Business Models & Startup Metrics for Scottish Pirates ( AARRR! ) v 1.3 Dave McClure, Master of 500 Hats @ Univ. Edinburgh, January 2008 blog: http://500hats.typepad.com/ website: http://www.500hats.com/ slides: http://slideshare.net/dmc500hats/ * reminder: National Talk Like a Pirate Day is Sept 19 th !

AARRR genda Startup Metrics for Pirates (AARRR!) Questions for Pirates & Founders What is a Business Model? What is a Marketing Plan? More About Metrics Web 2.0: What’s So Special? Summary

Startup Metrics for Pirates (AARRR!)

Questions for Pirates & Founders

What is a Business Model?

What is a Marketing Plan?

More About Metrics

Web 2.0: What’s So Special?

Summary

Startup Metrics for Pirates: 5 Steps to Web 2.0 Booty ! A cquisition : users come to site from various channels A ctivation : users enjoy 1 st visit: " happy ” experience R etention : users come back , visit site multiple times R eferral : users like product enough to refer others R evenue : users conduct some monetization behavior AARRR !

A cquisition : users come to site from various channels

A ctivation : users enjoy 1 st visit: " happy ” experience

R etention : users come back , visit site multiple times

R eferral : users like product enough to refer others

R evenue : users conduct some monetization behavior

Customer Lifecycle & Conversion Behavior Website.com 4. REFERRAL Emails & widgets Campaigns, Contests 5. Revenue $$$ Biz Dev Ads, Lead Gen, Subscriptions, etc 2. Activation Homepage / Landing Page Product Features 1. ACQUISITION SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains

Customer Lifecycle / Conversion Behavior Website.com Marketing Channels: largest-volume (#) lowest-cost ($) best-performing (%) SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains

Marketing Channels:

largest-volume (#)

lowest-cost ($)

best-performing (%)

Customer Lifecycle / Conversion Behavior Website.com Activation Criteria: 10-30+ seconds 2-3+ page views 3-5+ clicks 1 key feature usage do LOTS of landing page tests & A/B tests – make lots of dumb guesses & iterate FAST 2. Activation Homepage / Landing Page Product Features 1. ACQUISITION SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains

Activation Criteria:

10-30+ seconds

2-3+ page views

3-5+ clicks

1 key feature usage

Customer Lifecycle / Conversion Behavior Website.com Automated emails are simple, easy retention feature (but don’t overdo it) lifecycle emails @ +3, +7, +30d status emails weekly/monthly event-based emails as they occur but: make it easy to unsubscribe 2. Activation Homepage / Landing Page Product Features 1. ACQUISITION SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains

Automated emails are simple, easy retention feature (but don’t overdo it)

lifecycle emails @ +3, +7, +30d

status emails weekly/monthly

event-based emails as they occur

but: make it easy to unsubscribe

Customer Lifecycle / Conversion Behavior Website.com Only encourage users to refer * after * they have “ happy” user experience; avg score >= 8 out of 10 2. Activation Homepage / Landing Page Product Features 4. REFERRAL Emails & widgets Campaigns, Contests 1. ACQUISITION SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains

Customer Lifecycle / Conversion Behavior Website.com This is the part * you * have to figure out… I don’t know jack about your business 5. Revenue $$$ Biz Dev Ads, Lead Gen, Subscriptions, etc 2. Activation Homepage / Landing Page Product Features 4. REFERRAL Emails & widgets Campaigns, Contests 1. ACQUISITION SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains

Example Conversion Metrics (note: *not* actuals … your mileage may vary.) Category Conversion Status Conv % Est. Value Acquisition Visit Site (or landing page, or external widget) 100% $.01 Acquisition Doesn't Abandon (views 2+ pages, stays 10+ sec, 2+ clicks) 70% $.05 Activation Happy 1 st Visit (views X pages, stays Y sec, Z clicks) 30% $.25 Activation Email/Blog/RSS/Widget Signup (anything that could lead to repeat visit) 5% $1 Activation Acct Signup (includes profile data) 2% $3 Retention Email Open / RSS view -> Clickthru 3% $2 Retention Repeat Visitor (3+ visits in first 30 days) 2% $5 Referral Refer 1+ users who visit site 2% $3 Referral Refer 1+ users who activate 1% $10 Revenue User generates minimum revenue 2% $5 Revenue User generates break-even revenue 1% $25

AARRR genda Startup Metrics for Pirates (AARRR!) Questions for Pirates & Founders What is a Business Model? What is a Marketing Plan? More About Metrics Web 2.0: What’s So Special? Summary

Startup Metrics for Pirates (AARRR!)

Questions for Pirates & Founders

What is a Business Model?

What is a Marketing Plan?

