AARRR Framework: 10 Steps to Building a Growth Funnel

What is the AARRR Framework?

In a sentence, the AARRR Framework is the measurable process through which a visitor becomes a paying customer. 

The AARRR framework was created by Dave McClure, the founding partner of startup incubator 500 Startups in 2007. Since then, the framework has become a standard tool for marketers whose true north is growth, aka growth hackers. Likewise, many growth hacking agencies use this particular framework, and even startup consultants for the startups they are trying to grow.

The AARRR framework is made of five stages a customer goes through, and each stage focuses on its own metric. Accordingly, these stages are:

• Acquisition
• Activation
• Retention
• Referral
• Revenue

Let’s take a closer look at each of those stages.

The stages of the AARRR Framework

Acquisition

The first piece of your funnel: Acquisition.

During the acquisition stage, you should be wondering “How can I make potential customers find me?“.

Your journey to find your customers starts at your {Total Market}. These are the people who would benefit from your products everywhere. It is unlikely that you will be able to reach everyone who belongs to the {Total Market} set, due to physical restrictions like geography, access to media, cultural barriers, etc. Because of these limitations, we should define a large subset of {Total Market} called {Reachable Market}, i.e. those people with who you can actually interact in some way, e.g. directly or through some broadcast means.

For the {Reachable Market} set, you would typically create and deploy tactics designed to increase awareness and increase your traffic. Does this sound too vague? Here are 19 traction channels to put things into perspective. This stage is the first point of contact between you and your customer.

Activation

During the Activation stage, you should be wondering “How can I provide a good enough experience for my potential customers?”

This stage is all about the “Aha moment” you want to deliver to your visitor.  This moment usually comes when people realize some of the value your product or service has to offer.

Once you begin to interact with the {Interested Goal Seekers} group, your goal should be to engage them, i.e. to get permission to talk to them. This kind of engagement can lead you to persuade (convert) them and turn them into a {Qualified Lead}, i.e. someone who, under specific circumstances, would become your customer.

Activation happens when a registered user becomes a qualified lead. At this point, you need to evaluate if the specific circumstances that are necessary for that person are present and they are ready to become a customer. Converting a person from a qualified lead to a {Customer} requires specific tactics that depend on your industry or offering, among other reasons. e.g. B2C vs B2B, services vs hard product, etc. So, for example, if you are launching an app, an app download can count as an activation.

From the above, it follows that you should operate by designing your marketing actions and processes to enlarge each subset as close as possible to its parent superset.

Retention

During the Retention stage, you should be wondering “How can I keep potential customers coming back to me?”

This stage is about turning users into returning users. If a customer has subscribed to your product or service, how can they remain subscribed? If they don’t, this counts as a churn.

Your priority in Retention is to make the churn rate lower than your customer acquisition rate. Otherwise, growth can’t be achieved.

In the last few years, a big emphasis is put on the Retention channel by many growth marketers, and for a good reason.

First, it’s a lot cheaper to retain an existing customer than acquiring a new one. Let me explain how: At the beginning of the funnel, you were trying to build awareness through channels such as Facebook ads, Google ads, influencers, content marketing, etc. And, as you know, none of these channels comes for free. By the Retention stage, you should have established communication channels in your own properties. Such channels usually include your potential customers’ email or FB messenger. And these channels happen to be quite cheap!

Don’t forget to keep in contact with your audience. Keep showing how your product or service is valuable for them and relevant to their lives.

Referral

During the Referral stage, you should be wondering “How can I get potential customers to talk about me in their circles?”

How does my customer {Customer} become my {Evangelist}? Surely enough, if “you are awesome”, people will want other people to know that you are. But does this stage have to stop in your sheer awesomeness? Absolutely not.

Referral marketing can become a campaign on its own. Be it a friend-referral leaderboard giveaway, or spreading the word during the launch of your startup, any referral action is more likely to happen if you encourage it. So, for example, you can choose to start your own campaign from several numbers of different referral campaigns.

Royalty programs can also be part of this stage.

Revenue

The final stage of the AARRR framework. During the Revenue stage, you should be wondering “How can I turn potential customers into paying customers”?

This is the real money question. Literally.

All vanity metrics aside, this stage is dedicated to measuring the amount of paying customers and the money you make. There are also two collateral metrics:

• Average order value per use
• Customer lifetime value

However, for this stage to work, you have to make your potential customer understand your value proposition. And you have to have communicated your USPs in a way that convinces your potential customer.

In this stage, will see if your business model holds up to its promise.

How to Use the AARRR Framework in Practice

Understanding your funnel

Having a clear understanding of your funnel is crucial to find out where your customers are coming from and where you should direct your efforts. This information lets you get the maximum yield from your digital (and physical) marketing distribution channels.

