How to use AARRR methodology to achieve product growth?

In his talk, “Startup Metrics for Pirates,” McClure lays out the A AR RR approach to tracking product marketing and management. This methodology has become a growth tool for entrepreneurs .

But now it seems that AARRR is a thing of the past, and RARRA is a better growth hacking model. But before we delve into the differences, let’s first look at why the AARRR model was so popular before and what we can learn from the previous standard-bearer.

What is the AARRR model and why is it so popular?

Let’s take a closer look at Dave McClure’s model.

AARRR stands for:

• Acquisition
• Activation
• Retention
• User Recommendation
• Business Revenue

Pirate Indicator - AARRR Model

The diagram places AARRR from top to bottom in a linear sequence, ultimately forming a user funnel analysis model.

1. First, you can acquire new customers from any advertising/media channel .
2. Secondly, you “activate” them through onboarding and have your product deliver the “Aha Moment” to them.
3. Then, once the user is activated, the remaining work is to maximize user retention .
4. Again, you leverage the features of your product to generate user recommendations and expand your user coverage through viral marketing .
5. Finally, you make money with a complete business model . Of course, you need to consider the user lifetime value here.

The above is how users interact with product applications, and this is what the user journey map and user conversion funnel should look like.

The AARRR model is popular because it is simple and highlights all the important elements of growth.

The bottom line is this: the AARRR model is built around every marketer’s favorite part of growth — acquiring new customers.

Customer acquisition and marketing are pretty synonymous — and since most growth hackers are marketers, customer acquisition has become the most important metric that startups rely on the most.

2. Why is the AARRR model a thing of the past?

Why do I say that the Pirate Metrics-AARRR model is no longer an effective hacker growth model in today's era? Because for most apps, acquiring new users is almost meaningless.

The average situation of each app after installation is now:

• 77% of DAU will be lost in the first 3 days.
• In 30 days, it will lose 90% of its DAUs.
• By day 90, the churn rate jumps to over 95%.

Whether you doubt it or not, this is the reality that many startups are facing today.

Average retention rate curve

In other words: if we look at the industry average retention rate, if an app gets 100 new users, then only 5 of them will still be using our app after 3 months.

But 10 years ago, this might have been fine.

In 2008, there were only 500 apps in the App Store, and it was very likely that your product had no competition. At that time, Apple brought millions of users into the App Store, and the cost of acquiring users was very cheap.

But today, the market situation is completely different.

There are currently 2.5 million apps on the App Store, and 3 million apps on Google Play .

Number of apps in the app store

The market is highly competitive, user acquisition costs are no longer cheap, and simply releasing an app is no longer a guaranteed way to make money.

Under the current circumstances, a growth model centered on attracting new customers is meaningless. It creates what Brian Balfour calls the “wheel of meaningless growth.”

Image credit: Brian Balfour

If you have 1 million new users this year, it sounds great, and you will most likely propose the goal and slogan of "pursuing 5 million new users" for next year at the annual meeting, which seems to be a goal that is within reach based on existing data.

However, the average 5% retention rate in the market means that of the “5 million”, there are actually only 250,000 real retained users.

Bad MRR-3 years

Note: MRR refers to the average monthly recurring revenue from each customer.

Customer acquisition is no longer the key to growth.

As Jonathan Kim says, the pirate metric - AARRR is a terrible and arguably outdated model for SaaS. While much of it is still valid, it is certainly outdated.

Because AARRR focuses on customer acquisition, McClure wrote it in 2007 when the cost of customer acquisition was relatively low. Now the traffic prices of advertising/ social channels are very high, the cost of customer acquisition is increasing day by day, and the market situation is completely different from that in 2007. The real key to growth hacking now lies in user retention, not customer acquisition.

So we need a better model, and that model is the RARRA model.

3. Why is RARRA a better growth hacking model?

What is RARRA?

AARRR vs RARRA

The RARRA model is an optimization of the Pirate Indicator-AARRR model by Thomas Petit and Gabor Papp. The RARRA model highlights the importance of user retention.

• User retention: Provide value to users and encourage them to return.
• Activation: Make sure new users see the value of your product when they first start.
• Referral: Let users share and discuss your product.
• Commercial monetization Revenue: A good business model can make money.
• Acquisition: Encourage old users to bring in new users.

RARRA Model

RARRA focuses on growth through the metric that matters most: user retention

Can you keep users coming back to your product?

• If the answer is yes, then you are actually building a user base.
• If the answer is no, then you are basically just renting traffic. No matter how many people download or try your product, it’s ultimately meaningless because users won’t come back.

As Brian Balfour said: Indicators that truly reflect the overall real growth situation should be given priority.

The retention rate is an indicator that reflects the true value of users - because users will actually use your product every day. When we prioritize user retention, we are building a truly permanent user base.

Why RARRA is a better growth hacker model — Hitlist case study

In 2013, Gillian Morris and two co-founders launched Hitlist, a travel money-saving recommendation platform dedicated to recommending world travel and reducing travel costs, helping friends who love traveling to fulfill their wishes of traveling to various places with the least expenditure.

Users only need to enter the place they want to go on Hitlist, and the application will keep an eye on multiple travel websites for you and tell you when is the best time to go.

After Hitlist was released, it quickly attracted widespread attention from the media and the user response was very positive. Many users spared no effort to applaud this product.

Thousands of new users flocked to the Hitlist platform, but there was a big problem - the user churn rate was too high.

Hitlist conducted a press release three months later, with less than 5% of users remaining active.

Hitlist Growth

At this stage, some of Hitlist’s investors began to push the AARRR model, instructing Gillian Morris to advertise on Facebook in the hope of attracting new customers.

Fortunately, some investors supported Gillian Morris in abandoning the AARRR model and promoting the RARRA model instead.

