New podcast series!Zero to Traction: How first-time founders create companies that scale


It’s time we talk about measurement

Let's talk about startup metrics:

  • What should you measure? When?
  • How should you measure it?
  • How do you optimise it?

Before we dive into the weeds, let's take a big step back.

You can describe any business --- from Walmart to your startup --- with the same six metrics: awareness, acquisition, activation, revenue, retention, & referral.

AAARRR! Pirate metrics. 🏴‍☠️

While the specifics will look different business-to-business, they are still measuring the same core things:

The "flow" of business: people need to know about it (awareness), encounter it (acquisition), get value out of it (activation), pay for it (revenue), stay with it (retention), and help you acquire others (referral).

pirate metrics funnel diagram

These metrics are the engine (or funnel, factory, whatever) of your company.

A successful startup is an engine that just hums along, eating tons of customers and not losing them along the way.

In other words: traction.

A problem in early-stage startups is that we can't just measure "traction". That's not a thing yet.

But if dollars and customers aren't the right measurement, what is?

As I discussed in my last issue, we're looking for leading indicators. If we can't measure customers and dollars directly yet, what are signals that point toward dollars and customers?

What are signals that we're heading toward signals that point toward dollars and customers?

What are the signals that point toward signals that point toward ... you get the idea.

It's chaining indicators. Innovation accounting.

And we ultimately measure a successful, profitable business.

Hopefully. 🤞

So, what are the right signals for each pirate metric for your startup, and how do you optimise it?

Let's break 'em down! 👇


How do customers discover you before you know who they are?

This is highly unlikely to be relevant to an early-stage startup, because you're creating something new.

Without existing customers or risky guerrilla campaigns, awareness is bought, and an early-stage startup can't afford to buy it. It's customer discovery 101 --- you need to find demand before you can create demand.

Where do you find demand? See the early-adopter pyramid.

For now, you shouldn't care about awareness, so I don't either.

Moving on!


How do they begin to engage with your company?

In sales language, this is turning from prospect into lead.

It's also the top of the funnel, as far as an early-stage startup is concerned, and it's my favourite one: it's what trips founders up most often.

This is the hilarious mistake where you add new features to the app no one is using hoping "just one more feature" will solve everything. 😂

New features will not get you customers --- ever.

But a new offer might.

Acquisition is based on a promise to the customer that you understand their pain and will make their life better.

If they don't want what you're promising, who cares if you can deliver on it?

Common measures of acquisition include:

  • Percent of site visitors who becomes leads
  • Engagement rate on social media posts
  • Email click rates

Tweaking those metrics is always tweaking one or more of three things:

  • Customer
  • Channel
  • Message

When you're trying to optimise acquisition --- when you're trying to get customers to enter your ecosystem and begin to engage with you --- then you can tweak each of these levers.

Put another way, if your message isn't converting:

  • Do you have the wrong audience?
  • Do you have the wrong value prop?
  • Do you have the wrong place?

Run an experiment to tweak one of those at a time to slowly home in.


Ok, you've got people engaging. How do they begin to get value?

Activation metrics are signals that users may become paying customers, because they have started to receive value.

They haven't agreed to marry you yet, but they'll meet you for drinks.


  • Percent of site visitors who create an account
  • Time spent browsing the site
  • Percent of users that complete onboarding
  • Newsletter signup rate

The goal of optimising this step is increasing the value to customers who are not paying, so that you increase the likelihood that users will convert to customers.

How you tackle activation depends on how you measure it. For example...

Percent of site visitors who create an account?

  • Tweak the call-to-action
  • Make it easier to buy
  • Split test the hero messaging (clear over clever, every time)

Percent of users who complete onboarding?

  • Tweak user experience
  • Ensure clear connection to the sign up call-to-action
  • Add empty states

This is a connective tissue step --- the segue between "hmm, that's interesting" and "oh, I get it".

Until your activation rates are honed, you should continuously run experiments to range yourself to the target.


Users are interested. How do they become customers?

What it means to become a customer depends on your business:

  • SaaS: freemium to premium
  • Service business: lead to customer
  • Content creator: newsletter signup to course purchase

While the measurement of revenue should include some kind of conversion rate from activation to revenue, it should also include broader metrics:

  • Freemium conversion rate
  • Monthly recurring revenue (MRR)
  • Annualized recurring revenue (ARR)
  • Average deal size (for services or products with variable cost)

The relevant comparator to revenue isn't "leads" or "prospects" --- it's the users that have activated. That's great, because it reduces the number of levers you have to play with.

