
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 data-rich environment of modern SaaS businesses, making sense of user metrics can be challenging. As executives leading subscription-based companies, understanding how your users behave—not just how many you have—is critical for sustainable growth. This is where cohort analysis becomes an invaluable strategic tool.
Cohort analysis is a subset of behavioral analytics that groups customers into "cohorts" based on shared characteristics, typically their acquisition date. Rather than looking at all users as a single unit, cohort analysis examines how specific groups behave over time.
For example, instead of simply knowing that your platform has 10,000 users, cohort analysis might reveal that customers who signed up during your January product launch have a 40% higher retention rate than those who joined during your March pricing promotion.
As David Skok, venture capitalist and SaaS expert, explains: "Cohort analysis is one of the most powerful tools in a SaaS company's analytical arsenal, as it allows you to see whether key metrics like retention and monetization are actually improving over time."
While aggregate metrics might show steady growth, cohort analysis can uncover underlying issues. Your total user count might be increasing, but newer cohorts could be churning at faster rates—signaling future challenges that aggregate data masks.
When you launch a new feature or product update, cohort analysis helps determine its actual impact on user behavior. Did users who experienced your new onboarding flow engage more deeply than previous cohorts? This insight guides product development priorities.
By comparing the long-term value of different cohorts, you can identify which acquisition channels and campaigns bring your most valuable customers. According to research from Profitwell, companies that regularly use cohort analysis in their marketing strategy see 17% higher customer lifetime value on average.
Understanding how different cohorts monetize over time enables more accurate revenue projections. This is crucial for planning growth investments, as noted by a 2022 OpenView Partners report, which found that SaaS companies using advanced cohort analysis were 36% more likely to meet or exceed their annual forecasts.
Cohort analysis excels at highlighting when and why customers typically disengage, allowing proactive retention efforts before cancellation.
This foundational metric tracks what percentage of customers from each acquisition cohort remain active over time.
How to measure it: Calculate the percentage of users from a specific cohort who are still active in subsequent time periods.
Retention Rate = (Number of Users Active at End of Period / Original Number of Users in Cohort) × 100%
The inverse of retention, churn measures the percentage of customers who leave.
How to measure it:
Churn Rate = (Number of Customers Who Left During Period / Original Number in Cohort) × 100%
According to Gainsight's 2023 Customer Success Industry Report, best-in-class SaaS companies maintain cohort-based churn rates below 5% annually.
This tracks how revenue from specific customer cohorts changes over time.
How to measure it:
Gross Revenue Retention = (Recurring Revenue from Cohort at End of Period / Initial Recurring Revenue from Cohort) × 100%
Net Revenue Retention = (Recurring Revenue + Expansion - Contraction - Churn) / Initial Recurring Revenue × 100%
Industry benchmarks from KeyBanc Capital Markets show that top-quartile SaaS companies achieve net revenue retention above 120%, meaning cohorts grow in value over time.
This measures how quickly new users reach their first "aha moment" or realize value from your product.
How to measure it: Track the median time between account creation and completing key activation events for each cohort.
LTV calculates the total revenue you can expect from the average customer in each cohort.
How to measure it:
Customer Lifetime Value = Average Revenue Per User × Average Customer Lifespan
Start with specific questions: "Are customers acquired through our new campaign retaining better than previous channels?" rather than "How are our customers doing?"
Beyond acquisition date, consider segmenting by:
Match your analysis intervals to your business cycle:
Cohort tables (heat maps) provide at-a-glance understanding of trends. Amplitude's 2023 Product Analytics Report found that executives who use visual cohort analysis spend 43% less time in data interpretation meetings.
Contextualize your results against:
Cisco's customer intelligence team demonstrated that cohort insights led to intervention programs that improved retention by 14% when addressing specific drop-off points identified through cohort analysis.
Slack's growth team noticed through cohort analysis that teams who shared at least 2,000 messages were significantly more likely to continue using the platform long-term. This insight led them to redesign their onboarding to encourage more team messaging early on—resulting in a 17% improvement in new team activation rates.
By identifying this specific threshold through cohort analysis rather than overall usage data, Slack could target a precise behavior that predicted long-term success.
As SaaS competition intensifies, the ability to understand nuanced user behavior through cohort analysis becomes a critical competitive advantage. While aggregate metrics provide the what, cohort analysis reveals the why and when—allowing you to make more strategic decisions about product development, marketing spend, and customer success initiatives.
The most successful SaaS companies don't just measure growth in total user or revenue terms; they understand how each customer cohort moves through their lifecycle and use those insights to create flywheel effects that compound over time.
For executives leading data-informed organizations, cohort analysis isn't just a reporting tool—it's a strategic framework for sustainable growth that reveals the story behind the numbers.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.