More About Metrics

Web 2.0: What’s So Special?

Summary

Founder/CEO Q: Which Metrics? Why? A: Focus on Critical Few Actionable Metrics (if you don’t use the metric to make a decision, it’s not actionable) Hypothesize Customer Lifecycle & Refine Choose ~5 Conversion steps (tip: Less = More) Delegate Each Key Metric to someone to OWN

Q: Which Metrics? Why?

A: Focus on Critical Few Actionable Metrics

(if you don’t use the metric to make a decision, it’s not actionable)

Hypothesize Customer Lifecycle & Refine

Choose ~5 Conversion steps (tip: Less = More)

Delegate Each Key Metric to someone to OWN

Product / Engineering Q: What to Build? Why? A: Build Features that Increase Conversion (= Value) Wireframes = Conversion Steps Measure, A/B Test, Iterate FAST (daily/weekly) Optimize for Conversion Improvement 80% on existing feature optimization 20% on new feature development Just guess, then A/B test… A LOT.

Q: What to Build? Why?

A: Build Features that Increase Conversion (= Value)

Wireframes = Conversion Steps

Measure, A/B Test, Iterate FAST (daily/weekly)

Optimize for Conversion Improvement

80% on existing feature optimization

20% on new feature development

Just guess, then A/B test… A LOT.

Marketing / Sales Q: What channels? Which users? Why? A: High Volume ( # ), Low Cost ( $ ), High Conversion ( % ) Design & Test Multiple Marketing Channels / Campaign Themes Select & Focus on Best-Performing Channels & Themes (“best” = #, $, %) Measure *deeper* down Conversion funnel, not just site / landing page Test & Optimize; Segment & Select, Target Channels & Customers @ deepest possible level (ideally $$$) Low-Hanging Fruit: 1) Blogs, 2) SEO/SEM, 3) Landing Pages, 4) Automated Emails

Q: What channels? Which users? Why?

A: High Volume ( # ), Low Cost ( $ ), High Conversion ( % )

Design & Test Multiple Marketing Channels / Campaign Themes

Select & Focus on Best-Performing Channels & Themes (“best” = #, $, %)

Measure *deeper* down Conversion funnel, not just site / landing page

Test & Optimize; Segment & Select, Target Channels & Customers

@ deepest possible level (ideally $$$)

Low-Hanging Fruit:

1) Blogs, 2) SEO/SEM, 3) Landing Pages, 4) Automated Emails

AARRR genda Startup Metrics for Pirates (AARRR!) Questions for Pirates & Founders What is a Business Model? What is a Marketing Plan? More About Metrics Web 2.0: What’s So Special? Summary

Startup Metrics for Pirates (AARRR!)

Questions for Pirates & Founders

What is a Business Model?

What is a Marketing Plan?

More About Metrics

Web 2.0: What’s So Special?

Summary

Q: Business Model? “ Business Model” can be one of the following: OK: Get Users (= Acquisition, Referral) BETTER: Drive Usage (= Activation, Retention) BEST: Make Money (= Revenue*) * ideally profitable revenue Note: *eventually* need to turn Users/Usage -> Money

“ Business Model” can be one of the following:

OK: Get Users (= Acquisition, Referral)

BETTER: Drive Usage (= Activation, Retention)

BEST: Make Money (= Revenue*)

* ideally profitable revenue

Note: *eventually* need to turn Users/Usage -> Money

AARRR genda Startup Metrics for Pirates (AARRR!) Questions for Pirates & Founders What is a Business Model? What is a Marketing Plan? More About Metrics Web 2.0: What’s So Special? Summary

Startup Metrics for Pirates (AARRR!)

Questions for Pirates & Founders

What is a Business Model?

What is a Marketing Plan?

More About Metrics

Web 2.0: What’s So Special?

Summary

M AARRR keting Plan Marketing Plan = Target Customer Acquisition Channels 3 Important Factors = Volume ( # ), Cost ( $ ), Conversion ( % ) Measure conversion to target customer actions Test audience segments, campaign themes, Call-To-Action ( CTAs ) Match Channel Costs to Revenue Potential Est. Conversion + Revenue Potential Avg Txn Value ( ATV ), Ann. Rev. Per User ( ARPU ), Cust. Lifetime Value ( CLV ) Design channels that cost <20-50% of target ATV, ARPU, or CLV Consider Costs & Resource Tradeoffs Actual expenses Marketing time & resources Product/Engineering time & resources Timing of expense vs. revenue, profit vs. cashflow

Marketing Plan = Target Customer Acquisition Channels

3 Important Factors = Volume ( # ), Cost ( $ ), Conversion ( % )

Measure conversion to target customer actions

Test audience segments, campaign themes, Call-To-Action ( CTAs )

