The goal of many businesses is to thrive and grow, however, many businesses have the impression that growth comes as a natural result of doing the same things over and over again. This belief leads to a lack of strategic planning. Yet, a key to success in business is planning. On the plus side, aside from helping a business start during the first few months of operation, constantly creating and reviewing a business plan can help a company grow 30% faster. In most cases, planning should be viewed as a flexible process. Both short and long term plans contribute to a business’s success. In fact, a growth strategy must account for all areas or factors that affect a company’s growth and development.

What is a Growth Strategy?

A growth strategy is the master plan for a business’s development. Simply put, it is the umbrella term for the different methods by which a company plans its expansion- be it through franchising, updating a product line, improving processes, increasing sales, developing new products, and more.

While unexpected changes may affect a growth strategy, a short and long term strategic plan is not something to be belittled. Some business operators make the mistake of considering growth only after they’ve reached a certain point of operating as usual and certain revenue thresholds.

How is this a mistake? There is nothing wrong with following a routine, however, most companies want to earn more profit or expand their reach. That being the case, if they were operating without a strategic plan, conflicts between sticking to business as usual and considering changes will arise. Unplanned expansions or developments could force business owners to make risky or potentially damaging decisions, and overextend their employees. On top of that, there are also concerns regarding legal challenges, hiring the wrong team members, and failing pivots.

This is why thinking through growth and carefully calculating business paths and their outcome should be done as part of a planning process. To do this, it is essential to consider all factors involved in the growth of a company.

Commandeering the Wide Waters with Pirate Metrics

Out of the many areas to consider, it is hard to pinpoint which exactly must be accounted for when looking towards growth. The great news is that Dave McClure, venture capitalist, angel investor, and the founder of the business accelerator, 500 Startups, has narrowed the methods of identifying these factors into the acronym AARRR.

This famous pirate expression can help companies effectively measure their growth and identify which areas need to be worked on. That said, it helps business operators understand their customers and their journey while optimizing a funnel that sets the hierarchy of needs for a business’s development.

Making things simple and actionable, AARRR or Acquisition, Activation, Retention, Referral, and Revenue are the five most important metrics for a business to focus on, and organize growth initiatives around.

Acquisition

The first step of the pirate metrics involves finding new potential customers. From there, it’s all about learning how to engage these prospects so that they become paying customers.

For a business with a web presence, acquisition is the process of seeing search queries and website visitors as potential customers and driving them down towards a particular business or product. For that to happen, it is important to understand a potential customer’s journey and optimize it. First, a potential customer’s journey may start with searching on Google or Bing. The prospect might query “office supplies,” “fitness classes,” or “best computer science programs.” From there, they may explore the websites of the top search results that show up through paid and organic placement.

When arriving on a website, a prospect must know what the company does and who it’s for within seconds. From an operator’s perspective, having some form of content available in exchange for the prospective customer’s information can aid in generating leads, or, having a webform or chatbot can facilitate conversations. There are other channels besides search and websites available to business operators such as virtual events, social media (e.g. Facebook, YouTube, LinkedIn), traditional media (TV, radio), and more. As part of a growth strategy, optimizing existing acquisition paths and testing new ones must be considered.

Activation

Getting a site visitor to become a customer is not an ordinary feat. Yet it all goes to naught if customers stop using a product or service. This is why Activation is one of the most crucial moments in AARRR. In it, the emphasis is on a customer’s first experience.

Much like one’s first impression, the first taste of accomplishment or satisfaction from a product or service, should not be after numerous attempts but instead from the get-go. This is because most people prefer to get results or gratification instantaneously. Of course, the product or service need not solve a problem right away, but it should at the very least give users an “Aha moment” quickly. At this moment, customers realize the real value of a product for the first time.

Once they’ve struck it, customers are more likely to use and endorse a product or service. This important fact must never be missed as it not only separates a newly acquired customer from an active one but it also determines the viability and user-friendliness of a product or service.

When considering a growth strategy, note how many of the customers that sign up for your product use it, and how long it takes them to get to that first moment of use. Focus on shortening the time to value, and activating more customers, and your business will grow.

Revenue

After acquisition and activation, customers convert to actually making a purchase or paying for services. While this might seem like the end goal, in the pirate metrics framework, this is only halfway through the funnel.

