Growth Loops vs. AARRR Funnels: What’s the difference and How To Choose (2024)

Marketing Data
Productivity tips
Google Sheets
April 9, 2024


Funnels are dead. The modern growth marketers thrive on Growth loops. At least that’s what if studied individually both frameworks stand solid ground for driving business growth. But the mystery to address here is - what will work for you? If numbers are to be trusted, retaining existing clients is often more cost-effective in comparison to acquiring new ones.

Yet, for growth to happen and for business to expand, having more clients on-boarded sounds like a more viable option, particularly pre-product market fit. It is hard to focus on retention if your acquisition is not working.

Growth loops and the acquisition, activation, retention, referral, and revenue (AARRR) funnel are a staple marketing models adapted by marketing functions across different industries. But which one is better — the AARRR funnel, which primarily focuses on acquisition? Or the growth loop, which emphasizes both acquisition and retention? Let’s break it down together.

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AARRR Funnels: The pirate model

The AARRR funnel, more commonly known as the Pirate Funnel (AARRR!), is one of the most famous of startup growth marketing. The acronym stands for Acquisition, Activation, Retention, Referral, and Revenue—representing a customer's journey from discovering your product to becoming a paying and advocating customer.

This linear funnel is all about guiding prospective customers through a set progression. Whilst this tried-and-trusted framework is simple and effective, its primary focus is on customer acquisition, often sidestepping the potential value from retention and advocacy. So, is there a way to extend this benefit throughout your customers' lifecycle?

The retention funnel inverts the 'leaky bucket' problem in growth marketing, seeking ways to hold onto users for longer (retention) and generate more value from them. Instead of constantly pushing new users into the top of your traditional AARRR funnel, the retention funnel focuses on keeping your existing users engaged and happy. The secret sauce? Constantly providing value and improving the user experience.

Let’s take a look at an example of how Dropbox has used AARRR funnel to their benefit :

Dropbox serves as an excellent case study for a successful application of the AARRR funnel.

  • Acquisition: Dropbox acquired users by offering extra storage space for referrals—driving organic traffic.

  • Activation: Users were quickly onboarded through a clear and simple user interface, and a helpful tutorial guided new users to understand its features.

  • Retention: The inherent value in the product, such as easy file sharing and syncing, kept users coming back.

  • Referral: Users received extra space for referring their friends, driving the referral program.

  • Revenue: Free users converting to the premium plans drove revenue. It became an essential tool for businesses willing to pay for the added features.

Growth Loops: The Viral Funnel?

Enter the Growth Loops—a model that gained space in the last few years and seeks to capitalize on every stage of a user's journey with your product or service. Growth loops replace the linear mindset with a cyclical one, focused more on optimizing the network of actions your users perform. 

These loops typically work by retaining users, engaging them, and converting them into advocates for the business who then attract new users, creating a 'viral' effect. And voila, you've got yourself a self-sustaining growth machine!

The three important parts of a Growth loop are -

1. The Input: The starting point of this framework is the 'Input,' a phase dedicated to user acquisition through various channels such as organic search or paid campaigns. This is where businesses, especially software providers, pinpoint the most efficacious channels that align with their growth ambitions. This initial step is about laying down a solid foundation for scalable user growth by optimizing the acquisition strategy.

2. The Action: Following the input phase is 'Action,' where the focus shifts to converting the influx of new users into loyal customers. This stage is vital for the growth loop, as it is here that the value proposition is delivered. Be it through a compelling free trial, an unmatched user experience, or indispensable features, the action phase needs to bring the user to their aha-moment as quickly as possible

3. The Output: The 'Output' phase is the fruition of the efforts invested in the action phase. This is where the loop aims to become self-perpetuating. The output here refers to the tangible results of heightened sales and an expanding customer base, achieved by converting newly acquired users into loyal ones who then drive further growth by referring new users.

Growth Loops : The Slack Use case

One such company who has successfully implemented a Growth Loops: Slack

Slack effectively leverages growth loops mechanisms to fuel its growth.

Initial Input: Slack's initial users were primarily tech-savvy teams looking for a better collaboration tool.

Action: The first teams using Slack (mostly tech teams) experienced an immediate communication improvement. They started creating channels that would go beyond and include teams that weren’t yet on Slack.

Output: By adding new teams, these would start creating new channels on Slack and share it with colleagues, friends and finally convert all their company.

Reinvestment: New users, became part of the growth loop by experiencing Slack's value and referring more users. For example many companies also started creating Slack channels to create communities around their brand. This in turn would make participants subscribe to Slack and introduce it to colleagues and the loops would go on.

AARRR Funnels vs. Growth Loops: Weighing the Options

The key differences between the growth loop vs. the AARRR funnel are not just about customer acquisition but user retention, and creating a cyclical pattern of sustained growth. While the AARRR funnel is best suited to simplistic business models focusing on customer acquisition, growth loops provide a comprehensive framework for businesses keen on exploiting various growth opportunities throughout the user's lifecycle.

The growth loop framework contrasts sharply with the linear models, such as the traditional growth marketing funnel or the viral funnel, by emphasizing not just the acquisition but the retention and organic spread through user advocacy. Unlike the one-directional movement in a linear funnel, the growth loop encapsulates a cyclical motion that ensures a continuous, self-feeding loop of growth.

Which One Is Right for Your Business?

On a final note, I’d say if your business growth relies predominantly on acquisition,like pre-product-market fit and you're just beginning in the world of growth marketing, then the AARRR funnel could serve you best with its simple, single-focus approach.

However, even at early stages if your business model involves continuous user engagement and the potential for user advocacy or referral, the growth loop's cyclical, holistic approach could precipitate explosive growth. The framework enables you to amplify the all-important K-factor (virality), harnessing the compounding power of looped user engagement and referral.

In conclusion, no single model fits all scenarios. Each 'funnel' or 'loop' has its strengths and weaknesses, and the choice between them depends on your business model, user behavior, and your growth targets. It's essential to understand both methodologies and to adapt them to our particular context. As with most marketing strategies, the key is testing, analyzing, learning, and adapting.

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Jacopo Proietti

Co-founder @Dokin
Jacopo, a co-founder of Dokin, boasts 8 years in finance, having worked as a finance manager at Ogury and head of Financial Planning and Control at BlaBlaCar.
His passion for data integration led to the creation of Dokin, a game-changer for modern business teams. With customizable templates and built-in data connections, Dokin allows modern CMOs and CFOs to streamlines data reporting across Google Workspace applications.

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