Your funnel is an abstraction of the states that someone will go through to find out about your company and products and, ultimately, become your customer. The sequence of these states defines a flow, i.e. a series of interactions between your audience and your company. The flow can alter the set in which a person in your audience belongs. In the table below, you see the sets or groupings that a person will belong to at any point. Furthermore, in the table, you will find the action types (or categories) that are generally applicable to each set. The sets start at the beginning of the funnel, from the Acquisition stage {Total Market}, all the way to the Revenue stage {Customer}.

Understanding what and how to measure

It is necessary for you to measure your marketing efforts’ effectiveness. Otherwise, you will have no comparison data, and you can’t know if your actions worked or not. In other words, the only way to establish cause and effect is by implementing and then measuring.

Before you begin implementing any action that will affect your funnel, you must first establish a baseline. The baseline is a set of metrics for your performance. For instance, when discussing websites, the number of visitors, bounce rates, cart abandonment rates, sign-ups, and session lengths are essential in analyzing the behavior of your visitors and customers. You should be collecting as much data about them as possible. There are several useful tools and articles on what and how to collect these operational data.

At some point, you should have created a business plan that would contain your business outlook for your offering. You should look there for your success KPIs and add/link them to your previous list. Prioritise your goals. This is very important! Accept that you do not have unlimited resources and that you will have to pick your battles.

Now, with your baseline established, list your prioritized medium and long-term targets. Each target should be associated with an action category in your funnel. E.g. 50K visitors to your website each month → acquisition/awareness, 50 bookings each day → conversion/retention, 5K new customers per quarter → acquisition, conversion, referrals

The next step is to calculate the target vs performance gap and analyze/correlate to your funnel for pain points. For instance, the number of visitors to your website is the result of your awareness and acquisition actions. If there is a significant gap between where you should be and where you are, you have a pain point in your funnel. Accordingly, applying the same process with the rest targets will produce a list of pain points.

Prioritize. Decide on which pain points you should deal with first, then second, and so on down the list. Always start with those that have the most significant impact at the bottom of your funnel. Work your way up the funnel to discover your hot pain-points.

With your pain points now defined and prioritized, you have the categories on which you should focus your actions. It is now time to build your own Growth Action Plan.

10 Steps to Building your AARRR Framework

1. Decide on the 2 or 3 metrics that you wish to grow. They should correspond directly to your pain points.
2. Decide on your plan’s duration. Shoot for somewhere between 6 to 18 months. Many results lag your efforts by months (e.g. SEO). Make sure you understand when you should expect to see results from each traction channel.
3. Define your success target figures per metric — E.G. 1000 bookings per month by Dec 2019.
4. Decide on the monthly growth target that will get you to the desired end figure — E.G. 200 additional bookings per month.
5. Go to your funnel and calculate the figures backward, i.e. “In order to get 1000 bookings, we need 30000 visitors to our website.” Analyze the impact of these numbers on your budget; it may also be that the targets you set are unrealistic.
6. Using the figures calculated above, decide on a list of which traction channels you can use per funnel action category (acquisition, conversion, referral, etc.). For example, for acquisition, you can use viral loops, paid advertising, partnerships, etc.
7. Decide on what you feel are the most promising ones and design a specific action and duration for each traction channel. Make sure you have designed the correct way to measure the result.
8. Analyze the results. Is the monthly target achievable? If not, design changes and test (implement & measure). Go to 8. until the allotted duration is exhausted.
9. If the duration is exhausted and the target was not achieved, switch to the next traction channel from your list and go to 9.
10. If you try every channel with little to no success, find one that brings in your targets. You need an in-depth analysis of the product/market fit, your perceived market, your marketing plan and your growth plan to identify the reasons behind the unsuccessful attempt.

Epilogue

Do you Have Growth as a mindset?

An AARRR framework is not a one-time project. It is a mindset that drives sales; keeping its momentum requires commitment, effort, and constant planning. Let us not forget that those involved also live in a world of restrictions: from limited budgets to the lack of a good plan measurement. In addition to all of the above, there is significant creative effort involved. This effort can well be by far the most essential element of the equation. Add to all of the above the required internal communication effort to keep things synchronized, and the Growth Plan could quickly become the most resource-consuming project in the company or department.

If your company can have a growth driver in its marketing department, I highly recommend that you hire and train such a person. If your budget is constrained or your business model is based on outsourcing, you could parcel out your growth to specialized professionals. These professionals can consult with you and off-load much or all of the implementation of your Growth Action Plan.

So keep these in mind, and good luck!