Funnel Marketing and Pirate Metrics - What are they and how do they work?

On the last episode, I talked with Georgiana Laudi, co-author of Forget the Funnel. And that led to questions around 'what, actually, is the Marketing Funnel"?!

So this week, I explain some of the models that marketers use when we talk about Demand Generation.  And talk about the pros and cons of each.

I describe the five stages of a typical Marketing Funnel - Awareness, Interest, Consideration, Conversion, and Loyalty; and use the example of Moo's marketing approach to highlight how this can be put into practice.

Pirate Metrics were developed specifically for SaaS companies and tech start-ups; and I explain how that compares to the traditional funnel.

And I introduce the concept of MQL/SQL - Marketing Qualified Leads and Sales Qualified Leads.

Some additional reading on Funnel Marketing:
Ahrefs: "Marketing Funnels - Everything You Need to Know"
Semrush: "How to Build an Effective Content Marketing Funnel" 

And Pirate Metrics:
The original blogpost from June 2007 by Dave McClure
Chasm Blog: What Is AARRR Pirate Metrics Framework?

Transcript

(00:37):

A couple of weeks ago, I was having a cocktail in Princeton - that is after all one of the reasons this podcast is called The Marketing Mix. I enjoy having a cocktail and talking about all things marketing, and I was talking to a friend of mine who is not a marketer, he's an engineer, he's also on the board of a company, and he said, “Steve, in a couple of your podcasts, you've talked about the marketing funnel and you talk about it as though we should all know what that is”. 

And I thought, well, that's a good point. I had originally assumed that I'm talking to marketers, but the reality is I'm talking to people who are interested in marketing, which isn't necessarily the same thing. So instead of interviewing someone this week, I'm going to spend some time explaining things like the marketing funnel, and some other popular models for managing demand generation, and to talk through some of the terminology and the jargon and the acronyms that as marketers we throw around all the time, but maybe isn't general knowledge for people who are interested in marketing. 

(01:45):

So let's start with funnel marketing. It's basically a model that describes the way a potential customer moves through the purchase decision when they're buying a product or a service. At the beginning of this process, we refer to them as a prospect, which is someone who could potentially buy our product at some point, but they haven't engaged with us yet. 

Once they've shown some level of interest, we call them a lead. And then our goal is to turn them into a user and then a customer. 

For the marketing funnel itself, there's many flavors of this. Typical ones range anywhere from three to seven stages in the model, but a typical one, that I use, that a lot of people use, has five stages. And those stages are awareness, interest, consideration, conversion, and loyalty. And as you move between these stages, the number of prospects you're talking to gets smaller. 

(02:47):

So if you sketch it out on a piece of paper, it's very easy to turn that model into a funnel. So just using made up numbers here, if you have a thousand prospects that you're talking to in the awareness phase, maybe a hundred of those will move into the interest stage. Maybe 10 of them will become part of the consideration phase, and maybe two or three of them will actually convert. So if you sketch out a diagram of the number of people into those stages, it quickly becomes a funnel. 

I'll put some links in the show notes so that you can actually go and take a look at some examples of these and you'll see what I mean. 

Let's talk through each of those stages. At the beginning. We're in the awareness phase. It's called awareness because people may not even realize that they have a problem to solve. 

(03:36):

They're not actively looking for a product, but you want them to become familiar with who you are anyway, so you want them to become aware of you. As marketers, this is where we create content. We  write blogs, we publish podcasts, infographics, we probably put some advertising out on social and on search. That's at a very high level, nothing really about the product, but just starting to talk about the brand and the company name. And the goal is to create a positive image in the prospect's mind around your particular area of expertise. A percentage of the people who have become aware of your product then express an interest in it, which means that they, perhaps they follow or interact with you on social, maybe they sign up for a newsletter, they download some of your content, they basically raised their hand and said, ‘Yes, I'm interested in what you do.’

But hang on a second. 

(04:31):

They're not saying, ‘I'm ready to buy your product’. So don't launch into the hard sell At this point, this is our chance as marketers to educate the potential customer. We can answer their questions, we share useful content, find some way to make their lives easier and add some value to what they're doing without actually asking for anything in return. You want to get to the point where when they are ready to buy, your brand is the obvious choice, or at the very least, you're on the short list. 

