by 50% and therefore increase average revenue per paying user (ARPPU) by 20%

Maximum viable version:

Top ranked idea: Create a popup page after created a lineup to incentivise users to play multiple paid games with one-click

Maximum Viable Version

Top ranked idea: Create a popup page after created a lineup to incentivise users to play multiple paid games with one-click

• We believe that there will be an increase in paid games because of a popup screen that incentivises users to play more with one-click

• To verify this we will send out a beta version with said integration to our top 5% users - without telling them the update - and analyse their behaviour when prompted

• We will measure number of paid games played (#) and ARPPU (£) to see if there is an increase in either or both due to the integration

• It is a success if we improve the ARPPU by 20%

• Results Quantitative: # paid games played up by 75% and ARPPU up by 33%

• Results Qualitative: users say "very useful", "quick and easy", "organic placement of popup", "much more fun, quick and useful"

• Next steps are to rollout integration and update game 

W - WORK WORK WORK

Rihanna says it best

This the area that separates the men and women from the boys and girls. You can do a number of things to maximise the effectiveness of your work and experiment, however for me, weekly sprints worked best. They really allow you to laser focus on one goal (the experiment) and truly smash it out the park. No excuses. 

S - STUDY DATA

Which pill...?

This is where the insights kick in and you make your growth decisions. This is where the test is verified as either a success or failure.

If you get the analysis wrong, you make the wrong decisions. Therefore you could jeopardise your whole growth model. Which could mean the end of your business, depending on its stage of life. No pressure.

Make sure you understand, record and analyse both quantitative and qualitative data for every experiment. Understanding how the users reacted and felt, matter as much as the data behind their behaviour.

Try to find any differences in user behaviour from before, and ask yourself why this has (or has not) occurred. Does it fit with your original hypothesis? Is this healthy, scalable behaviour?

From all of the data you have acquired and consumed you can now conclude success or failure. And depending on answer, either use the data for further background research in future projects, or use to rollout the experiment company-wide. 

Key tools I used were Fabric.io (for real-time acquisition metrics), Amplitude (for retention, segmenting, behavioural cohorting, data visualisation and Metabase (for all data retrieval and querying). 

RINSE AND REPEAT

Rinse and repeating growth experiments

Even if your first seven experiments fail, you can use the data acquired as more background research for the next seven. This iterating experimentation process theoretically means the more experiments you run the higher value they become (so by experiment 1,273 you'll be pooping gold). 

Remember, rinse and repeat until you find that one core channel that really grows your business. The one that hits the sweet spot. When you do, ride that channel as long as you can, dig deep, iterate and squeeze as much growth as you can out of it until it's fully saturated. 

Then rinse. Then repeat. 

You can find my other musings here, here and here.