Most people overcomplicate things when trying to explain what growth is. Growth is the entire process of how you take a prospective user from being aware of your product to becoming an evangelist, making use of a data-driven approach.
Growth can get complicated quickly if it isn’t measured (and visualized) to know what growth strategy is working. Funnels play a huge part in understanding growth. Thinking in terms of funnels will help with measuring growth and give you an in-depth view of how well your product is performing.
Funnel thinking is as easy as it gets. The key here is to think of this literally as a funnel because that is what it is. Imagine how a substance passes through a funnel from top to bottom. That is how your customers will ideally move. There is usually a starting point and a potential destination — which is where you so badly want them to get to.
Growth happens via channels and is understood using funnels. Channels are the answer to the question, how will you get users? — although a lot of nitty-gritty is still involved.
In this article, I won’t be going into growth channels, but here is an excellent resource.
INTERESTING GROWTH FUNNELS
Startup Metrics for Pirates: the AARRR! FRAMEWORK.
By far the most popular, it provides a useful framework for thinking about growth funnels.
AARRR is short for Acquisition, Activation, Retention, Revenue and Referral.
It was developed by and popularised by Dave McClure, the cofounder of 500 Startups, the popular startup incubator. After years of working with startups, Dave realised that the way startups should understand and look at growth is by a funnel; popularly called the Pirates Funnel.
I will explain, but you can visit here to learn more.
In essence, the user goes through these stages, i.e. from:
Acquisition →Activation → Retention → Revenue → Referral
Let us use a hypothetical social media management tool. I acquire a user via SEO i.e the channel. The user signs up and grabs the 14 days free trial offer i.e activation. She decides the product is valuable and stays after a week, retention; staying means that she will pay i.e revenue. The product is the best solution she has used; hence, she decides that the people in her network should know about and try it out. She sends out a message to a slack group for professionals like her, telling them about how good the product was i.e referral.
This way I know what exactly is happening with my product and I know where the users are as regards their usage which makes it easier for me to target, ask questions, get insights and much more.
Here is a quick example. When I removed adding your credit card as part of the requirements for getting a free trial, what was the change in retention rates comparing cohort M and N? Since we introduced the new feature how many new sign-ups have we gotten? How many are still using us after one month and how many have paid?
Julian’s Growth Funnel
Acquisition → Conversion → Engagement → Revenue → Referral
This funnel provides another angle to looking at growth with new considerations, adding and removing some stages. As with all frameworks, there are always downsides and better ways to look at things.
Conversion is used here as opposed to Activation and Engagement instead of Retention (a user that stays back for long is seen as a retained user). This funnel model assumes that looking at a product in terms of engagement gives us a better understanding as regards the user-product relationship.
Let us use Microsoft PowerPoint (ala Canva) in another hypothetical situation.
You start using PPT because of an article that you saw about how to make amazing presentations i.e acquisition. Then you sign up so you can make use of the product i.e conversion. All your designs are done via the product, and you love it i.e engagement. You need access to some features that are not on the free plan, so you upgrade by moving to a paid plan i.e revenue. The product is so enjoyable that you tell all your friends about it i.e referral.
E-commerce Growth Framework.
Acquisition → Revenue → Referral → Retention
The framework looks at building a funnel that suits an e-commerce business.
Buying from Jumia or Amazon can be visualised via this funnel.
Here are some more that I won’t be explaining, but you can visit here to learn more.
Less Popular Earlier Forms of Funnels
Attention → Interest → Desire → Action → Onboarding → Retention
Attention → Interest → Desire → Action
This funnel is an adaptation by Alexander Cowen, a lecturer at Darden School of Business.
ACCA and AISDALSLove
Awareness → Comprehension → Conviction → Action
Attention → Interest → Search → Desire → Action → Like/dislike → Share → Love/hate
These were some of the earliest forms of funnels when marketers wanted to understand their craft better and get better results. This funnel came from Defining Advertising Goals for Measured Advertising Results, DAGMAR, which was an advertising model proposed by Russel H. Colley in 1961 (source Wikipedia) in an attempt to be more critical and to properly measure the impact of advertisements.
Most recent variations are an adaptation of these earlier forms.
The problem with some of these earliest forms is subjectivity, and that quantitative metrics cannot support most of them. They are more qualitative than quantitative. Measuring a stage can be dicey.
What metric would you peg to some of the stages?
How do you know if a user has comprehended i.e understood what your product is about?
I will not be explaining but you can visit the links to learn more.
Cohort Analysis: Mixpanel’s guide is a good read.
P.S. Funnels are practically useless if you aren’t measuring.
GROWTH: WHAT MATTERS.
The Nigerian Prince.
Here is the thing about a Nigerian Prince (scammers), I learnt about this from reading: Product Book by Product Management School. Here is the interesting thing about their business, few people fall for their acquisition strategies i.e get into their funnel. But the few that fall most times are scammed.
- Acquisition: Few people try it out.
- Activation is low
- Retention is high. The CTR of those emails is very low, but guess what? Their CTR to conversion rate is incredibly high. What does that tell you?
- Revenue: A very good number become paying users.
So they end up having successful campaigns even though the volume at the top of their funnels is usually small.
Guess what? This tactic is used on purpose. The messaging is made to appear dumb so that only a few gullible people would fall. This tactic helps filter out lots of people that would be sceptical. The result is a very high conversion rate from user to paying user.
Let us use Showmax for another hypothetical example.
- Acquisition via Twitter Ads.
- Sign up and opts-in for a free trial.
- The user decides to stay after a week.
- She pays for the product after the free trial is over
- She might tell a friend about the product if she enjoys it.
Which is successful?
The Nigerian Prince got 25% of his users to convert to paying users while Showmax got just 10% of their users to pay.
I guess we can all agree that the Nigerian Prince is more efficient.
a)Twitter/Google/Facebook ad — Acquisition. A high CTR (website visits, page visits, etc.), but nobody signs up. For enterprise products, you get loads of leads, but very few sign up to try out the product eventually.
You get them to sign up, but they don’t go-ahead to use the product. Lots of people drop their emails, but they never open it or even if they open it, they never click.
b)You get high engagement on social media, people sign up, but they don’t do anything significant after then.
Maybe people are using it, but when it is time to pay, they never do. Worst case they use it and they aren’t coming back.
Your funnel here would help you realise that real growth comes from the bottom, not the top. Most often than not, focusing on the top leads will end in tears. With a funnel, it is also easier to fix the problem by drilling down with the help of analytics, tests and an understanding of user psychology.
Metrics gotten from the top are usually labelled vanity metrics because they constitute no real impact on your product. They don’t help in getting users to your ideal destination, and they won’t help you in figuring out why you don’t have them there.
Most people get excited when they get new users, whether page views/visits, app store installs, trials, signups. All these can count for nothing without the other half of the story.
The advantage of using a funnel here is that you will help you realise that there is more to achieving your aim than what is getting you excited. You are just at the beginning.
Note that this is not to say that a large volume at the initial stage doesn’t matter. It is all about being as efficient as possible.
The point here is that what happens in the later parts (bottom) of the funnel matters more ultimately. Example with a Facebook ad and also should be combined with SaaS sign-up or trials.
Ultimately you should be more concerned about how your strategies affect the bottom of your funnel.