First things first, Let’s start by defining what a growth funnel is.
A growth funnel simply refers to the stages a user goes through in relation to a business.
If you own a business or you are responsible for the growth of a product, you don’t just get users for your product out of the blue. There are stages your users had to pass through before they became active users.
These stages or phases are what make up a growth funnel.
An example of a popular growth funnel is the AIDA framework which posits that your users go through four phases;
Awareness.
Interest.
Desire.
Action.
However, these days there is a more robust framework known as the pirate metrics for startups popularized by Dave Mc.Clure and it is the AARRR framework, it’s what we’ll be exploring today. The AARRR framework is as follows;
Acquisition.
Activation.
Revenue.
Retention.
Referral.
Now, let’s dive into this framework
Acquisition.
The acquisition phase is the stage where you get new users either in the form of users downloading your mobile app and signing up or visiting your website. Acquiring a user essentially means that you have captured interest in your business or product offering.
There are different channels that can be used to acquire users e.g Facebook/IG ads, SEO, PPC, etc., and the best way to figure out what acquisition channels you should be focused on as a business is by testing performance across channels.
At the acquisition phase of your growth funnel, there are some key metrics that you need to be obsessed with such as;
Customer Acquisition Cost: This simply refers to how much you have to spend in order to acquire a user that generates revenue. For example, let's say your product is an eCommerce store where people can order sneakers and you spend $100 on Facebook ads which gets you 1000 site visits with 100 people eventually buying sneakers.
Your customer acquisition cost here is the amount spent on ads divided by the number of paying users generated i.e $100/100 which is $1. Essentially, it costs you $1 to acquire a customer via Facebook Ads. Figuring out your CAC helps you realize what your profitable channels when you are testing across multiple channels are so you can optimize and scale effectively.
Average Revenue Per User: ARPU as it’s popularly used is the average revenue you stand to earn from every active user over a period of time. You can calculate your ARPU by dividing the total revenue generated during a specific time period (e.g. week, month, quarter) by the total number of active users during that same time.
If over a month, your sneakers eCommerce store does $3000 in revenue and you had 100 paying customers during that period. Your average revenue per user is total revenue divided by the number of paying customers which in this instance will be $30
What makes ARPU important is because when you know how much you stand to make in revenue from your active users, it helps you know how much you can justifiably spend to acquire a user.
Churn rate: Also known as attrition rate, this is the rate at which customers stop patronizing a business or using a product over a period of time.
Basically, it’s the percentage of customers a business loses within a given period. If you had 300 active customers at the start of a month and at the end of that period you lost 50 customers. Your churn rate for that one-month period is customers lost divided by the total number of customers at the start of the time period x 100. In this case, it’s (50/300 x 100) which is 16.7%.
You need to be mindful of your churn rate and be very focused on keeping it low because if left unchecked, you are pretty much just wasting your acquisition efforts.
Activation.
Activation refers to the point where your acquired users perform an action that leads to them deriving value from your product. Activation is also known as the “Aha moment” because it is at this point that users actually start to enjoy your product.
So your focus as a growth marketer should be on getting your customers to their “aha moment” as soon as possible because the longer it takes to get them to a point where they derive utility from your product, the higher the possibility that they’ll churn.
For example, in the early days of Facebook, after rigorous experimentation. They realized that the “aha moment” for Facebook users happens when a user adds at least 10 friends within the first 7 days of signup so their onboarding flow and messaging for newly acquired users was very focused on getting them to perform this action (adding 10 friends).
There is no one size fits all approach that spells out the series of actions you have to take to get users of your product to their “aha moment”, you need to figure out what works for your product through constant testing.
Using Cowrywise as a case study, I want to highlight what I think makes for a very great activation flow.
For a product like Cowrywise designed to help people save and invest, the aha moment for Cowrywise would be the point where users perform either of those actions (saving or investing) and they make brilliant use of in-product messaging to try to get users to that point as soon as possible.
Here’s how they do that;
Product value is communicated clearly: When you get to Cowrywise’s landing page, the first thing that catches your eye is a copy that says “Get your money working.” no fluff, no long talk. It is very clear and specific and the text below highlights just how Cowrywise helps you do that.
It’s always important to communicate the value of your product upfront because upon visiting a website, the average user only spends about 15 seconds. You need to grab their attention within that period of time.
They make the process of actually starting so easy: So Cowrywise does something clever here, they understand that some people might be reluctant to just jump into creating an account out of laziness so there is an email field and next to it an action button that says “START INVESTING”
That seems like a fairly easy action. After all, you are only being asked to drop your email address, it’s a way to capture the attention of people that might have bounced otherwise because there are people like myself who are bound to perform that action out of curiosity and once you fill in your email address, you realize that you’ve actually started the onboarding process for creating an account and since you’ve already started, you might as well just finish.
Clear call to action: Upon completing sign-up, the first thing you get to see is a pop-up prompting you to take an action that gets you to the “aha moment” faster.
Incentivizing users to perform an action: One thing you immediately spot on your dashboard is a referral incentive. Refer someone and you stand to earn money immediately. It’s very distinct on the dashboards so users can easily notice it and take action.
So you can see how Cowrywise’s onboarding flow is optimized to get their users to the “aha moment” faster from the landing page copy to clear CTA’s after signup.
A good way to know how well you are doing with activation is through a metric called Activation rate.
Activation rate is the rate at which you activate your users so if Cowrywise gets weekly traffic of 10,000 to their landing page and 1,000 people perform a key activation action like saving or investing. Their activation rate is (1,000/10,000 x 100) which is 10%.
Revenue.
This is the stage where you monetize the traffic you get. For a product like Cowrywise, it’s when users save or invest. For an eCommerce store, it’s when customers place an order. For a freemium product like Spotify, it’s when users go premium.
Retention.
Retention is the phase of the growth marketing funnel where your actions are designed to keep users coming back. For an eCommerce store, you want your customers to be repeat buyers. For a streaming service, you want your users to not cancel their subscription.
Here are a couple of ways you can improve retention for your product;
Ensure your product is actually providing value: The major reason why people signed up in the first place is because you promised them value in so you actually want to ensure that your product is always doing that. If people are not getting value, they will churn, it can’t be helped. You can do this by adding new features that delight your users or subtracting features that aren’t being used.
Have exit interviews with churned users: When you lose a customer, you want to find out why they churned, why they stopped using your product. It gives you context as to what you can do to optimize your retention.
Build a community around your product: People feel extra invested in your product if there is a community around it, a community of your users where you provide instant customer support, exclusive offers, and a social layer to your product via customer interactions. Bitnob & Risevest are two brands I feel do a really great job at this. They have really engaged communities, you can check them out here & here.
Appreciate your users: One way you can keep your customers retained is by actually appreciating your most engaged users. Send them free merch, hype them on Twitter, host exclusive events for them. You get brand points, you get to delight your users, you get to keep people interested in your product.
Test campaigns aimed at resurrecting your churned users: Bring users that have churned back into your product loop by designing campaigns specifically for them. You can offer incentives, discounts, etc.
Referral
Referral is when a user of your product brings in another user. For this phase, you could offer incentives that spur your users to actively bring in new users the way products like Piggyvest & Cowrywise do.
So yeah, that’s pretty much how a growth funnel works. If you enjoyed reading this, kindly share it with other folks by tapping the button below. You can reach me via mail at ifeoluwanioseni@gmail.com
Nice article. And the case study is also really enlightening