Why traffic doesn't always matter (and what to focus on instead)

The five metrics you should be focusing on instead of obsessing over your website traffic.

As a founder, CEO, marketer, or writer (let’s be real, you’re probably all of those things), you’re hyper-focused on driving traffic to your website, blog, or app.

And that makes sense.

Chances are you’ve been sold on the idea that traffic is the holy grail.

After all, traffic means you’re building a pipeline of potential customers or subscribers - that you’re building brand awareness and capturing enough attention on external channels to make people want to visit your website and see what you have to offer.

But then what?

Once people visit your site, are they signing up? Making a purchase? Subscribing to your newsletter? Engaging with your product?

If you’re only thinking in terms of traffic, you’re not thinking about your end goal. Remember that traffic is just one part of the overall equation.

Imagine you’re selling a taco recipe book. If you had a 1% conversion rate, you would need to bring in 100 visitors to your website to get a sale.

sumome conversion

Or, you could focus on increasing your conversion rate from 1% to 2% by creating an effective headline. As a result, you would only need to bring in 50 visitors instead of 100 for each sale.

In the end, you make exactly the same amount of sales. The only difference was the metric that you decided to focus and improve on.

Why is this so important?

Because doing too many things at once is always a recipe for failure. Just like when you’re creating content, you need to understand the goals of the content. You never want to create content without first setting an objective, so why would you do the same with your marketing strategy?

You need laser focus on the one metric that will have the biggest impact to your business. The one metric that will act as the north star for your company so you can prioritize what needs to be done.

By not understanding the other metrics that affect your business, you’re missing out on a huge opportunity to know which actions will have the biggest impact on your business.

Fortunately for you, that’s exactly what we’ll be going over in this guide.

Every Successful Entrepreneur Knows These 5 Metrics

I’ll bet you a lifetime supply of tacos that every successful entrepreneur knows what the pirate funnel is.

pirate funnel

No, not that pirate funnel….

This one! Also known as the AARRR (say it out loud to sound like a pirate) funnel.

aarrr funnel

By understanding the metrics behind the AARRR funnel, you’ll know exactly which areas of your business needs the most improvements.

To explain what the AARRR funnel is and why it’s so important, let’s imagine you’re hired on as a consultant for a website that sells a Taco Recipe Book.

Your only responsibility is to look for ways to increase the amount of sales, you do this by using the AARRR funnel:

Acquisition

Where is the traffic to the website coming from?

You notice that 60% of the web traffic is coming from one article on a major food blog. Based on this information, you know their target audience is the same as yours. You recommend guest posting for that major food blog to get more exposure to your target audience.

Activation

What do your users do once they get to the website?

You notice that many visitors are leaving without clicking on any links (bounce rate).

Based on this information, you use SumoMe’s heat maps and learn that people aren’t scrolling down to read the rest of the landing page. You recommend changing the copy of the headline and the wording in the sales page to grab the attention of the reader.

Retention

How often are users coming back to your website?

Using google analytics, you notice that on average, it takes a paying customer 3 re-visits before purchasing your book.

Based on this information, you recommend testing Facebook’s retargeting feature by showing ads to users who already visited your website.

Revenue

How do you make money?

Using Google Analytics, you notice that your second most popular blog post is a recipe for a burrito.

Based on this information, you interview customers and learn many of them would also buy a burrito recipe book. You recommend creating a recipe book for burritos and potentially offer it as an upsell to the taco recipe book.

Referral

How many people are sharing your website?

Using Google Analytics, you notice referrals from social media have the higher conversion rate. Based on this information, you learn that most people are sharing pictures of meals from your recipe. You create a photo sharing contest encouraging customers to share photos of their tacos and to tag your website.

Now do you understand the importance of knowing these other metrics? Once you understand how to track these other metrics, you’ll start to see tons of opportunities to improve your website.

We’ll go over every single section of the AARRR funnel in greater detail, starting with Acquisition.

So grab a taco and let’s settle in!

1. Where Are Your Visitors Coming From?

Did you know there are 19 different marketing channels you can use to increase your website’s traffic?

marketing channels

I know, that’s a lot!

That’s why you need to prioritize which channels to focus on. And the best way to do this is by understanding which channels contribute the most to your website’s traffic and conversions.