How can you optimise revenue metrics?

  • Price is the most obvious. Are you charging the right amount?
  • Revenue model is often neglected. Are you charging money the right way?
  • Placement and frequency of the offer
  • Value proposition
  • etc

In other words:

  • Is it the right offer?
  • In the right place?
  • At the right time?
  • And is it easy to buy?

The goal is to find the combination of the above that is irresistible.


How long do they continue to use your product?

This doesn't only apply to SaaS with recurring monthly revenue.

Consumer products have retention, too!

There are whole business model patterns designed to capture longer-term retention. For example, "razors and blades" is premised on selling the main unit up front (sometimes at a discount) in order to capture subsequent revenue.

But even if it's a one-and-done product, you still want to capture a larger share of their wallet:

  • Do they need to buy another unit at some point?
  • Are there related products that you can sell as add-ons?
  • etc.

SaaS or not, retention is just how long you can keep a customer in your ecosystem before they switch to something else --- or abandon entirely.

Some common retention metrics:

  • Lifetime value (LTV) --- the average dollar value per customer you can capture over the entire relationship.
  • Churn rate --- the percent of customers who leave in a time period, e.g. monthly.
  • Engagement rate --- how often do customers come back?
  • Customer satisfaction --- while not a direct measure of retention, it's a powerful signal.

Retention is often a tough nut to crack, because it's a lagging indicator of another, often unclear problem.

Therefore: the things you try may not have an immediate effect on retention.

Sometimes, a solution to try is obvious:

If users don't come back to check the app as often as they should, you can add push notifications or email reminders.

  • If they get used, that's a signal that you'll see an uptick in retention.
  • If they don't get used, customers aren't seeing the value you promised.

Unfortunately, most of the time, a solution to try is not obvious. In those cases, the tendency of founders is to add features to try increase value --- blindly.

That's a mistake.

You want to run an experiment:

  1. Form an hypothesis of what you can do that would increase retention.
  2. Find a signal that you can measure that your effort will impact, which implies that the expected increase will happen.
  3. Pick a target value for that signal. Don't "see what happens"!
  4. Run the smallest possible experiment to test that.
  5. Assimilate and repeat.

Do this iteratively, and you'll either see the increase, or clarify why you're not.


How do they help you acquire more customers?

It's easy to oversimplify this one as a viral loop --- customers literally referring other customers to use your product.

That's fantastic! ...when your product supports a viral loop.

Outside that, it's also great if your product is so amazing that people just can't help but tell their friends about it. That should always be your goal.

But referral is so much more than that.

Referral is when the dollars you spend on product get you more customers, rather than dollars you spend on sales or marketing.

This is best explained by example.

Amazon is a retailer. They sell stuff. But they have a sneaky referral loop built in: customer reviews.

Even standing in an aisle at Best Buy, customers will pull out their phones to see how a product rated on Amazon.

As an aside, Best Buy nearly died because it became a showroom for Amazon products! Customers would go in to see a product, but buy it from Amazon. Best Buy stayed in business (and thrived) by leaning into the showroom concept: have you noticed they added shop-in-shops for Microsoft, Apple, Google, etc? That's rented real estate, and the revenue saved their hide.

But back to Amazon reviews.

Those reviews are an example of co-creating value with your customers. It's akin to content creators: YouTube becomes more valuable by other users posting videos.

Amazon product reviews bring new customers in. And they only spent product dollars to get them. That's referral!

Here are some example referral metrics:

  • Net promoter score (likelihood to recommend)
  • Rate of customer reviews (e.g. on Yelp)
  • Number of shares on social media

You should probably measure something like that, but don't stop there.

If you're at the referral stage, ask yourself how you can help your customers co-create value in your product.

And then test it.

Whenever you're ready, there are 3 ways I can help you.

  1. If you’re still in the idea-to-seed stage, trying to get early traction, I’d recommend starting with some coaching:

    → Book a 1:1 coaching session to tackle one key challenge, from prototype to pitch.

    → Apply to my Traction Coaching program, and we’ll find traction together.

  1. If you already have early traction, I’d recommend running a Traction Sprint to find the traction you need to get from Seed to Series A.
  1. Of course, you can always ask me a question for my weekly office hours livestream.

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