What Metrics Do You Watch During Customer Development?
In this article, we explain 1) the difference between vanity and actionable metrics, 2) an introduction to the AARRR metrics framework, and 3) how the AARRR framework can be used during customer development.
There is nothing in business that is not worth measuring, including success. In fact, it is hard to know if you have succeeded if you are not measuring your initiatives, your failures and your successes. All of these measurements will come from different metrics. These metrics are not all the same and not all metrics will apply to you and your business.
But measuring customer development metrics is about more than generating numerical figures. You need to be able to distinguish which metrics are most valuable for your business. You also need to know how to use them and what do to do with them when you have them.
VANITY METRICS VS ACTIONABLE METRICS
In general, you will find that there are two different kinds of metrics that you will use. These main groups of metrics are known as vanity metrics and actionable metrics. While both can be valuable, there are distinct differences between the two groups.
Vanity metrics are metrics that make you feel good about what you have done. These are numbers or statistics that look good in reports. Vanity metrics are fun. They show you how many visitors you get, how many followers you have or how many new subscribers have signed up for more information. These metrics are often easy to track and they can show growth. But the data they produce is relatively meaningless. You cannot do very much with them that is meaningful for growing your business.
Maybe your tweet did get thirty favorites and a bunch of retweets. But that only tells you a few things. It tells you that you tweeted at the right time. It may even show that you were relevant or funny once. But it does not correlate to data that you can really use to develop your customers.
Vanity metrics are not an accurate gauge of what is happening within your business. In fact, if you really want to, you can purchase your vanity metrics for only a small fee. It is not difficult to find someone who can generate hundreds, thousands or even tens of thousands of followers or fake signups for you. The problem is that you then have thousands of people following your business but none of them are customers. Many of them may not even be real people.
Because vanity metrics are easy to track and easy to achieve, many people begin to focus on improving them. Unfortunately, this can be a mistake because it means that you begin to spend time focusing on metrics that make you feel good. You should really be focusing on metrics that can help you improve your business.
Vanity metrics are data but having huge amounts of data is not always wat you need. This especially true if the data does not provide you with new information to base your decisions on. That is why you need to focus on actionable metrics. Actionable metrics are those statistics that you can use to measure and assess specific tasks that are directly related to the goals of your business. These are important because they allow you to read data and then make changes to attract more customers. These metrics help you make decisions about your strategy.
Actionable metrics are not necessarily compiled into handy graphs with the touch of the button. They often take some work and interpretation. One great kind of actionable metric is a split test or an A/B experiment. These metrics produce some of the most actionable data that you can ever find. This is because they either confirm or deny a hypothesis explicitly. They are also useful because you can use them in many different areas. You can use the A/B test to make changes to your advertising copy or even to make major changes to your product.
Keyword metrics are also great metrics to use for your business. These tests are sometimes known as SEM or SEO tests. They are also great for developing your customers because they will demonstrate real insights about your customers.
The origins of AARRR do not differ much from the origins of the Customer Development model. AARRR, otherwise known as Startup Metrics for Pirates, was developed by Dave McClure. He is the person who created the term and created a presentation that anyone can now find either on Slideshare or on Dave McClure’s blog, Master of 500 Hats. Dave is an entrepreneur and an active investor. He also cofounded 500Startups.
The model was initially created to support Dave’s hypothesis that founders only need to focus on five key actionable metrics in order to make their business model a successful one. AAARR provides a measurable framework for startups to tell whether or not the current business model is worth developing into a fully-fledged company.
As indicated by its acronym, AARRR has five key phases. In order, these phases are: acquisition, activation, retention, revenue and referral.
Acquisition is the first of the five key phases of the framework. It is also the first point when you will make contact with your customer. You can acquire customers from social networks, SEO, PR, affiliates, business development efforts and direct advertising. Many people confuse acquisition for casual visitors. Acquisition is not the number of views you get per month. You can use this metric in a more meaningful way than this.
Instead, you should be measuring where your visitors are coming from. You can then begin to see which of your efforts are working best within your customer market. This information will tell you if your SEO is on track or if your social media efforts are currently worth your while.
You will see where the big spikes of customers are coming from. You will also see where a low but steady volume is coming from. But at this point, you should not be disregarding methods that bring in low but steady stream of customers. You need to go through the rest of the process before you begin to make decisions about which streams to keep and which to put lower on the list of priorities.
Activation naturally follows customer acquisition. This is because once you get traffic to your website or your business, you need to create a great user experience. This is the part where you need to use your value propositions to hook your customers.
Your landing page is an essential part of customer activation. But not any old landing page is suitable. You should be split or A/B testing here to find the best customer experience. When you have figured out what works best for customers, you will be able to activate more customers.
It is not enough to get customers to sign up in your registration form. Customers who give you their information are more likely to buy but they haven’t bought yet. You still need to get them to buy. You might have 5,000 email addresses but if you aren’t taking orders that data is not incredibly useful to you yet. Conversion happens further down the chain.
The AARRR framework does not stop once you have activated your customers. You need to keep them coming back for more once they have arrived. While it is important to focus on acquiring those first customers in the first step of the method, you need to have equal focus on keeping them. Repeat business and loyal customers are far more valuable to you than anyone who buys from you once and never comes back again.