To do this, you’ll want to know the consumption metrics, or how many people have viewed your content and where they’re coming from.

Once you know this, it’s just a matter of brainstorming ways to scale and leverage your main sources of traffic. You want to do more of what works.

There are many tools you can use to to track your leads and find out where they’re coming from. Some of the most popular are: Google Analytics, Pipedrive, Close.io, and Intercom.

My favourite is Google Analytics because it’s free and easy to use.

Once you have an account, to find out where most of your traffic is coming from, click on “Acquisition” → “All Traffic” → “Channels”.

google analytics

You should then have something that looks like this…

default channel grouping

All you have to do is click on an individual section to get an expanded look. For example, if we clicked on “Social”, we’ll see a breakdown of all the social media websites like:

social channels

Based on this screenshot, we can see that Twitter is bringing in 42% of the traffic and Facebook is bringing in 22% of the traffic.

From this information alone, you may decide to prioritize Twitter because it’s the biggest source of traffic.

But hold your horses! Remember earlier when I said traffic is just one part of the overall equation?

super simple formula to making money online

You also need to take into account the conversion rate. Once you do that, you’ll notice that Twitter isn’t as effective as it may seem.

Why?

Twitter with 938 visitors at a conversion rate of 0.32% is just 3 paying customers.

Facebook with 485 visitors at a conversion rate of 1.86% is 9 paying customers.

Even though Facebook has less visitors, it results in more paying customers because the conversion rate is 6x higher than Twitter’s.

That’s why you can’t just focus on traffic, you need to also be familiar with the next step of the AARRR funnel, Activation.

2. What Do People Do on Your Site?

The truth is, the number of visitors on your website is just a vanity number.

It’s great for giving yourself an ego boost, but in the end, you need those visitors to perform some sort of action.

0 monthly visitors

You need to ask yourself, what do you want your visitors to do when they’re on your website?

Once you know what you want your visitors to do, that’s the action you should use to decide who should be considered a “Converted/Activated User”.

Don’t know what you want? Here are some examples of what you could be measuring for an “activated user”:

  • If you have a blog you could measure how many people are signing up to your email newsletter (e.g. if you have low conversions, you could increase it by using SumoMe’s Welcome Mat)
  • If you own an ecommerce store you could measure how many people complete the order form (e.g. if you have low conversions, you could increase it by adding testimonials or a 30 day money back guarantee)
  • If you own an info product/consulting site you could measure how many people download your free e-book/brochure (e.g. if you have low conversions, you could increase it by improving the sales page and copy)

Once you’ve picked a goal, all you need to do is track it using Google Analytics.

After you setup your Google Analytics, define your goal (trial signups, purchases, sign ups, etc.) by following these steps:

  1. Click “Admin” in the navigation bar
  2. Click “Goals” under View
  3. Click “+New Goal”
  4. Create your goal by following the wizard

google analytics goal setup

Once you’ve created your goal, Google Analytics will track your goal performance and attribute it to the appropriate sources.

There are several ways to track your performance. If you want to track by referral or traffic sources, go to Acquisition → Channels → Click “Goal Set 1”

google analytics

Scroll down to see how various traffic sources have converted signups.

converted signups

Now you know which sources you should have a bigger presence on to convert more customers.

Maybe it’s paying more attention to social, allocating more of you budget to paid acquisition, guest blogging for more publications - whatever is working - do that until it plateaus.

For example, here’s a Google Analytics chart comparing referral traffic (backlinks, guest posts, etc.) to trial signups:

referral traffic

From there, you can distill down to see which sites referred the most trial signups - i.e. which brought the most relevant visitors:

trial signups

In this case, most of the traffic from these sources are very similar.

The main difference?

Salesforce.com and Business.com have huge conversion rates of 10% and 7% respectively. Armed with this information, one thing you could do is reach out and guest post for those two sources.

But what if all your conversion rates are low?

If your conversion rates are less than 3%, you need to start prioritizing improving the conversion rate of your website.

Did you hear that? Because it was really important. Let me repeat it…

If you’re not converting at least 3% of your visitors, you NEED to improve the conversion rate of your website.

Increasing your conversion rate is one of the easiest things you can do that will also have a huge impact to your business.

So how do you figure out what needs to be changed on your website to increase conversions?

