AN AWESOME GUIDE TO PIRATE METRICS
We all love the pirate metrics by Dave McClure. But how do the pirate metrics phases map to the most important and commonly measured SaaS metrics?
Let’s find out - meet the Pirate Metrics Matrix.
ACQUISITION AND ACTIVATION PHASES
SaaS’ commonly measure traffic, visits and their marketing funnel conversions. Marketing funnel is often divided into several conversion steps: visit, sign up, activation, purchase. Conversion rate is measured for each of the steps.
On the cost side, customer acquisition cost (CAC) is followed up. It is customary to add also trial support costs to CAC, which is why it’s placed between the acquisition and activation phases.
Likewise, the cost of service and average cost of service (COGS or ACS) should be divided between activation and retention phases - whenever the users are using the resources.
Monthly recurring revenue (MRR), average revenue per user (ARPU), average revenue per paying user (ARPPU) and customer life-time value (CLTV, CLV, LTV) are all revenue phase metrics. Most SaaS use simple CLTV that doesn’t use discount rate or include costs. That’s shouldn’t really be called life-time value since no costs are included, but it seems to be established practice amongst the SaaS.
Retention phase presents us one of the key metrics of SaaS - the churn. You can read more about churn in my other articles.
Referral phase is all about virality. The most common virality metrics are viral coefficient and cycle time.
DOES YOUR SAAS HAVE THE WHOLE FUNNEL COVERED?
In that case, you'll need to start analyzing your data to find out the best ways to improve your business.
HEY, WHERE'S THE PROFIT IN PIRATE METRICS MATRIX?
Uh… oh. It’s not there. Truth to be told, I was so tempted to add another phase for profit and cash-flow. That’s where I’d put CAC, COGS, ACS and CLTV (the “real” CLTV, with costs). But I wanted to follow the original pirate metrics structure so the costs are now placed at where they happened.
Being a bootstrapper, I would have also thrown away the “Referral” part. Virality and referrals are great (yes, do design for them) but they are not amongst the critical metrics for solo/duo entrepreneurs. We just can’t afford to build products that need mass markets to succeed.