Use Pirate Metrics to guide you towards increased customer satisfaction, retention, and referral
Erik van der Pluijm - Mar 29 2019 - 8 min read
When you are developing a new digital service or startup, it is vital to understand how you will reach your customers.
Most often, an exit poll experiment takes the shape of an interview. You’ll find a suitable location frequented by people you think experience the problem, and try to approach people there, hopefully convincing them to do a quick interview. In the interview, you’re most interested in the experience they just had, and what they think about that.And to do that, according to Dave McClure, who came up with Pirate Metrics and first presented it in 2007 at Ignite Seattle, it’s best to think like a pirate. The idea is to map out the entire journey a customer makes to go from someone who doesn’t know the service at all through different stages to someone that is a paying customer. What are the different stages a customer goes through? What are the decision points? What are the conversion rates between subsequent stages?Knowing this will help you calculate those all important metrics: the CAC (Cost of Acquiring a Customer) and the CLTV (Customer Lifetime Value). If you know your CAC and CLTV, you also know what your profit margin is.
A customer has to go through these stages to go from someone that does not know about the service all the way to a customer that generates revenue. Each of the transitions between stages has a conversion attached to it. Not all customers that you acquire end up using the service, and not all of these may become paying customers. That means, you will lose customers going from stage to stage.
To get more paying customers, you can do two things. You can get more customers into the system (by working on the acquisition stage), and you can increase the conversion rates on each of the stage gates. Both strategies, typically, come with a cost. The total cost that you incur in order to get a customer from the acquisition phase to a paying customer is what determines your CAC.
Typically, this means early stage startups have questions such as:
- What are the channels we have available to acquire customers?
- What strategies can we use to influence the conversion rates between stages?
- Where should we spend our money in order to lower CAC, raise CLTV, and increase user growth?
- Should we focus on getting more active users? Or more paying customers?
Strategically, finding the answers to these questions is super important. That means that discussing the current state of the Pirate Funnel and the strategies to the future should be an integral part of the innovation journey, especially once you start to work towards product-market fit.
To enable that discussion and make it easier to keep track of the current situation and the focus for the near future it is super helpful to have a visual aid for team discussion that you can come back to check later: a canvas.
I have turned Dave McClure’s idea into a canvas that you can use to make sense of what the Pirate Funnel looks like for your service or startup.
For startups and ventures alike, thinking in terms of your Pirate Funnel makes complete sense. It is a vital model to understand the flow of customers and attention towards your value proposition and allows you to identify bottlenecks and take action. If you are in a startup or venture, take two minutes to familiarize yourself with this framework today.
-- Keep experimenting!
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