Using Behavior Metrics to Identify Selling Opportunities

Understanding how your current and potential customers are interacting with your website will help you optimize for increased activations (e.g. purchases or sign ups).

Knowing visitor actions such as where they’re spending the most time on your site, what information they’re paying attention to (where they are clicking), and what’s grabbing their attention (which calls to action work) allows you to identify what needs to be cut or added to boost sales

There are several tools for understanding how your visitors are interacting with your site.

Try combining the two options below for a complete picture of who your audience is and what the opportunities are for better optimization and increased conversions.

Option 1: Learn visual patterns with heat maps

Heat maps show you exactly how your visitors are engaging with your site by indicating where they’re putting their cursor (therefore their eyeballs), which shows you what information is driving sales.

How?

Well, when you give people too many choices, they tend to get overwhelmed and choose to do nothing.

Heat maps help you figure out exactly what your visitors are clicking on, so you can remove the extra choices.

And you know what that means…

Increased conversions and a good idea of exactly where to put your calls to action to buy your product.

sumome heat maps

For example, Bros Leather Supply Co learned that they needed great images of their products on each product page to drive sales. Instead of focusing on page copy, they now spend time making sure the product images are perfect, leading to increased sales.

Now these are all great tools you can use to increase your conversion, however, you shouldn’t always just hide behind your computer and never talk to anyone. You’ll also need to talk to your customers to really find out what their problems are, and what keeps them up at night.

Option 2: Collect qualitative data to understand purchase intent

There’s certain information about your visitors (i.e. potential customers) that the numbers just aren’t going to tell you.

You can make assumptions on why they’re there or what problem they’re looking to solve based on behavioral patterns and what content they interact with, but you’re not going to get concrete answers.

If you actually talk to them though, you’ll learn why they really arrived on your site, what they think about your brand and product or service, and how you fit into their lives.

So… why do you care?

Sometimes we build things that we think solves for x, when it really solves for y. Yes, sometimes our hypothesis are wrong. And sometimes our customers are using our products in ways we never thought of.

When you don’t acknowledge these opportunities, you’re leaving money on the table.

There are a few ways to learn who your customers really are and their relationship with your brand.

  • Focus groups: Bring together a few visitors who represent different demographics of your audience and ask them specific questions about their experience and interests.
  • User-testing: You can either ask people you know (friends, family, officemates) to use your website so you can watch their behavior or you can use a tool like usertesting.com.
  • Ask your customers for a quick call: Ask some of your most active or loyal customers for a few minutes of their time to learn what made them buy. In exchange, send them some swag or a discount as a thank you.

You can send a short email or in-app message to those who use your product the most that says something like this:

Hi [First Name],

Thank you for being such an awesome [your brand’s name here] customer. I see you’ve been using the [X] feature a ton. We’d love to learn more about the role the product plays in your life and what we can do to build something that will be helpful for you in the future.

Do you have time for a quick, 15-20 minute call with me next week to share a bit about how you’re using [your product’s name here]? In return, I’d love to send you a hoodie!

If so, please choose a time that works for you on my calendar here [link to your [Calendly](https://calendly.com/) account]. Thank you so much for your time. Look forward to connecting!

Cheers, Your Name

Armed with this information about what drove your customers to make a purchase, you can make changes to your site that will increase the likelihood of other visitors doing the same.

Optimizing Your Marketing to Drive More Purchases

Now that you’ve done the legwork, it’s time to compile this data and put it into action. Take a look at:

  • What you learned from Heat Maps about how your visitors are navigating your site
  • Which sources of traffic you identified as the highest value (most likely to result in a sale) from Google Analytics
  • What your customers said about the value they get out of your product or service

Then apply these learnings to your strategies. For example, once you know how your visitors are interacting with your site, you can move elements around to drive more sales.

To know ways you can improve your conversions, dive into our guide on How to Create the Perfect Landing Page. Or you can keep reading for a summary of that guide:

  • The color of your call to action button. We’ve told you before that your button color is important. And different audiences respond to different colors. To figure out what color is most effective with your audience, perform a few A/B tests to compare red vs. yellow (bright primary and secondary colors have proven to convert better than muted or cool colors) with the same exact copy and placement to see if one drives more clicks than the other.

