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

July 20, 2022
Contributor: Shubham Gupta

Leverage the power of AARRR funnels and growth loops to create a solid growth strategy for B2B software marketing and sales.

Most businesses usually focus on acquiring new customers, but what about keeping the ones you already have? It is more cost-effective and profitable to keep your current customers than to find new ones, according to Gartner research (full report available to clients). Nonetheless, 67% of B2B marketers focus primarily on acquisition and often overlook retention.

The key to sustainable growth is to focus on both acquisition and retention. B2B software providers, seeking to grow their product or service by bringing in new consumers as well as retaining the current ones, often find themselves in a dilemma regarding which growth strategy to choose for their offerings.

Growth loops and the acquisition, activation, retention, referral, and revenue (AARRR) funnel are today’s most popular growth models among marketers. But which one is better — the AARRR funnel, which primarily focuses on acquisition? Or the growth loop, which emphasizes both acquisition and retention?

In this article, we explain growth loops vs. AARRR funnels to offer insights into why these models matter for your B2B software marketing and sales strategy. 

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.

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.

Growth loop framework

The growth loop framework has three parts — input, action and output.

  • Input: Input is what you use to gain new users. This can be anything, from organic search traffic to paid advertising. This part of the loop helps software providers identify acquisition channels that work best for their businesses, eventually making them more efficient and strategic at acquiring users.
  • Action: Action is the process that takes the input and turns it into the output. In growth loops, the action is providing value to users so they continue to use your software. This can be done in several ways such as offering a free trial, providing a great user experience, or having features users find valuable.
  • Output: Output is what you get from the action. This is what you need to do to complete the loop and make it self-sufficient. The output, in the growth loop, is increased sales and more customers. This means that the new users you gain through your input channels lead to more sales, resulting in even more users.

Growth loops examples

A few companies have created successful growth loops. Let’s learn how they did it:

  • HubSpot: HubSpot is a software company that sells to small businesses. Its growth loop is based on three input channels: free tools, organic search traffic, and word-of-mouth. The company offers several free tools, such as the HubSpot Marketing Grader, that users find valuable.

    This helps attract new users through organic search traffic and word-of-mouth. Once people use HubSpot’s free tools, the company provides value by helping them grow their businesses. This, in turn, leads to increased sales and more customers, which completes the loop.
  • LinkedIn: LinkedIn’s growth loop is powered by its network effect. The more members join LinkedIn, the more valuable the platform becomes for users and businesses. LinkedIn’s growth loop is based on four input channels: organic search traffic, word-of-mouth, social media, and paid advertising.

    LinkedIn attracts new users through these channels and provides value by helping them connect with other professionals worldwide, find jobs, and grow their careers. This eventually leads to increased sales and more customers, which completes the loop.

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

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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.

Validated learning with pirate metrics (AARRR)
  • 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.

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.

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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.

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