3.9. AAARRR Funnel

The AAARRR funnel is a tool that is used to decompose user interaction into stages and work with every stage separately in order to predict, evaluate and manage growth of a business. The funnel was developed in 2007 by a venture investor and originally consisted of five stages with awareness being placed in the acquisition layer; nowadays, however, it has its own place and is considered an integral part of the system. Accordingly, the customer starts one’s journey from the top and goes through the respective stages — from getting familiar with the product to finally purchasing.

Six Stages of the Funnel

Awareness
is is the first layer of the AAARRR funnel. The goal of this layer is to inform the customer about the product, make one remember a specific brand and its specific message. If I want a drink — I need Coke; if I want to find something on the Internet — I need Google. To achieve this, you can use different tactics: ads, SEO, SMM, webinars, influencers, content. The only thing is that everything should be done outside of your website. For example, an accounting program B1.lt wanted to increase its brand awareness and developed free online accounting courses. Landings were created and information was put on YouTube. Accordingly, it was far better that they advertised free online courses than if they had advertised an accounting program, because the following resulted in a lot of traffic, a lot of positive impressions, and cheaper views. CPM%, CTR% and Brand Search Volume can be used to measure your first-step success.

Acquisition
The second layer of the funnel, shows the user’s reaction to your message, one’s level of interest in your product. This is the stage when we need to gather the maximum amount of information about those who are planning to make a purchase, since this kind of data will allow to make a portrait of the target audience. Understanding who is your target audience will greatly simplify the search for sales channels. How do we interact with customers on this layer? Of course, with what is on our website or in our app: landings, content, and some tricks related to data collection. How can acquisition be measured? By CR%, Leads, Bounce.

Activation
The aim of activation is to make the client interact with the product or services, take a certain step (for example, configure and/or active a product). It is suggested to have a comprehensive onboarding for the customer to know how to use the service or product. It would be perfect if the client achieved the Aha-moment because this way he would understand and feel the value of what you are offering and stay with your product or service for a long time. What kind of metrics can be used on this layer? Activation rate. It is necessary to activate as much customers as possible. What is important is that if the customer did not complete activation, one’s behaviour and steps should be thoroughly analysed (how much time was spend on the website, what was interesting, what caused difficulties, etc.) to take necessary measures for the following not to happen again.

Retention
This is a very important step, because a simple user is being transformed into a client. As a matter of fact, it is cheaper to retain a customer than to acquire a new one. Therefore, the following layer requires continuous improvements of the product and fighting for the customers’ attention. You need to retain the customer. How to do that? Of course, by sending emails, messages, push-notifications. Nonetheless, the main retention tool is product quality. If the quality of your product or services is bad, there is nothing you can do to bring your customers back. If the product is good, then improve it and make it even better. There are many metrics that can be used on this layer: N-day Retention%, Rolling Retention, CSI%, Sticky Factor (DAU/MAU), etc.

Revenue
The idea is that no matter how generous or noble you are, it’s all about the money. For your business to grow and flourish, customers need to pay. What is more, it should be noted that this layer is an outcome of all the previously mentioned stages of the funnel. This layer is the result of your hard work which shows how you succeeded in promoting your product, attracting clients, and keeping their interest in the product. The most important metrics for this layer are paying users and, of course, the amount of money received.

Referral
This is the last layer. You don’t need to spend millions of millions on marketing if you can have your existing customers do that for you. On this layer a user begins to recommend your product, share one’s positive experience with target audience, and consequently the company gets new clients on account of the existing ones. Referrals can be one- or two-sided. A one-sided referral is when you bring a friend along to use the product or service and only you get a bonus; if both of you get some kind of an advantage (like with Dropbox, when you and your friend get additional space) – it’s a two-sided referral. Of course, the quality of your product should correspond to the needs and desires of the client, for one to recommend it to a friend. There are 2 types of metrics for this layer: K-factor (i.e. how many users a user can attract) and share rate (percentage of users who share).

Final Words

In short, AAARRR funnel is a framework for managing growth; to be more concise, it is a valuable tool that can be used for monitoring the dynamics of the company, seeing how one’s business is developing, and whether everything is going as planned. By means of the funnel not only can entrepreneurs determine the correctness of their chosen strategies, but also notice weak areas that require attention and further improvements, and immediately take action and introduce necessary amendments and adjustments.