In the age of Big Data, everyone talks about metrics. Pageviews, downloads, signups, bounce rates… All of those things are vanity metrics. They sound good and they may make your operation look good on paper, but what do they really tell you about performance?

According to noted venture capitalist Dave McClure, five metrics provide genuine insight. He calls them Pirate Metrics: acquisition, activation, retention, referral and revenue, or AARRR.

Acquisition

Regardless the market, all business is about customers. If you don’t have customers, you don’t have a business. The acquisition metric tracks potential customers — who they are, where they came from, how they travel through your site, what catches their attention — giving you an idea about whether you’re reaching the targeted audience.

Test and tweak marketing efforts, homepage design, ads and sales funnels until you know you’re reaching the people you want to reach. And then test and tweak some more. You can never attract too many customers.

Activation

Once you’ve acquired customers, you must convert them into active users of the product or service. To find the activation point, track every action users perform on your site, then segment those users into groups of individuals who displayed similar behaviors: Group A clicked through free photo galleries, Group B watched videos, Group C checked out the performer bios, etc. Over time, those numbers will show you what intrigues users and convinces them to give you their money.

Retention

The adage is true: It’s less expensive to keep a customer than to replace him. Once you have a paying user, you want to keep him coming back again and again. Acquiring new customers while keeping current ones creates growth.

Testing and tweaking is key, here, too. What marketing methods keep users’ attention? What kinds of content do they crave? Do they appreciate notification about new content? How do they want to receive notifications: email, browser pop-ups, something else?

Referral

One of the best ways to promote a business — and one of the best indicators a business is doing something right — is word-of-mouth referrals. Happy customers tell their friends. In the age of social media, those “friends” can number in the thousands.

Referrals carry a bonus: They’re pre-qualified. They’re looking for exactly what you have before they ever “meet” your product and, based on a friend’s recommendation, they’ll stick around longer than “cold calls” to give your product extra time to convince them it’s what they desire.

Referrals exponentially magnify acquisitions, adding a significant boost to your bottom line.

Revenue

The most important metric of all is revenue. That’s why you’re in business. Without revenue, none of the other Pirate Metrics — or any other metric, really — matters.

Increase measure by getting more value from customers than it cost to acquire them. In other words, aim for a LTV:CAC ratio of 3:1. LTV, or lifetime value, is the amount you expect to earn from a customer over the lifetime of your relationship. CAC, or customer acquisition cost, is the amount you spent on marketing, content creation, special promotions and everything else required to convert the window shopper into a buyer.

Improve the ratio by decreasing the number of steps or amount of time it takes to convert a sale, optimize pricing and positioning so your product appeals to the right customers, and keep the customers you already have engaged.

The long haul

Fads come and go. Specific metrics fade into and out of popularity and usefulness, but Pirate Metrics remain among the most significant for business performance, according to McClure. Understand how they drive yours, and you just may find the X that marks the spot.

Image © Mario Lopes