The “Pirate Metrics” is a powerful framework that provides you with 5 key metrics to manage your startup’s growth. It was created by Dave McClure, and it’s made of essential metrics that startup founders should know by heart.
They’re called pirate metrics because… well… the acronym sounds like a pirate yelling—“AARRR!”—and it stands for:
- ACQUISITION
- ACTIVATION
- RETENTION
- REVENUE
- REFERRAL
Despite the funny meaning of the acronym, this framework may seriously help you assess your SaaS subscription startup’s performance.
Use it to define your startup priorities, as well as to make better business decisions. Master these metrics and become more confident, before presenting your startup to investors or partners.
Are you ready to learn about the pirate metrics? Of course you are.
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ACQUISITION
Acquisition happens whenever someone signs up to your subscription.
In order to acquire a subscriber, you must achieve two things:
- Get the person’s contact data (e.g., email and name)
- Give the person access to experience your the core value of SaaS subscription
More than getting direct access to potential customers, “acquisition” also means that what you’re offering is somehow valuable (at least valuable enough for someone to give you his/her personal data).
You may acquire a subscriber in 3 fundamental ways:
- Free-trial: you let the user experience the paid features of your platform for some time (so he/she becomes convinced it’s worth to pay for them)
- Free-tier: you provide users with a free version of your SaaS product (a lower-value version, with less space, number of features, quality, etc.)
- Paid tier(s): they can only access by paying for it (acquisition and revenue happens simultaneously)
Of course, offering some value for free is not mandatory. However, by reducing the friction in the acquisition process may increase your results. Why? Because some people will need more time to agree giving you their money.
Consequently, asking them to pay you before they’ve had the chance to experience the value, might send them away (without giving you any information of who they are and how to contact them in the future).
Check out how Shopify uses a low-friction acquisition method by offering a 14-day free trial:
ACTIVATION
Activation happens whenever a user experiences the fundamental value of your SaaS subscription product, for the first time.
Let’s suppose you’re the founder of a new personal finance app. After some research, you’ve identified that the core value of your app happens once the user has connected it to at least one of his/her bank accounts. Hence, every time a new user takes this step, you’ve activated him/her.
Remember: acquisition refers to the steps your subscribers must do in order to gain access to the value you’re offering. Activation refers to the steps they must perform to actually experience the core value.
If you sign up to Shopify’s 14-day free-trial, they’ve acquired you. Once you build your online store and get a customer, they’ve activated you.
See the difference?
Let me give you an example of how Headspace (a meditation app) used the email below to activate me:
At that time, I had just signed up to their 14-day free trial (they’d acquired me). But, Headspace team is not stupid; They know that if I didn’t take a step further to actually perform a meditation, I would have never understood the real value of the app (and would have never become an active user).
RETENTION
Retention happens whenever a customer decides to continue experiencing the value of your SaaS product.
Here, I suggest you to consider two different retention metrics:
- the number of users who kept their subscriptions (remained paying)
- the users who kept experiencing the value of your product (remained “active”).
When people decide to cancel their subscriptions, you had a customer “churn”.
However, besides churn, you must also monitor a different retention metric: the number of subscribers who stopped using your product.
Although, they’re still subscribers of your service, they’re not regularly using it anymore. Hence, they stopped getting the core value of your product.
Check out what Amazon Prime Video did to me:
It was a time when I wasn’t watching as many Amazon Movies as they believe were needed to consider me “active”. Amazon noticed it (actually the algorithm did) and sent me this message to keep me experiencing the value (and not cancelling the subscription in the near future, of course!).
REVENUE
Revenue happens whenever a user decides to subscribe to a paid plan of your SaaS product.
Being able to monetize the value you’re delivering to your customers is mandatory to make your business survive.
So, you must identify which features of your subscription plans should be free and which ones should be paid. In order to do that, allocate the features considering the customers segments who will use your product (and their use cases).
The free version (if you decide to have one) must offer some value, but it has to limit the value so it doesn’t allow more “advanced” users to get the benefit for free. These users require a more complete version of your platform, because they use it for a different purpose. So, make your paid features to produce a ton of additional value for more advanced users (so it makes sense to charge them).
For instance, Zoom presents different plans for different customer segments (as of Sep 30th, 2021):
Did you noticed it? There… at the top….
Zoom even mentions the customer segments they’ve considered to build the plans. “Personal meetings”, “Small teams”, “Small businesses”, “Large enterprise”.
Well, they know that customer segments have different needs and that each Zoom plans’ features must be aligned with those needs. That’s why Zoom’s team considered the maximum number of participants as a criteria to identify more advanced users.
REFERRAL
Referral happens whenever a customer refers your product to potential customers.
People believe more in friends and colleagues than in startups they’ve never heard about. Not only will they pay attention to people they trust, but they’ll also be more likely to use and eventually purchase your product.
That’s why you should save space for “referral” in your metrics dashboard.
Referral may seem something out of your control, but it’s not. Actually, you may influence your subscribers to refer your product to people they know. Do you remember that marketing campaign that offered benefits for you and for a friend, if you referred the product?
Besides marketing initiatives like this, also consider features that will make your product “referral-friendly”.
Make it easy (or even mandatory) for people to share your product with their friends by embedding referral in your solution.
Well, referral doesn’t mean you must turn your subscribers into ambassadors of your product. It may be as simple as a button that sends an invitation for a non-subscriber.
Check out how Miro (an online whiteboard & visual collaboration platform) incentivizes referral by adding “Invite teammates” steps and buttons.
By providing their subscribers a way to invite and “demonstrate” the tool for their friends, Miro is boosting the chances to grow its customers base.
THE POWER OF THE PIRATE METRICS
The pirate metrics represent the core of your SaaS subscription startup’s dynamics. Whenever you improve one of these metrics, you leverage your startup’s results.
Each metric represents a step in the relationship between your subscribers and your product. Every new step will require them a new investment (of time, energy, and/or money) so they can get a new outcome.
As a founder, you must assess those metrics, set one as your priority, and focus on finding ways to improve the chosen one.
P.S.: The steps above are the basis of “Growth Hacking” methodology. Wanna know more about it? Check out this book)
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