May 23, 2014
This post includes extra content from Startup Mixology, my upcoming book on starting up – including how to prepare yourself for the harsh reality and celebrate positive moments along the way. Go here to pre-order the book (due July 8) and subscribe to updates!
Maybe the most famous breakdown of startup metrics comes from Dave McClure, who created “Startup Metrics for Pirates: AARRR!”
AARRR stands for acquisition, activation, retention, referral, and revenue. That’s a lot of different metrics – so how do you decide which ones to focus on and when?
If you care about getting users, you need to track acquisition and referral metrics. If you care about driving usage, you need to track activation and retention. Of course, if you care about making money, you need to track revenue.
The metrics you track also depend on your role in the business. If you’re on the development team, you want to look at conversion rates and see how the features you build affect them. If you’re a marketer, you’re looking for marketing channels that have a small price tag but high conversions – the most bang for your buck.
In the book Lean Analytics, authors Alistair Croll and Ben Yoskovitz advise you to make it simple: choose one metric that matters (at a time). And that metric should be whatever metric can help you test the current assumption you’re examining under the lean startup method. For example, you might assume that your customers care more about price than quality. Before lowering the price, you decide on a metric that will confirm your assumption – say, getting 50 percent more repeat visitors to your site. That way, once you make the change, you’ll have a clear way to decide if your assumption is validated or not.
Croll and Yoskovitz also suggest looking at different metrics depending on your business:
- Transactional business (people buying things): Focus on shopping cart size, conversions, and shopping cart abandonment.
- Collaborative (people generating content): Focus on the ratio of spam to good content, and the ratio of lurkers to creators.
- SaaS (service): Focus on the cost of acquisition and churn rate.
- Media (ad revenues): Focus on time on page, pages per visit, and click-through rates.
- Game model (in-app purchases): Focus on average revenue per user (ARPU) and ARPU per month.
- App model (free or paid): Focus on downloads, uninstalls, installs of the latest version, reviews, daily active users, and monthly active users.
Ready to seize the pirate booty yet?
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