The Pirate Funnel: How Can It Help F&B Businesses?

By Mosaic Team November 27, 2020 Categories: , ,

A proper understanding of the Pirate Funnel can help F&B business owners have a more profitable 2021. Read on for some food for thought.

 

What Is the Pirate Funnel, and Why Should F&B Businesses Care?

In the food and beverage (F&B) industry, the exact recipe for success changes regularly.

 

No profitable fast food chains, steakhouses, cafes, wine bars, pizzerias, and ice cream parlors can afford to stay complacent. Competitors come and go, and the one thing you can count on is that someone new will come and try to take a piece of your revenue.

 

Of late, the F&B landscape has been the opposite of static. The tectonic shifts in consumer consumption behaviors and government regulations due to the pandemic have hurt many dine-in establishments.

 

As 2020 comes to a close, it’s imperative to map out your strategies for next year to recoup your losses, sustain your current strengths, and hit your new targets.

 

Nobody can accurately predict the threats F&B businesses may face in the coming months. But there’s one important thing you can do today to put you in a good position for a stronger 2021: learning about the Pirate Funnel.

 

So, what is this concept, and why does it matter? You’ll know the answers soon.

 

What Is the Pirate Funnel?

In 2007, Dave McClure, an entrepreneur, angel investor, and former CEO of business accelerator 500 Startups, coined the term “Pirate Funnel,” which is a framework for driving sustainable growth of customer base.

 

Also known as the Pirate Metrics, the initials of the framework’s pillars Awareness (added later on by Growth Tribe), Acquisition, Activation, Retention, Revenue, and Referral (AAARRR), alluding to pirate talk. Hence, the name.

 

Before we talk about all of the Pirate Funnel’s pillars, understand that their traditional order doesn’t apply to F&B businesses. Since food establishments generally rake in revenue even if the customers don’t return, Retention should follow Revenue.

 

Awareness

This step refers to the methods you use to reach consumers.

 

Do you have a digital presence? If yes, do you have an SEO-friendly website? How active are you on social media? Do you use delivery apps to sell products? Do you have offers displayed on coupon sites like Deal Grocer? Can consumers learn about your brand or offerings on online newspapers, digital magazines, or influential blogs or vlogs?

 

Direct marketing can work too. This traditional, affordable method has its own sets of advantages and disadvantages, but it can complement the deficiencies of your online marketing efforts.

 

Acquisition

This stage is where the first contact with your prospective customers happens. First visit to your site, initial comment on your Instagram page, agreement to newsletter subscription, and the instance of app install are prime examples of customer acquisition in the context of this framework.

 

At this point, you can consider the consumers who agreed to engage with your brand as leads. Some marketing channels bring high-volume leads while others quality leads.

 

The jury is still out on which is better between lead quantity and lead quality. But you don’t necessarily have to abandon one in favor of the other. There will be times when you need to spread your net wide and occasions when you have to implement a more targeted approach to acquire leads.

 

At the end of the day, conversion should be top of mind.

 

How many of your leads turned into customers, and what was the cost per customer acquisition?

 

Try and test different methods to lower your total customer acquisition cost. And stick with those that cost the least and convert the most.

 

Activation

This is the point where a consumer finally agrees to become a customer. But convincing a person to pay for your foods doesn’t guarantee repeat business. For this reason, you should do everything to make a great first impression.

 

If you fail to deliver a wow experience, first-time customers may not return. They may never buy again if you don’t give them a reason to. It could be that the food doesn’t meet their expectations, the service is subpar, the location is inconvenient, or your prices are unreasonable.

 

Spoiler alert: you won’t be able to please every first-time customer. But that doesn’t mean you shouldn’t try. Different customers have different motivations and expectations. Unless you operate in a captive market, it’s a constant challenge to compel consumers spoilt for choice to keep buying from you. We talk more about retention below.

 

Revenue

The only time you won’t generate any direct revenue from your menu items is when you offer freebies. In most cases, you’ll make money from every transaction.

 

Irrespective of your ability to gain and retain customers, you should concentrate on obtaining more revenue per customer to swell your coffers. To do this, pay attention to these key performance indicators (KPIs): top-selling products, total revenue, and average revenue per customer.

 

The data of said KPIs come from your Point of Sale system, so it must be able to produce digestible reports and have an intuitive interface to render analyses painless. If you’re still using a cumbersome platform or relying solely on Excel, now is a good time to upgrade.

 

Moreover, every savvy F&B business owner knows that there are three ways to grow your revenue for every person you serve: charge more, increase the average transaction size, and boost the buying frequency of customers.

 

Getting away with implementing all three is ideal, but it’s not always possible. So mull over your options before deciding which route to take.

 

Before you execute any strategy, you must aim for a clear realistic goal. Start small, and then set the bar higher once you discover which tactics work and which ones don’t.

 

Retention

Acquisition is more costly than retention. So it’s in your best interest to generate as much repeat business as you can.

 

Realistically, not all of your happy customers will become regular patrons of your food establishment. But incentive is a proven catalyst for brand loyalty.

 

You don’t have to launch a loyalty program, if you feel that your offerings are good enough to keep customers coming back for more. But if you want to make the biggest spenders and your staunchest supporters feel special, go the extra mile to reward them.

 

Encourage your staff to remember the regulars and help them feel special.  Offer a free drink or dessert everyone once in a while. A little spend and effort from the restaurant can go a long way to building loyalty and frequency with customers.

 

Referral

What’s the most effective and least expensive form of advertising? Word of mouth. 

 

According to studies, no less than 8 in 10 consumers trust personal recommendations from friends, family members, and colleagues. Such referrals persuasively influence the purchase decisions of about 75% of consumers.

 

While more than 80% of satisfied customers would be willing to recommend a brand to others, merely 29% of them would do it with no incentive.

 

To turn happy customers into lead-generating brand advocates, provide an impetus to convince them to give referrals. Money doesn’t always make a compelling motivation. So don’t limit yourself to monetary rewards when formulating a prolific referral marketing program.

 

The use of discount coupons, freebies, or both can give your referrers more fulfilment. And redeeming such incentives allows them to engage with your brand even more.

 

In Conclusion

Being aware of and interpreting the Pirate Funnel is one thing, but controlling it is another story.

 

Without the proper tools, you’ll find it hard and inefficient to accurately identify the bottleneck in the funnel, the place where your customers are getting stuck.

 

That’s why you have to adopt a sophisticated data analytics solution to see and crunch your numbers more quickly. If you don’t have a math whiz in your organization, you could outsource data mining work to help your marketing team see invaluable insights that wouldn’t be apparent in raw figures.