SaaS sales best practices
Feb 9, 2022
5 min
Philippe Pilath Senior Account Manager

The AARRR Framework: Actionable Metrics for SaaS Companies

Discover the most popular model for SaaS companies to measure growth and success

What is the AARRR framework, who should be using it, and what is its point? AARRR is an acronym for Acquisition, Activation, Retention, Referral, Revenue.

The AARRR framework has originally been designed for software startups. However, it can still be used by any company aiming for a measurable process, tracking the progression of a potential customer from prospect to paying customer.

The original point of the process was that startups often focused on vanity metrics - such as website visits or email openings - to determine how successful they were.

The AARRR framework provides realistic measurements to evaluate the lifecycle of prospects and customers. In addition, it might reveal where your sales and marketing strategy are potentially failing, or if ultimately any issues need to be addressed.

What does each of the terms in AARRR refer to?

Each term refers to a point in the process that converts a potential customer into a paying customer, while providing a measurable way to see how strong each stage is performing. But let us explore what is behind each step and shed some light on this framework!

Acquisition: How are visitors introduced to the designated product / service and company?

Activation: Are the visitors taking the targeted action that is expected by the company?

Retention: Are users continuously engaging with the product / service or company?

Referral: Do users appreciate the product / service enough and accordingly refer additional potential users?

Revenue: Are users willing to pay for the product?

How does the AARRR framework actually work?

The AARRR framework provides a guide broken down into easy steps to follow. Let us review each step consequently and see how you can implement them.

Step 1: Set up metrics for each stage of the AARRR framework

For each stage, you want to define a set of metrics that can be tracked. You will want to understand what you are doing, what you want the user to do, quantify it, and finally deduce the value of each action to your business.

Here’s a basic example provided by Dave McClure, inventor of the AARRR framework:

Category

User Action

Conversation %

Estimated Value

Acquisition Visits app 100% $.01
Acquisition Stays 1 min+ 75% $.10
Activation Subscribes to newsletter 25% $.25
Activation Signs up for free trial 5% $1.00
Retention Opens email, clicks through 8% $2.00
Retention Visits app 3 times in 30 days 3% $5.00
Referral Sends 1+ users to visit site 2% $3.00
Referral Refers 1+ users who activate 1% $10.00
Revenue Generates minimum revenue 2% $5.00

Acquisition 

Acquisition is the path you are utilizing to bring visitors to your product or service. It could be organic website traffic, sales outreach, lead generation campaigns, or anything else potentially applied to get users to follow to your designated starting point.

Activation

Activation is considered the action you want a prospect to perform after bringing them to your target starting point or origin. This could include downloading a resource from your website, signing up for a free trial of your product, booking a meeting with a sales expert or anything else that you might consider a valuable action.

Retention

Retention means monitoring users once they have interacted with your site or app. For example, how many users activate and then continue to actively use your software? This could be converting trial users into customers, using a specific critical feature of your solution, or any action they take that diverts them back to you and your product.

Referral

Referral focuses on users appreciating your product / service enough to bring other people to it too. You may not be able to track this information fully, but some of your tools and parts of your product will be able to assist. This could be a direct referral from your product by the user to somebody else, users forwarding your emails to others, and even using big data tech to identify users working for the same company or somehow connected.

Revenue

Revenue is the final step and the ultimate goal. How many users have you managed to take through the different stages and convert into actual paying customers? This tracking should include how much money was invested to bring somebody (Cost of Acquisition) in and how much they ended up paying during their time as customers (Customer Lifetime Value). If you’re spending $20 to get customers in, but they’re only spending $15, then you might have an issue somewhere and that downside needs to be addressed.

Step 2: Set up a process to track and analyze your AARRR metrics

Once you decide on the particular data and criteria to be monitored, you need to start tracking and analyzing the data to identify the value centers. This should be continuously monitored and periodically adjusted to ensure you are getting timely accurate data for review.

Integrate your different data points (Google Analytics, CRM reports, and so on), to get a 360 view of your performance.

Step 3: Run tests on each stage to determine if there are better approaches

Start testing different approaches in each of the phases of your user lifecycle, to validate multiple options. For example, you can perform A/B testing to see if using another approach might yield better results. You can track the different models and analyze the results, to help you implement appropriate changes and achieve a higher level of excellence.

You can run tests to see which type of lead generation strategy is converting the best for you. For example, are your email campaigns doing the best, or is direct sales outreach showing more conversions? This will also help you validate your options and decide where to invest your capital best.

Step 4: Use the metrics to adjust your product and marketing

Using all of the information provided, you can ultimately see what works and what does not. This allows you to adjust and adapt in order to drive more traction to your product and convert more users into actual paying customers.

You need to be continuously running testings and modifications to your approach so that you can ensure to get the most out of your invested dollar.

Final words

The AARRR framework is an effective and structured way to build and grow your customer base.

As with the original problem, it doesn’t matter how much website traffic you get; it matters how many users turn into paying customers.

If your goal is to build a successful and profitable business, we can help you implement tailor-made sales strategies that will boost your revenue. Book a short meeting with our expert today!

 

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Philippe Pilath
Senior Account Manager

With more than 8 years of experience in Inside Sales, Philippe is responsible for building trusting relationships and developing client’s accounts. With an in-depth knowledge of the sales and outsourcing industry, he is the go-to professional to ramp up our client’s revenue and simply generate value for our clients.

Click here to connect with Philippe on LinkedIn.

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