  • The call to action on your buy button. Much like the color, what your buy button says can also impact clicks. Try different variations of calls to buy or sign up for a free trial, such as “Buy now” or “Sign up for your free trial” to see which drives the most clicks. To illustrate, Unbounce shared a case study where changing one word in the call-to-action on a B2B site generated a 38.26% lift in conversions.

call to action conversion rate

  • The layout of your website. Go back to your heat map data. Where did your visitors click or hover the most? What was most important to them? Use this information to reorganize your site so that information is front and center. Or maybe they were more interested in images. If so, strip away some of the text and focus your site around big, beautiful imagery.

  • Your value proposition. How and where you communicate the value you’re offering to a visitor makes a big difference. You want to clearly explain what exactly you’re offering and how it’s going to improve your visitors’ lives front and center. We’ve gone deep into value propositions on the SumoMe blog before, but to quickly illustrate, take a look at these two websites:

value proposition examples

value proposition examples

Which one tells you more about the value they’re offering? Which are you more likely to turn to for your trip planning needs?

You better be saying the second one!

  • Your onboarding or purchase flow. Using the information you gathered on your visitor’s journey, look for a certain point where visitors are dropping off instead of making a purchase. Are most visitors bouncing at the same point? If so, try different copy on that page or simplify or shorten the process from click to purchase complete.
  • The copy on your website. Does your site tell a compelling story about the problem you're solving? Use the information you used in your customer surveys or interviews to reflect why people buy and use your product. Tell a story that appeals to that pain point.
  • Targeted messaging via pop-ups. Sometimes your visitors need a little poke. Pop-up messages provide your visitors with the opportunity to quickly learn about what your product or service can do for them, then sign up. These are effective for collecting newsletter subscribers and trial sign ups. You can increase the effectiveness of these pop-ups with the copy you use on them. You can offer an exclusive, deal, or express urgency. These are called lead magnets and can increase signups by up to 10x.
  • Testimonials and case studies. Testimonials can increase your conversions by 34%. There are several different types you can test - from quotes to larger case studies that detail exactly how a customer saw success by using your product. Try one at a time and make sure include calls to action on those pages (to buy, sign up, try a trial, etc.). Track how many leads come from those pages to determine which converts better.

For example, DoggyLoot asked their customers about their dogs and targeted what products they marketed to them based on the size of their pets. After all, it wouldn’t make sense to offer a five-pound bone for a ten-pound dog.

targeting products doggyloot

The result is a better experience for the buyer (they don’t have to filter through products that aren’t relevant to their needs) and a greater chance of customers making a purchase. They cut unnecessary information and found a way to deliver relevant products directly to them.

By learning as much as possible about how visitors are interacting with your brand and product using the metrics and methods above, you’ll have the knowledge needed to optimize your site and marketing activities to convert more customers.

Traffic becomes much more meaningful when your conversion rate is high.

High Traffic * High Conversions = Sumo-sized sales!

If you’re just starting your business, the first two steps (Acquisition & Activation) should keep you busy for a while.

But once you gain some traction, acquired some users, or have people using your product, you’ll need to start shifting your focus to the next step, Retention.

3. The Money You’re Leaving on the Table

Awesome! After all that hard work, you’re finally getting the traffic and conversions you deserve.

There’s just one problem. A bunch of your customers are leaving because they aren’t happy with your product.

You’re not alone. One of your biggest challenges to growing your business will be retention, and it’s one of the most important metrics to keep track of. That’s because it costs 80% less to retain a customer than to acquire a new one.

ctv calculator
(Image taken from CTV Calculator)

Your Customer Lifetime Value (CLV) is one of the most important metrics you need to know. All it takes is a small improvement to your CLV to have huge gains to your bottom line.

Don’t believe me?

Let’s imagine each customer pays you $10 per month, and on average, your customers stay for 10 months. That’s $10/month multiplied by 10 months, which is $100.

But what happens if you find out a way to keep each customer staying for 2 months longer and you have 1000 customers?

retention sumome

You can increase your revenue by 20%!

That’s why it’s so important to have a full picture of how your customers are using and engaging with your product. It will help you:

  • Spot bugs or issues that could cause existing customers to churn (leave)
  • Identify new features or add-ons that existing customers want (additional revenue sources)
  • Identify needless features you or your team is spending time (and money) on, but customers are not using
  • Learn how important your product is to the everyday lives of your customers

This information will help you identify what tweaks need to be made to prevent your users from leaving. You'll also find out which one of your products are most valuable to them, and which ones your customers don't need.

