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19.3 Growth & Acquisition ⭐

note

This section includes a mandatory Assignment ⭐

Learning objective

Growth is a term used to describe any improvement in the measures of a business's success. You might think growth is the marketing team's job. That's not true. In fact, growth product manager is a new and emerging title in the field of product management. The rise of the growth PM indicates how much companies care about product growth, and their willingness to dedicate product managers to it. Even if you're not a growth PM, growth always matters to a product manager.

In this checkpoint, you will learn about one of the most popular models for understanding product growth and user acquisition—the AARRR model—and discover how product managers can impact product growth.

By the end of this checkpoint, you should be able to do the following:

  • Apply the AARRR model of growth and acquisition to product decisions



The AARRR model​

Rather than make up metrics for tracking your product's success, it's helpful to use a model that measures the kind of metrics that indicate a product is growing. The product, marketing, and sales teams all contribute to getting users to find your product, adopt it, and refer others to it. Everyone should be working with the goal of creating growth and revenue.

One of the most common models for tracking growth is the AARRR framework, also known as pirate metrics. AARRR is an acronym that stands for the following elements:

  • Acquisition
  • Activation
  • Retention
  • Referral
  • Revenue

These five elements map onto the steps that users go through to find, choose, and stick with a product. In this checkpoint, you will go into each element in detail—what it means, its key metrics, and how it should affect your product thinking.

Acquisition​

An acquired user is one who engages with your product—that is, they converted from a lurker into a user. Every product has its own definition of conversion. For example, a mobile app might define conversion as the number of people who download the app. If you have a web app that requires registration, an acquired user is one who completes the registration process. In this framework, an acquired user needs to do more than visit your marketing website; they need to convert into a user of your product.

As a PM, you could play a role in optimizing the acquisition funnel for your product by streamlining the sign up process, improving your site's search engine visibility, or creating new features that attract users to your product, for example. The marketing and sales teams will also make feature requests that they believe will improve acquisition. You're all working together to get people to use your product. A PM is also responsible for ensuring that the product has enough tracking to recognize how well users are converting and which sources are best converting those users.

Activation​

An activated user is someone who completes a key event or has a success, such as logging into their account or purchasing something, using your product. What are the indicators that users are happy using your product? How can you record that users discovered the value that your product provides? How can you forecast if they'll come back and continue using the product?

To take some examples from social media, Twitter knows that you'll likely stick to their product if you follow 30 people. Similarly, Facebook knows that you're most likely to keep using it if you add 10 friends in your first seven days. For your product, what would be key indicators that users really tried the app? Or that they're likely to keep using it? And if they're not getting to that step, why not?

Retention​

After a user is activated, it becomes important to track whether they are sticking with your product. You can ask this in two ways. First, which users keep using your product? Second, which users churn out? You need to determine which activities performed by a user would qualify to count them as retained. Is it just opening your app? Hitting a specific button? Linking a banking account? Uploading client data? Something else?

Consider what time periods are important to your product when measuring user retention. For example, Instagram wants you to use their app many times a day, so they likely measure retention and repeat visits within a few hours. SaaS products want you to keep renewing your subscription, so they might focus on monthly or yearly retention.

Referrals​

A referral is a direct method of getting people from one website or app to another that's not through a search engine, such as when a user clicks a link in a Facebook story or blog post. In other words, someone took the time to post a link to your product, and that link is now driving traffic to your product. Many apps have built their audiences on referrals, using features like "invite a friend" in LinkedIn or providing free storage space if your friend signs up for Dropbox using your referral code. Even games like Candy Crush rely on referrals by creating competitions and inviting users to share their progress in the game through the Facebook News Feed.

There are a few important things to consider in regards to referrals. First, you'll need to know where users are coming from to properly evaluate the impact of referrals. Make sure you're tracking the sources of all traffic entering your site so that you can compare the conversion rates of referring sites. Second, think about the ways that your product supports virality and sharing. Third, consider word-of-mouth referrals—what people will say about your product to a friend or peer that would encourage that person to try your product. Talk with your marketing team about the best way to encourage referrals of your product.

Revenue​

The bottom line of any growth path is creating revenue for your company. This can be measured in many different ways. What percentage of users are paying or converting? How long does it take for them to complete their transaction? How much recurring revenue is being generated (for subscription products)? Which individual customers are profitable per your unit costs? How much does it cost to acquire each new user? How much does it cost to acquire the most profitable users? What's the lifetime value that each user provides (their total payments over the total time that they use your product)?

Which specific metrics your company uses to track revenue will depend on your company's business model. Talk with your finance or sales teams to understand which metrics are most important to them, then establish the product metrics that can provide the most insight into those revenue metrics.




Attribution​

It's essential to track where users come from, because this affects the total cost of acquiring users and can be predictive of how likely users are to convert. Understanding where users come from is known as attribution.

Attribution is not always so simple. Think about the process a user takes before they commit to a product. Here's a likely user path leading to conversion:

  • A user reads a blog post about your product, clicks through to your website, and then leaves shortly.
  • The same user sees ads for your product in Google search and ignores them several times.
  • The user sees a Facebook ad, clicks it, and again leaves your website after a short time.
  • A friend tells them about your product, so they go directly to the site and finally convert.

Which source do you think can be best attributed to the user's conversion?

You need an attribution model that helps you understand to which source you can attribute that conversion. Even if you use products that track conversions like Google Analytics, you need to understand the attribution model they use to properly interpret your conversion statistics.

Below, you'll find the three most common models of conversion attribution:

  • First touch: Always attribute the conversion to the first source or referrer that drove the user to your product.
  • Last touch: Always attribute the conversion to the last source or referrer that drove the user to your product immediately before they converted.
  • Weighted: Use custom rules to decide how much to attribute each source or referrer. For example, you could decide to attribute 50% to the first touch source, 40% to the last touch source, and distribute the remaining 10% over all other sources.
  • All touches: Give every source 100% attribution regardless of when the user interacted with it.

There are other, more sophisticated models that incorporate time decay or other special rules. And when it comes to the attribution model Google Analytics uses, the truth is that there is no default one. You can choose from several built-in models and even configure your analytics to compare the different models so you can determine which one provides the most useful information about your product's path to user acquisition.

Assignment 13 ⭐​

Respond to the following prompts in a short written answer on your Notion page:

  • Come up with a referral plan for Open Bootcamp. Your goal is to increase new user acquisition. How could you increase subscriptions via referrals? What product changes would you need to make to support that plan? What percent increase in acquisition do you think your changes would create? What data would you capture to evaluate your plan's success?
  • Think about one product where you became an paid user, and one product where you abandoned the process either without becoming paid user or shortly after paying. Compare and contrast the two experiences. What was the turning point at which the app became—or failed to become—part of your routine? Was there anything the product did to get you to that point? What could each of these products do better to activate and retain you?
  • You are running a fertility and pregnancy tracking app. Your business model is based on advertising revenue, which takes advantage of the fact that new parents are at a life stage where they need to purchase a lot of new, specialized products. Your sales department thinks advertising contracts would be easier to close if you could retain your customers for the first two years after the child is born. Do some market research, and come up with features and services you would recommend to retain users after they've had their child.

Submit a link to your work in the respective slack channel. These are the types of discussions you're likely to come across in job interviews, so practice answering until you're comfortable with these topics!

Submission​

Submit your links in the slack channel #assignment-13