As such, the focus of revenue is to identify which features or services encourage customers to make a purchase. A purchase might be a one-time event or a paid subscription model. As part of growth planning, identify when and why customers purchase and explore different pricing and packaging models for the business. If you have a product that is a one-time purchase, how can you get customers to come back and purchase again? If you have a subscription model, how can you add value and add an additional, higher-priced package for your customers to enjoy?

Converting viewers into customers may be good but turning them into repeat purchasers is even better. And thus begins the goal of turning revenue into a retention system.

Retention

Consistent purchases make it easier for a business to grow. Retention methods and strategies must be consistent at driving existing customers to make repeat purchases. To do so, one must first know how many users continue to show interest in products by monitoring how often they return to a product or website over a given time frame, open emails, and sign up for an RSS feed. Once these details have been gathered, one can then work on proactively communicating to loyal patrons through push notifications, re-engagement ads, and loyalty campaigns.

Isn’t that hard? Yes, consistently encouraging customers to stay connected to a company and to make a purchase may require effort, however, it is the best way to ensure growth. This is because it takes more time and effort to work towards acquiring new customers than it is to keep those a business already has.

According to the Harvard Business Review, it is 5 to 25 times more costly to acquire a new customer than to keep an existing customer. Continue to provide value to customers so they retain and continue to use a product or service. If customers do not retain, ask why they left, so the business can learn and grow.

Referral

When considering growth, expanding the number of customers using and paying for a product should be a top priority. This is why having referrals is the last step of the Pirate Metrics Framework. Although it is the most essential aspect of growth, it is one of the most overlooked metrics and business goals.

While online marketing, advertising, and customer feedback are great ways of attracting customers, nothing beats word-of-mouth recommendations. Statistics show that 84% of consumers reported taking action when personal recommendations are made and 70% would make a purchase after reviewing online consumer opinions.

Encourage existing customers to tell their friends and family about the product or service they use. Build a referral engine into your product, or create a referral program to achieve accelerating growth.

Applying these Concepts to Grow a Business

To ensure the efficiency of the AARRR system the essential data must be duly accounted for and accurately measured. Any unnecessary information or miscalculated numbers could directly affect a business’s Growth Strategy, revenue, and profitability.

Factors to consider include the industry and niche of a business, competitor’s performance and growth strategies, customers and prospective markets, current analytics performance, and budgets and resources available to invest in a growth strategy. Once all data has been collected and analyzed, the next step is to identify a gap that needs to be filled. For some businesses it may be personnel, for others, it may be floor space. In every business, there is always one or more areas that need to be worked on and that is what one’s growth strategy must be focused on.

If a company, for example, has a lot of products to sell but is low on staff, then instead of increasing their floor space or promoting new items, they may want to focus on increasing their number of employees first. Of course, this is just an example and a company may focus on more than one area when creating a growth strategy. To identify which aspects of one’s business needs to be worked on, one may look to this step-by-step guide for reference:

Map Out Growth Goals

Goal setting is crucial for those looking to improve. For a business, it is best to establish high-level goals or long-term plans. These plans could be set for five years to a decade, but they must be mapped out in such a way that they are understandable to stakeholders. That way, every concerned individual is given a clear picture of what the company aims to achieve and how to obtain it.

To do this, one may answer goal-oriented questions such as these:

How many customers do you expect to gain by that time?

How much revenue will you generate?

What is the expected number of employees?

Mapping goals out in a quantifiable manner will make it easier to see where a company’s capabilities lie and how one can adjust to meet certain outcomes.

Key Metrics

Keeping a close eye on progress will help a business identify its baseline and the different methods by which it can improve monthly and yearly results. For the findings to remain credible it is best to establish key metrics to track, and these metrics should line up with strategic growth initiatives. Indeed, for a growth strategy to work, consistency and accountability are key, and tracking key metrics provides this accountability.

Incremental versus strategic growth

Focusing on incremental growth, or optimization of existing efforts will give a business more control over the entire growth process but also provide a slower pathway to growth.

When thinking about new or strategic growth levers, it is always best to consider testing first, whether it’s a new channel, new market, or new product. Testing at a small-scale before launching is another way to lessen the risk of larger-scale initiatives.

Needless to say, a growth strategy is a carefully calculated process that is developed through a company’s observations of its viewers, customers, and faithful patrons.