Match Channel Costs to Revenue Potential

Est. Conversion + Revenue Potential

Avg Txn Value ( ATV ), Ann. Rev. Per User ( ARPU ), Cust. Lifetime Value ( CLV )

Design channels that cost <20-50% of target ATV, ARPU, or CLV

Consider Costs & Resource Tradeoffs

Actual expenses

Marketing time & resources

Product/Engineering time & resources

Timing of expense vs. revenue, profit vs. cashflow

Example Marketing Channels disclaimer: estimates of vol, cost/user, time & effort are subjective – actual costs are dependent on your specific business

AARRR genda Startup Metrics for Pirates (AARRR!) Questions for Pirates & Founders What is a Business Model? What is a Marketing Plan? More About Metrics Web 2.0: What’s So Special? Summary

Startup Metrics for Pirates (AARRR!)

Questions for Pirates & Founders

What is a Business Model?

What is a Marketing Plan?

More About Metrics

Web 2.0: What’s So Special?

Summary

4 Types of Measurement Qualitative : Usability Testing / Session Monitoring Watch users, guess problems & solutions from small # of users Quantitative : Traffic Analysis / User Engagement Track users, usage, conv %'s for empirical sample # of users Comparative : A/B, Multivariate Testing Compare what users do in one scenario vs another Measure which copy/graphics/UI are most effective Competitive : Monitoring & Tracking Competitors Track competitor activity & compare against yours (if possible) Compare channels, keyword traffic, demographics, user sat, etc. (see slide notes for links to tools & vendors)

Qualitative : Usability Testing / Session Monitoring

Watch users, guess problems & solutions from small # of users

Quantitative : Traffic Analysis / User Engagement

Track users, usage, conv %'s for empirical sample # of users

Comparative : A/B, Multivariate Testing

Compare what users do in one scenario vs another

Measure which copy/graphics/UI are most effective

Competitive : Monitoring & Tracking Competitors

Track competitor activity & compare against yours (if possible)

Compare channels, keyword traffic, demographics, user sat, etc.

(see slide notes for links to tools & vendors)

Quantitative & Comparative Measurement Conversion Criteria: best-performing (%) channels / campaigns / copy largest-volume (#) channels / campaigns / copy lowest-cost ($) channels / campaigns / copy Measurement Components: Audience Segment (young women, regional metro, older singles) Channel Source (social network, SEM, organic, PR, etc) Campaign Theme / Brand Promise (“find a job”, “learn to cook”) Landing Page & CTA Copy & Graphics

Conversion Criteria:

best-performing (%) channels / campaigns / copy

largest-volume (#) channels / campaigns / copy

lowest-cost ($) channels / campaigns / copy

Measurement Components:

Audience Segment (young women, regional metro, older singles)

Channel Source (social network, SEM, organic, PR, etc)

Campaign Theme / Brand Promise (“find a job”, “learn to cook”)

Landing Page & CTA

Copy & Graphics

AARRR genda Startup Metrics for Pirates (AARRR!) Questions for Pirates & Founders What is a Business Model? What is a Marketing Plan? More About Metrics Web 2.0: What’s So Special? Summary

Startup Metrics for Pirates (AARRR!)

Questions for Pirates & Founders

What is a Business Model?

What is a Marketing Plan?

More About Metrics

Web 2.0: What’s So Special?

Summary

Web 2.0: Yeah, We’re Special* Web Services, Ajax, Flash, Tags, Feeds Online reach is very broad ( 1B+ users worldwide) HW/SW Infrastructure Cost is low (open source) Customer Acquisition Cost is low (blogs, SEO, email/viral) User Participation is high (UGC/LGC) Referral Potential is high (if you don’t suck ) Monetization is non-zero (you hope) Online Metrics are available (if you measure) *… as in Special Olympics

Web Services, Ajax, Flash, Tags, Feeds

Online reach is very broad ( 1B+ users worldwide)

HW/SW Infrastructure Cost is low (open source)

Customer Acquisition Cost is low (blogs, SEO, email/viral)

User Participation is high (UGC/LGC)

Referral Potential is high (if you don’t suck )

Monetization is non-zero (you hope)

Online Metrics are available (if you measure)

AARRR genda Startup Metrics for Pirates (AARRR!) Questions for Pirates & Founders What is a Business Model? What is a Marketing Plan? More About Metrics Web 2.0: What’s So Special? Summary

Startup Metrics for Pirates (AARRR!)

Questions for Pirates & Founders

What is a Business Model?

What is a Marketing Plan?

More About Metrics

Web 2.0: What’s So Special?

Summary

Why You Should Be A Web 2.0 Entrepreneur Pirate! AARRR!