You’ll also learn which users are your cheerleaders. Your cheerleaders will be the ones who use and love your product the most. They are the ones who will pay you the most, and who are the most likely to refer your business.

Here’s how you can measure engagement without taking the time to speak with each and every customer.

How to Measure Engagement

How you measure engagement will look completely different depending on what your goals are, the use case of your product or service, and what industry you’re in.

For example, measuring engagement for a mobile app (e.g. monthly active users) is going to look a lot different than for an office cleaning service (e.g. complaint forms).

That said, there are a handful of engagement metrics to keep in mind:

  • Duration of session: how much time your visitors are spending on your site can indicate how interested they are or how easy it is to find the information they need.
  • Time between sessions: how often a visitor visits your site is a good indication of how interested they are and how important the solution you’re offering is to their problem.
  • Number and frequency of reviews; quality of reviews: the reviews of your product or service are going to tell you how much your customers care about it, how important it is to them - also, how satisfied or dissatisfied they are.
  • Number of shares and referrals per user: if your customers are sharing your product or service with others, clearly they’re getting something of value out of it. If you see an upward trend in referrals, consider implementing a formal referral program.

Keep a log of each of these metrics for all of your users so you can identify patterns, trends, opportunities, and challenges.

Putting Your Data to Action

Once you understand how and why your customers are engaging with your business, identify different ways (and at which stages) to increase engagement. Here are a few examples:

Send a drip email (aka behavior-triggered email) campaign: Drip email campaigns are targeted emails based on behavior (i.e. if a user hasn’t logged on in three days after signing up, they would receive an email reminding them why they signed up). Jupiter research (via Emma) says that relevant emails drive 18x more revenue than broadcast emails.

The concert app Jukey has done a great job of this. For those who hadn’t gone to a concert on the app in a while, they offered early access to a show via email:

jukely

Drip emails are commonly used when customers abandon their shopping carts as well. This is an especially effective tactics for an online retailer like Gilt who only offer a limited number of discounted items:

gilt
Source: Zapier.com

So how can you do the same thing?

I recommend using Drip. With it, you can guide your visitors through your email campaign based on the actions they’ve taken.

For example, when a new user signs up to Snappa.io, they’ll receive a series of emails to welcome them:

snappa.io

However, if the new user doesn’t use the product after a week, they’ll automatically receive a new series of emails:

drip emails

Inactive users will automatically be placed in a “Rescue Campaign” which will send emails specifically designed to help the "at-risk" user get on-boarded.

Just by using a drip campaign, Snappa.io were able to retain almost 5% more customers who would have otherwise left their service.

Another great way to improve your retention is to...

Check-in with your customers: Whether it’s through email or an in-app message, check in with your customer to see how they’re doing, if they have any feedback.

To create the survey, you could use tools like SurveyMonkey, Google Survey, or TypeForm. Once you have the survey made, send an email every few months to your customers. For example, the email could be:

Hey [first name],

Hope you’re having a great day :)

We’re always looking for ways we can help you get more out of [your product]. Could you please fill out [link to survey]? I promise it will take less than 2 minutes.

Also, if you’re ever stuck on anything, don’t hesitate to let me know. I’d be more than happy to help! You can just reply to this email and I’ll respond right away!

Thanks, [Your Name]

Build a community: Getting your customers talking to each other adds value as a resources and place of inclusion, and is more likely to build a habit around your brand.

One of the best ways to do this is to create a Slack Group. Did you know SumoMe has a Slack Group also?

sumome slack team

It's a great way for your customers to bounce ideas with other users, and also to get help from your team. Just imagine how you feel every time you call a help desk and you’re put on hold for 15 minutes. You’re probably not feeling that happy.

But if you could immediately go to Slack and get your question answered by other users or the business, you'll feel much better. That's how you keep your customers happy, and the happier a customer is, the longer they’ll stay with your business.

Customer Happiness

Learning what your customers think of your product, service, experience, or brand, in general, is crucial at all times — but especially when you’re in the building stage.

Maybe you’re operating in beta or just recently launched your company and are keeping things quiet. As you onboard your first few customers, it’s important to communicate with them to understand how their experience is going.

