Growth Loops vs. AARRR Funnels: Which One Is Right for Your Business?

Growth loop vs. AARRR funnel: The differences

A growth loop is a flywheel of user acquisition and retention that fuels growth. It’s a system that, when complete, can be used as input for another system and so on, creating an ever-growing loop. For example, a software company that sells to other businesses can use a growth loop in which each new customer leads to more sales by way of referrals.

The AARRR funnel, also known as the pirate funnel, is a growth model popularized by Dave McClure. The idea is to focus on each stage — acquisition, activation, retention, referral, and revenue — to ensure a successful growth strategy. The pirate funnel is a great way to think about growth because it applies to any business but holds significant importance for software companies.

Also Read: How to Use Account Based Marketing for Customer Retention and Account Growth

Understanding the growth loop framework

The growth loop is a system that starts with acquiring users and then keeping them engaged by providing value. The ultimate goal of the loop is to have a self-sustaining approach wherein users keep coming back and referring new users.

Why growth loops matter to B2B software marketers

The growth loop is a powerful tool for software marketing and sales professionals. It allows you to acquire new users, keep them engaged, and generate revenue from them sustainably. The key to creating a successful growth loop is to provide value to your users at every stage of the loop, which, in turn, will keep them coming back for more. One way to keep prospective buyers engaged is by using intent data to better understand the type of content your target audience is most interested in.

For example, if you’re selling a CRM software solution, you must provide value to users by helping them cultivate stronger relationships with their customers. You should also provide value in the form of customer support, new features or anything else that will keep customers using your product. And finally, ensure you generate revenue from users in a way that doesn’t sacrifice their experience

Understanding the AARRR framework

While the AARRR framework is a pirate-themed framework for businesses to think about growth and measure their progress and performance, it’s important to understand each stage and how it works. The AARRR framework comprises five stages: acquisition, activation, retention, referral, and revenue.

• Acquisition. The stage where you get people to visit your website for a product or service. This can be done through paid advertising, organic search, social media or other means. For instance, you can use Google AdWords to bring people to your site by bidding on relevant keywords.
• Activation. Once a user lands on your site or product, you need to get them to use it. This usually involves getting them to create an account, sign up for a free trial, make their first purchase, or take any other action. For a user to take this step, they need to understand what your offering does and how it can help them. You should also ensure your lead generation forms are fully optimized to drive conversion rates.
• Retention. Next comes the retention stage, which is all about keeping people using your product or service. This is usually done by providing a great user experience, offering customer support, and continuing to add new features or content. For example, a retention strategy for a software product might be to send weekly emails with tips on how to get the most out of the product.
• Referral. The referral stage is when users start recommending your product to their friends and colleagues. This can be done by word-of-mouth, building trust through social media, or a referral program (a program where users are given an incentive, such as a discount, for referring other users). For example, Dropbox offers 500MB of extra storage space to every person who refers a new user that signs up for an account.
• Revenue. The revenue stage is all about generating income from your users. This can be done through means such as advertising or subscription fees. For example, if you’re selling a physical product, you’ll need to determine your pricing and shipping strategy. Similarly, if you’re selling a digital product, you’ll need to determine whether you’ll use a pay-as-you-go model or subscription model.

Also Read: How to Turn Customers Into Advocates for Your Business

Why the AARRR funnel matters to B2B software marketers

AARRR funnels are an essential tool for software marketing and sales. By understanding how customers move through the different stages of the funnel, this framework allows you to more effectively target your marketing and sales efforts. It also helps identify areas where your conversion rate is low and make changes to improve it.

For example, if you notice that many people are dropping off at the awareness stage, focus your efforts on getting more exposure for your product. Or, if you see people signing up for your free trial but not converting to paying customers, you might need to work on your retention strategy, which includes customer success and onboarding.

Loops or funnels? Why not leverage both to drive growth?

While AARRR funnels focus on acquisition, activation, retention, referral, and revenue, growth loops are self-perpetuating cycles in which each new user brings in more users, who then bring in even more users. The AARRR framework is a great way to think about growth but it's crucial to remember that it's just one piece of the puzzle. You will also need growth loops to keep users engaged and coming back to your product.

Therefore, to drive sustained growth, leverage both AARRR funnels and growth loops. By leveraging both the frameworks, you can create a flywheel effect in which each new user fuels even more growth.

Shubham Gupta

Shubham Gupta is a Content Writer at Gartner Digital Markets who ideates and creates purpose-driven content to help modern technology businesses achieve their goals. Outside of work, he enjoys reading thriller novels and Urdu poetry, as well as spending time with his dog. Connect with Shubham on LinkedIn.