How you retain customers will depend on your business. However, you should avoid giving things away for free. Yes, you will have a high retention rate. But you still don’t have paying customers. Since paying customers are usually your initial goal as a startup, giving things away will put adding paying customers further back on your timeline. Also, you will have a much lower conversion rate if you decide to begin charging for your services.
Retaining customers is not just about keeping them on your mailing list. You want them to be interacting with you. You want them to open the emails you send them. You want them to be clicking around your site rather than visiting your home page.
However, do not measure your retention every day. You can retain customers who are not visiting you every day and they will still be valuable to you. In fact, customers who visit regularly are often more valuable than those who are around constantly. Think of it this way. If you were a retail store and you have customers who came in everyday, they would probably make smaller purchase, if they bought at all. But customers who came in every week to do their shopping? They are probably making bigger, regular purchases that you can count on. These are the customers that you want to please.
You can measure your retention rates in whichever way is most appropriate for your business. For some, it might be seeing how many people visit your product monthly. For others, it will be how many people return to the product and how often.
There is nothing sweeter than a customer referral. Creating an experience where your customer can do half your work for you is your ultimate goal. You want to be able to create an experience that does not just draw in customers. You want an experience that makes those customers want to tell all their friends. However, you should keep this sharing under control under you have a great product. Allowing your customers to refer your product to all of their friends will not serve you if you are not ready for the business yet.
You should be qualitatively testing your product until it is ready for a hard launch before you allow your product to go viral.
Referrals are powerful and you can use them to your advantage as a way to control both your product and your customers.
OnePlus is a Chinese phone manufacturer which creates high end phones that are sold at low prices. Though it has many of the specs of the latest Apple or Samsung products, these phones are often sold at less than half the price of the biggest phones on the market.
The way that OnePlus sells its phones is evidence that the referral process can be very valuable for your business. While Apple has stunning, and expensive, advertising, OnePlus operates solely on the invitation system. This means that customers have to visit the landing page and place themselves on a list if they want to buy the newest version of the phone.
Because of the nature of the product, OnePlus reaches out to its target market and allows its target market to expand its market for it.
This leaves OnePlus in complete control of its market. Current owners can invite friends to sign up for an invitation. The more people that sign up for an invitation the higher up the original invite moves up on the list. Thus, it encourages referrals for real rewards. But the gratification is delayed. OnePlus maintains is exclusivity by forcing customers to wait on a waiting list until an invitation is available. Once the customer gets the invitation, they have 72 hours to activate the invitation. When the invitation is activated, they have 24 hours to purchase.
OnePlus has a genius system. However, it only works because the company offers a genius product with a real value proposition. You can’t make customers wait three months for a new phone and then randomly demand $400 from them in a matter of days if you do not have a gripping value proposition.
Your revenue is the least vain out of all your metrics. Measuring revenue is a perfect place to really determine the success of your business model. If you are bringing in real revenue, you are on to something. It is then okay to begin to scale up your model into a real company.
However, it is important that you go through the previous four steps before measuring your revenue. Without doing this, you will not be getting all of the other valuable data that you need. Knowing how much you’re bringing in is great but it is only useful in the context of other metrics such as where your money is coming from.
USING AARRR IN THE CUSTOMER DEVELOPMENT MODEL
The AARRR method is perfectly designed to use alongside the Customer Development model. You can use this framework throughout the model but it is most useful in the last two stages: customer creation and company building. Successfully moving through the AARRR framework will help you determine whether your business model is ready to be scaled up into a fully-fledged company.
The acquisition and activation stages are best used during the customer validation phase of Customer Development. These stages are great for the measurement that you should be doing when you validate your customers. You can use the acquisition phase to measure where your customers are coming from. You can also use the activation stage and its metrics to measure your customer engagement. This will help you validate your customers.
The activation stage of AARRR is also essential for the customer creation stage of Customer Development. In the activation stage, you are measuring the marketing activities that you need to help your customers not only learn more about your product but actually want to buy it. These methods can be used together to create a successful strategy for not just gaining customers but keeping them. The reason that these fit together so well is because they are not about creating marketing but about creating a positive experience for the customers.
The retention, referral and revenue phases can all be used to measure whether or not your business model qualifies as a something that should be scaled up in the company building phase of Customer Development. Measuring your customer retention is important because the customers that you retain will be your most valuable customers. You want to create a business that does not just draw customers in for single purchases but creates valuable buyers.
You also want your business to be so engaging that these customers want to share it with their friends. There is no point in building a business that your customers would not tell anyone about. Finally, measuring your revenue streams is important because it is the proof you need that people are will to spend money on your business. If all three of these things point to success, you can officially move into the company building phase of the Customer Development model.
Learning the difference between vanity metrics and meaningful measurements is essential if you want to incorporate measurements into the Customer Development model. Since the Customer Development model is all about learning and validating your data, it makes sense that you would want to use your metrics to make actionable decisions about what you know.
Using the AARRR framework alongside the Customer Development model is a great way to measure your success. When you successfully apply AARRR to the relevant stages of Customer Development, you will find that you will be able to come to a clear decision about whether or not you should transform your business model into a fully-fledged company.