As we mentioned before, if you are still spending money to acquire new users when your retention rate is low, then you are actually just renting traffic, and you are not really acquiring customers at all.

Fortunately, the Hitlist team began to pay attention to user retention at that time. They optimized the user experience (the most popular feature of the initial design) and added elements that were more conducive to buyers making orders and paying.

After launching the new version, Hitlist 2.0 was a success.

42% of new users are still using the app within a week of downloading. The percentage of monthly active users (MAUs) booking actual transactions rose from less than 1% to more than 10%—many of whom made repeat purchases.

Image credit: Gillian Morris

A year later, the company had more than 250,000 users in 163 countries, booking more than $6 million in travel deals.

When they focused on customer acquisition, they had high churn .

Poor MRR

When they focus on user retention, active users accumulate over time and MRR increases accordingly.

Healthy MRR

Now let’s talk about strategy. How can we use the RARRA model to build a mobile app growth strategy?

How to Create a Growth Strategy Using RARRA

1. Start by improving user retention

As we mentioned, improving user retention is fundamental to product growth.

The first step is to evaluate the current retention rate and major user churn nodes in the product.

User retention curve

Calculate your day-N retention rate to see how many users return to your product and pinpoint where your users are churned, so you know where to focus your optimization efforts.

Once you acquire new users, how do you keep them coming back to your product?

By proving the value of your product and building habits among your users.

First, understand how your product is used by the people who already make it a part of their lives. Who are your most successful, long-term, loyal customers? What do they do in your product? What are the main features they use? From what time to what time of day are they most active? What did they do in the first 48 hours after installation?

Use Cohort Analysis to find the ideal user journey for your product and encourage new users to follow that path.

The best way to keep users coming back is to understand how much they like your product, identify and optimize your most popular features, improve the user experience of your product; send personalized push notifications to bring users back to your product to complete key actions.

The most important thing is: you need to listen to the common problems your users encounter on a daily basis, fix bugs quickly and continuously optimize your product.

2. Accelerate user activation

You can activate a new user only once. Therefore, it’s even more important to provide a pleasant first experience with your product.

You don’t just build a product so people can download it—you want them to use it!

So you need to know what the main actions of users are on your product? Are you making a purchase? Or share photos? Or add friends to socialize? Or commenting on the content?

Once you’ve defined your activation milestones, you can focus on building your onboarding.

There is a big misunderstanding here. You may think that a good UI no longer requires user onboarding. This is actually not true. Unless you have a super simple interface, you need to guide new users on how to use your product for the first time.

Effective onboarding can help users spend less time figuring out how to use your product. Simple walkthroughs and visual prompts help users experience the product value and advantages as quickly as possible.

Keep onboarding simple: don’t cover every feature and don’t annoy users by explaining obvious elements like zoom or scroll gestures.

Once you’ve onboarded your users, you can help them get to the next milestone as quickly as possible — by prompting them to take the next action: completing their profile, adding payment or location information, opting in to push notifications, etc.

3. Build an effective recommendation system

According to a study conducted by Nielsen: 92% of people trust recommendations from friends.

You can use incentives to get your existing loyal users to recommend your product to nearby users. You can quickly expand your user base and provide incentives to potential users as well.

Additionally, the cost per customer acquisition from user referrals is usually much lower than the cost of acquiring customers from other channels, and the retention rate of referred users is usually higher.

Providing referral rewards such as cash back or discount vouchers/coupons is an effective way to keep users engaged and attract new users, as Airbnb and Uber do.

User recommendation mechanism of Airbnb and Uber

By offering rewards to both current users and the users they refer, these companies create a viral marketing campaign that turns their referral programs into powerful customer acquisition engines.

4. Improve the lifetime value of users

The longer you retain your customers, the more valuable they are to your business. They provide steady, predictable revenue growth — which means you can spend more money acquiring more new users.

Here are some ways to improve your customer lifetime value:

(1) Send emails about milestones and progress

Email marketing is important. It’s a way to get users to revisit your product. You can send it once a week or once a month. Summarize the progress or achievements of the week or month, or calculate how much money they saved by using your product.

Milestone achievement emails

(2) Identify upsell and cross-sell opportunities

• Up Marketing: Providing products or services with higher value or other features that enhance existing customers’ original functions or uses based on their past consumption preferences.
• Cross Marketing: Discover the various needs of customers from their purchasing behavior, promote related products or services to them, and create upsell opportunities.
• Take the Amazon app, for example: it highlights recommended products based on a user’s purchase history, ratings, and browsing behavior.

Amazon Upsell

(3) Ask for user feedback

Understanding what your users want can help you prioritize your roadmap to focus on the aspects that will actually drive user retention and business growth. This is important for improving user experience and understanding how users recommend products to others.

Knowing how many loyal customers you have, and who they are, is critical to keeping churn low and growing your user base through app store ratings, recommendations, and word of mouth.

5. Optimize customer acquisition channels

Use cohort analysis to find out which customer acquisition channels work best for your product.

Important note here: I did not say find out which channels brought in the most recent users. Instead, focus more on the funnel and find out which channels bring in the most loyal users.

In this example, Facebook and Google ads performed best in acquiring new users.

Customer acquisition channels

But what if these new users don’t come back or convert into customers?

By drilling down into the funnel, we can see where the majority of returning and paying customers are coming from.

Funnel - converted customers

Facebook accounts for 40% of paying customers, but new users acquired through Instagram have a higher conversion rate . Google’s marketing advertising channel provided 25% of new users, but only 6% of them became paying customers .

It was clear that the next step was to increase efforts on Instagram and reduce marketing spending on Google Ads.

Once you’ve proven you can retain users, you can then ramp up your marketing efforts, add new users at the top of the funnel, and start growth hacking your product exponentially.

Source: Xi Wenyi