Collect all of the quantitative and qualitative data you can. Track their user journey and ask them to complete user surveys or jump on a quick call with you.

Collecting Feedback

Feedback will tell you whether or not your customers are happy and why or why not. With that, you can make the necessary changes to ensure you’re building something people want.

One of the best ways to do this is to send surveys to your customers to find out your “Net Promoter Score (NPS)”. A NPS survey is super easy to fill out and only asks two questions:

  • How likely are you to recommend [your product] to a friend or colleague? This question will help you identify who your biggest fans are (a score of 9-10), your normal customers (a score of 7-8), and which customers are at risk of leaving (a score of 0-6).
  • What is the most important reason for your score? This question will help you understand the reason behind the score to give you ideas of how you can improve your business.

Here’s an example of a NPS survey Sumome sends out:

nps survey sumome

For all your customers who gave a score of 0-6, you want to personally reach out to them with a solution to whatever their reason was.

For example if they gave you a score of 5 because they find your product difficult to use, maybe you could host a tutorial webinar walking them through your product. Simply send a survey, Google Forms and Typeform (if you want to get fancy) are great options.

Putting your data to action

Understanding how willing your new customers are to share feedback is an indicator of how important your brand is to them.

If you have the potential to solve a major pain point for them, they’re going to be far more likely to share feedback.

The more customers who proactively share feedback, the better opportunity you have to build a lasting relationship with them. Be timely, kind, empathetic, and actionable when they do share their insights.

By now, the majority of your customers should love your product and are using it actively. Otherwise, you won’t have a sustainable business and it'll be very difficult to have a profitable business.

But once your customers are staying, that’s when you should start focusing on the next step of the AARRR funnel, Revenue.

4. The Money Maker

If you weren’t tempted to skip any of the previous stages of the AARRR funnel, you should now have a strong understanding of:

  • Where most of your visitors are coming from
  • Which sources have the highest conversion rates
  • How long your visitors remain engaged with your product

But what was the point of all that effort?

I’m sure you’re a really nice person and love to help people solve their problems, but the bottom line always comes down to making money.

All the previous steps in the funnel were to prepare you for the most important metric of them all - Revenue.

In the most simplest terms, you’ll want to know your average revenue per user.

average revenue per user

This is because to get your business into the big leagues, you’ll need to start scaling by spending money to make money.

And the only way you can do this is if you know your average revenue per user.

By doing so, you’ll know how much you can afford to spend. Would it make sense to spend $100 to acquire a user when they are only worth $50? No of course not!

To scale your business, you have two options you could leverage:

  • Technology: Whether it’s using the built-in Facebook ads platform, using SumoMe tools to increase referrals, or any other tools, there’s going to be a cost associated to this.
  • Creating a playbook: For things you can’t use technology for, you’ll have to create a process so you can outsource it to freelancers or hiring internal members to scale a marketing channel. There’s also a cost associated to this.

Regardless of which option you use to scale your marketing, there will always be a cost associated with it.

Which is why in the end, it all comes down to:

Scaling the marketing channels that will give you the greatest return on investment.

never lose money warren buffett

Because once you find a profitable marketing channel, you want to invest as much as you can, while you can.

For example, from all the work you did in the previous steps in the AARRR funnel, you found out that Facebook is your biggest source of traffic and conversions.

You want to scale Facebook with a budget of $1000 to purchase advertisements, but you’re unsure if this is the right decision.

What can you do to figure out if you’ll get a return on your investment?

By understanding your customer acquisition costs.

customer acquisition costs

To do so, you’ll need to know these three key adspend metrics:

  • Unique Impressions: You’ll want to know how many people will see your ad. Remember, there’s a big difference between unique impressions and just impressions, 10,000 impressions doesn’t mean 10,000 people saw it.
  • Click-Through-Rate: How many people will click on your ad? Most ad platforms will give you a benchmark you can use for your assumption. You’ll want to run tests to get a more accurate CTR value.
  • Average Revenue per User: How much is each customer worth? Remember, for there to be a return on your investment, your revenue-per-user has to be higher than the costs-to-acquire that user!

From these three metrics, you’ll know how many new visitors will end up on your site from the Facebook ads.

And then based on the effort you spent in the “Activation” stage of the AARRR funnel, you should have a good understanding of what your site’s conversion rate is.