That then brings us into the consideration stage. So these are people who were interested. You sort of know who they are. They've maybe subscribed to something you've had interactions with them. Now they're at the consideration stage where they are actively evaluating your product and probably one or two of your competitors as well. They're taking live demos, they're talking to you about pricing and contract terms. 

(05:28):

Maybe they have a free trial or a proof of concept running, whatever they're doing, they're effectively kicking the tires. 

And then your goal as marketers, but more so the goal of the sales team is then to convert a percentage of those people from consideration to actually become customers. And that used to be where the funnel stopped. And then obviously some bright marketer took a look at it and said, well, hang on, we spent all this time energy turning these people into customers. Now let's actually spend some marketing time and resources on keeping them, turning them into loyal customers, bring them back for more, keep them using the product, and then eventually get them to the point where they're willing to refer us to other customers. So that becomes the final stage - the idea of loyalty and referrals. That's the theory of how funnel works. 

(06:23):

Let me talk through an example to illustrate how it might work in real life. And let's take Moo Print as an example. It's a company that provides printing services for small businesses, things like business cards, brochures, stationary and so on. They compete with a number of companies, but there is a big company called Vistaprint in the same market, which is sort of the 600 pound gorilla. 

So what might Moo Print do from a marketing perspective if they pay attention to the funnel? In the awareness phase, they're trying to get in front of people who might one day buy some printed products, particularly small businesses in their case. So they're not convincing you that Mo print is the best place to buy from. They just want these people to know that they exist. So how, how would they do that? 

(07:13):

Perfect example, last week in preparation for the series finale of Succession, which is a show on HBO, they published a series of social media ads. Now, the whole point behind this TV series Succession is that there are a number of different characters who are vying for the CEO spot. And in the last episode we were sort of promised that we would find out who won. So their social post was, they mock up business cards for each of the four main characters and then sort of did a poll of, ‘Hey, who do you think is going to, is going to end up being the ceo?’ That is not going to make you want to buy business cards. It's not necessarily going to want to make you become a customer of Mo Print, but it's creating a positive association between the brand of Mo Print and the idea of successful business. 

(08:04):

Next, they're looking at the interest level and at this point, Moo Print, it looks as though they've decided they want to give non designers, people who are not designers, they want to give them confidence to create their own materials and also show them how printed materials can help their business. So now they're focusing a little more on educating the audience. So for example, they have a blog on how to create loyalty cards. They have an article around Design Trends in 2023, and they want you to sign up for their newsletter. So that gives you a very sort of soft association, soft relationship with the company. 

(08:41):

Then when we get to the consideration phase, one of Moo Print's differentiators is that they have high quality. They want to impress you with their quality. So one of their offers is to send you a free sample pack that shows paper quality, styles, gives some examples of the kind of things you could do if you use their services. And to my mind, that's a pretty strong lead. If somebody actually requests that you send them a physical package, means they've got to provide you with their mailing address, that's a reasonably high barrier. So they are serious. 

From a sales and marketing perspective, that's a lead that I would think, ‘Hey, this is somebody who probably is ready to buy or is certainly in that mindset that it's time for them to buy these services.’ They also offer first time discounts. So both of these, if you think about it, would be meaningless to someone earlier in the funnel, someone who's in the interest stage who doesn't have plans to buy, but very valuable to someone who has decided they need to buy business cards is about to make the purchase, is still trying to work out where to go. 

(09:49):

Finally, once you make a purchase from Moo Print, they follow up with email requests to send feedback or add a review, and they also offer financial incentives to refer others to their product review on the stages one more time. 

So you have Awareness, which is letting everyone, or at least everyone in a broad segment, know that you exist and create a positive image. You have the Interest stage, which is educating them on the subject around your offerings, not just your solution. Consideration. You're now on the short list. So you're giving them much more information than encouragement to buy. Decision speaks for itself. And then Loyalty and Referrals is bringing them back to use your product more often or for additional purchases. And then to get them to tell their friends.

If that's all a bit much, some companies use a simplified three level funnel and they look at those stages as top of funnel, middle of funnel and bottom of funnel. 

