
Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.
In the competitive SaaS landscape, understanding customer behavior is crucial for sustainable growth. While traditional metrics like Monthly Recurring Revenue (MRR) and Customer Acquisition Cost (CAC) offer valuable snapshots, they often fail to reveal how customer behaviors evolve over time. This is where cohort analysis becomes indispensable. Let's explore what cohort analysis is, why it's particularly important for SaaS businesses, and how to effectively implement it.
Cohort analysis is a data analytics technique that groups customers based on shared characteristics and tracks their behavior over time. Rather than examining all customers as one homogeneous group, cohort analysis divides them into related groups (cohorts) based on when they were acquired or other defining traits.
The most common type of cohort analysis in SaaS is time-based, where customers are grouped by their signup or conversion date (typically by month or quarter). This allows businesses to see how behaviors, retention, and revenue generation patterns differ across customer groups acquired at different times.
According to a study by Bain & Company, a 5% increase in customer retention can increase profits by 25% to 95%. Cohort analysis provides visibility into which customers are staying and which are leaving, along with when these patterns occur in the customer lifecycle.
When you roll out new features, pricing changes, or customer success initiatives, cohort analysis helps isolate the impact of these changes by comparing cohorts before and after implementation.
Not all customers contribute equally to your bottom line. Research from Price Intelligently suggests that the top 20% of SaaS customers often generate more than 80% of revenue. Cohort analysis helps identify which acquisition channels, user personas, or market segments produce the most valuable long-term customers.
By understanding how different cohorts behave over time, you can make more accurate predictions about future revenue, churn, and customer lifetime value.
Cohort analysis acts as an early warning system, detecting potential issues before they affect your overall business metrics. According to Profitwell data, most SaaS businesses see early warning signs in cohort behavior 4-8 weeks before seeing impacts in their aggregate metrics.
Start by determining how you'll group your customers:
For SaaS businesses, these typically include:
Determine the time periods you'll track (typically months or quarters) and how far back you'll analyze.
The most common visualization is the cohort grid or heat map:
Analyze your cohort data to identify:
Let's consider a SaaS company that wants to analyze customer retention:
| Cohort | Month 0 | Month 1 | Month 2 | Month 3 | Month 4 | Month 5 |
|-------------|---------|---------|---------|---------|---------|---------|
| January | 100% | 87% | 76% | 72% | 68% | 65% |
| February | 100% | 83% | 75% | 70% | 67% | 63% |
| March | 100% | 85% | 79% | 75% | 72% | - |
| April | 100% | 88% | 81% | 78% | - | - |
| May | 100% | 91% | 84% | - | - | - |
| June | 100% | 92% | - | - | - | - |
From this analysis, the company can observe that:
Once you've mastered basic cohort analysis, consider these advanced applications:
Segment cohorts by multiple variables simultaneously, such as acquisition channel AND company size, to uncover even more specific insights.
Use historical cohort data and machine learning to predict how current and future cohorts will perform, enabling proactive decision-making.
Compare cohorts that have adopted specific features against those that haven't to measure feature impact on retention and revenue.
According to OpenView Partners' product benchmarks report, 76% of successful SaaS companies conduct regular cohort analysis. To implement it in your organization:
Ensure proper data collection: Make sure you're tracking customer actions, revenue, and acquisition information with accurate timestamps
Choose the right tools: Use specialized analytics platforms like Amplitude, Mixpanel, or ChartMogul, or build custom reports in tools like Tableau or Power BI
Start small: Begin with basic retention cohorts before expanding to more complex analysis
Establish regular reviews: Make cohort analysis a standard part of your executive and product team reviews
Act on insights: The true value comes from implementing changes based on what you learn
Cohort analysis provides SaaS executives with a powerful lens to understand customer behavior over time. By moving beyond aggregate metrics to examine how specific customer groups evolve throughout their relationship with your product, you gain actionable insights that can drive retention, pricing strategy, product development, and ultimately, sustainable growth.
While implementing cohort analysis requires investment in proper tools and analytical capabilities, the returns are substantial. As the SaaS industry becomes increasingly competitive, the companies that best understand their customers' journeys will be the ones that thrive. Cohort analysis isn't just another metric—it's a fundamental approach to data-driven decision making that reveals the health and trajectory of your business in ways no other analysis can provide.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.