Based on all this, you should now be able to calculate what your cost per acquisition/customer acquisition costs are. If you suck at math, it’s just the total amount of money you spent on the ads, divided by the total new customers you have.

Armed with this information, you can do similar tests on other promising marketing channels and start to prioritize them based on which channels have the highest return on investment.

Let’s look at a real life example of Pete Van Straaten’s power washing business.

Even though his business wasn’t “online”, he still went through the AARRR funnel. By starting out going door-to-door (acquisition), he found out what his conversion rate was (activation), and had tons of practice providing a great service (retention).

Only after going through the previous stages of the funnel, did he move to the next stage to scale his business. Instead of going door-to-door, he would now deliver flyers that looked like this:

return on investment

By doing so, he found out that for every 1600 flyers (cost: $300), he would get 15 customers.

What does this mean?

Essentially it would cost $25 to acquire a customer, and each customer would spend on average $200 (including upsells).

That’s an 8x return on investment.

It’s like having a money making machine where he can throw in $100 and it’ll throw $800 back at him.

warren buffet impressed

That’s the power of going through the AARRR funnel and optimizing each stage before moving on to the next one. Because once you do that, you’ll know exactly how much a customer is worth, and how much it costs to acquire each customer.

From there, all you have to do is figure out a way to scale your marketing channels to get the greatest return on your investment.

Now once your product is battle tested and you’re making money, one of the most effective ways to get more customers is to go viral!

5. Brand Mentions and Social Referrals

Getting referrals is one of the cheapest sources of traffic. Once your customers are using your product and even paying you for it, it’s much easier to get them to refer your business. Just how effective are referrals?

Brand Advocates reported that friend recommendations are the number one influencing factor in purchase decisions.

Keep an eye on who is talking about your brand so you can build a relationship with these folks and foster any leads they’re bringing in.

The people talking about your brand in a positive light are your potential brand ambassadors, influencers, and community members. These are the people who will happily be a part of your focus groups and help you improve your product.

For tracking mentions, check out Mention for real-time monitoring. Google Alerts is always a good fall back as well.

If you notice your customers are referring your product often, consider building an actual referral program incentivising and rewarding them for referring your product. The rewards might be swag, a discount, event tickets, partner giveaways, etc…

For example, let’s take a look at Dropbox:

customer referral program

In September 2008, they had 100,000 users. Just 15 months later, they had 4 MILLION USERS!!! How the hell did they get that exponential growth curve?

With a referral program!

referral program dropbox

So how can you create your own referral program?

Some great tools you could use are ReferralCandy, Friend Buy, and Referral SaaSquatch.

Another great tool is SumoMe’s share bar (meta!):

sumome share bar

It’s so stupid-easy for your customers to share your content to their family and friends. So easy in fact, I don’t even need to include a “how-to” guide here because you can have it setup in less than a minute.

Now I know this was a lot of information to take in. But there’s a reason why every major business takes the AARRR funnel so seriously. By doing so is the only way you can grow your small business, into a sumo-sized one.

Getting Your Business to the Next Level

The truth is, you could come up with a hundred different reasons why you could say you can’t do the same thing. Maybe you suck at math. Maybe you’re fine with the state of your business.

But if you spent the time to read all 7000 words to get to this point, you’re someone who wants more. And with enough effort and by following this guide, you’ll soon have a huge list of ideas on ways to improve your business.

So where do you start?

  • Step 1: Go to Google Analytics and note down which channels are your largest sources of traffic
  • Step 2: Do any of them have a conversion rate over 3%? If not, you need to drop everything you’re doing and prioritize your conversion rate. Don’t worry, we got you covered.
  • Step 3: Find out if your customers like your product by sending out a survey to determine your Net-Promoter-Score. Find out ways you can make your customers happier and how you can get them more engaged (e.g. email drip campaign).
  • Step 4: Identify your most effective traffic sources with the highest conversions. Brainstorm ways you can scale those channels by calculating your revenue per user, and customer acquisition costs.
  • Step 5: Find ways to go viral by encouraging your existing customers to give you referrals.

One more thing…

Share this guide with your friends, and in return, I’ll give you the spreadsheet I used in this article to calculate your return-on-investments of paid ad campaigns.

CLICK HERE TO GET THE SPREADSHEET

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