(10:45):

So they're looking at when people become aware of the problem you can solve; when people are seriously looking for a solution and considering their options and alternatives; and then when prospects are really making that final decision. That's a great way to start out. You start with three stages, it at least gives you a simple structure to work with, and then you can expand beyond there. 

Now the marketing funnel is a little bit of a controversial topic. On the previous podcast I interviewed Giorgiana Laudi who actually wrote a book called Forget the Funnel. So you can imagine what her views are on it. I've had discussions for years over the pros and cons of using the funnel, and I think what it boils down to is you need to think about where you are in the marketing process and you need to be aware of the limitations of it. 

(11:38):

So personally, I like to use it in the early stages of building a marketing plan. It's a great way to set up expectations and communication with the sales team. It's really useful to explain your approach to the board and to senior management, and it could be helpful to keep your own team focused on the right things as you build out marketing processes. It enables you to put together a solid marketing plan very quickly. But it's the simplicity that's the problem. It should only be used as a framework or guidance, but I think sometimes it's taken too literally and we almost come to believe that a prospect does actually follow the path that we have laid out for them. You know, we think that prospect X, they see our social posting, the awareness stage, then they read two perfect blog posts, which then makes them sign up for our newsletter. 

(12:32):

Then we send out one exact email which makes them request a demo, and so on and so on. The reality of it is of course, that every prospect, every user will have a different journey. They may move back and forth between the stages. They may be in the interest phase, they may come up with a short list, go down in consideration, and then the project gets put on the back burner and, and they raise back up to, to interest or even awareness. They may consume content in a different order than is written out in your plan or in a different way that you imagine. And that's all okay. That's exactly what's supposed to happen, but that's why you have to remember the funnel is a concept and it's a framework. Don't use it as a straitjacket. It helps you build out your plan, but it's not the long term marketing strategy. I think if it is, it's a way to get things moving. It's a way to put a initial plan in place and it's a great communication tool. 

(13:27):

Now, there is a particular approach to funnel marketing, the funnel model, which is called Pirate Metrics. And this was developed specifically with tech startups in mind, particularly for SaaS companies, what they call software as a service. And it was developed, it originated from a blog post back in 2007 by a Silicon Valley investor called Dave McClure. And he talked about five specific stages that can be used to track the, the growth and the performance of these startup tech companies. And here are the five stages: Acquisition, Activation, Retention, Referral, and Revenue. So you can see there's a decent amount of overlap between those stages and the stages we just went through earlier. 

Acquisition is a little specific to SaaS companies because that awareness stage for them is, is often about getting people to download the app or log into the software, create a free account. 

(14:40):

Activation is getting them to actually use that app or use that software retention is to get them to come back and use it multiple times and revisit it. Referral is fairly obvious. Revenue is interesting because in the world of SaaS, in a lot of cases that initial product is free. They want you to use the app or the software program and then they will offer additional features or capabilities that have some value to you and you'll be willing to pay for that. So that's often referred to as the freemium model. A combination of a free tier and a premium tier that people will pay for. 

Why is it called the Pirate metrics? Well, if you look at those five stages and take the first letter of each one - acquisition, activation, retention, referral and revenue, you get AARRR, which some comedian decided you were pronounced ‘aarrr’ like a good pirate. 

(15:44):

So I'll put some links in that'll take you to that initial blog. And then, some other descriptors of it as well. 

There's other ways obviously of looking at and managing demand generation process. One that I've worked with a lot, which can be used within the marketing funnel or separately, is this idea of MQLs and SQLs, which is Marketing Qualified Leads and Sales Qualified Leads. It's particularly useful when you're trying to build bridges between sales and marketing. There's a lot I can say about it, so I'm going to save that deep dive for another time. 

There are a lot of these terms thrown around by marketers. It's not just funnel marketing. Things like the buyer's journey, MQL and SQL, buyer personas. And then when you get to advertising, you've got PPC, CTA, CTR, a whole bunch of acronyms there. SEO, Social, have their own vocabularies and dictionaries of terms. So there is plenty for us to talk about on future podcasts. 

Let me know if there's a specific topic you would like me to cover and we'll work through them one by one. I hope this dive into funnel Marketing has been useful in the show notes. I'll put some links to some articles that I think help to dig into in a little more detail. And I appreciate you taking the time to listen to The Marketing Mix.