
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 your customers isn't just beneficial—it's essential for survival. While traditional metrics like MRR and churn provide a snapshot of your business health, they often fail to tell the complete story of how different customer groups interact with your product over time. This is where cohort analysis enters the picture, offering a powerful lens through which SaaS leaders can gain deeper insights into customer behavior patterns.
Cohort analysis is an analytical method that groups customers based on shared characteristics or experiences within a defined time period. Rather than examining your entire user base as a monolithic entity, cohort analysis segments users who started using your product around the same time (acquisition cohorts) or who share similar behaviors or attributes.
For SaaS businesses, the most common approach is time-based cohort analysis, which groups customers based on when they first subscribed to your service. For example, all customers who signed up in January 2023 would form one cohort, while those who joined in February 2023 would form another.
While surface-level metrics might paint a rosy picture, cohort analysis can reveal underlying issues. For instance, your overall revenue might be growing, but cohort analysis might reveal that recent customer cohorts are spending less per customer than earlier cohorts—a potential early warning sign.
According to a study by ProfitWell, SaaS companies that regularly perform cohort analysis are 30% more likely to identify problematic trends before they significantly impact revenue.
Cohort analysis provides concrete evidence of product-market fit. If later cohorts show improved retention compared to earlier ones, it suggests your product and market positioning are evolving in the right direction.
"The retention curve is the single most important chart for understanding product-market fit," notes Brian Balfour, former VP of Growth at HubSpot. "If it flattens out over time, you have product-market fit for the cohort that remains."
Cohort analysis allows executives to determine whether new features, pricing changes, or customer success initiatives are actually improving key metrics over time.
For instance, when Slack implemented their user onboarding improvements in 2019, they used cohort analysis to demonstrate that new user cohorts experienced a 15% higher activation rate compared to previous cohorts.
By tracking how specific cohorts behave over time, you can develop more accurate customer lifetime value (LTV) models. According to research by Klipfolio, companies using cohort analysis to calculate LTV achieve projections that are up to 25% more accurate than those using simplified methods.
Start by determining the most meaningful way to segment your users:
For SaaS businesses, the most valuable metrics to track through cohort analysis include:
The appropriate timeframe varies based on your business model:
The standard format for a cohort analysis table shows:
Convert your cohort data into easily digestible visualizations:
Look for these specific patterns:
Dropbox famously used cohort analysis to optimize their freemium conversion strategy. By analyzing user cohorts, they discovered that users who engaged with specific collaborative features within the first 30 days were 4.4x more likely to convert to paid plans.
Based on this insight, Dropbox redesigned their onboarding flow to emphasize collaboration features earlier, resulting in a 15% increase in conversion rates for new cohorts. According to former Dropbox Growth Lead Adam Gross, "Cohort analysis didn't just improve our metrics—it fundamentally changed how we thought about our product."
Begin with basic time-based cohort analysis tracking retention, then gradually introduce more sophisticated analyses as your team becomes more comfortable with the methodology.
Ensure each cohort analysis has a clear link to actionable decisions. For example, if you observe that Q1 2023 cohorts have significantly higher churn than previous quarters, investigate what changed in your product or market during that period.
The insights from cohort analysis should inform decisions across product, marketing, customer success, and sales. Consider implementing dashboards that make cohort data accessible to all stakeholders.
The most powerful insights often come from comparing different cohort types. For example, analyzing both acquisition channel cohorts and feature adoption cohorts might reveal that customers acquired through content marketing engage more deeply with advanced features.
Cohort analysis is not just another metric in your analytics arsenal—it's a fundamental approach to understanding your business trajectory and customer behavior patterns. By revealing how different customer groups engage with your product over time, cohort analysis provides the context necessary to make informed strategic decisions.
For SaaS executives navigating increasingly competitive markets, cohort analysis offers a crucial advantage: the ability to identify problems before they become crises and opportunities before competitors recognize them. Implementing robust cohort analysis isn't just about better reporting—it's about building a data-informed culture that continuously optimizes the customer experience and drives sustainable growth.
As you implement cohort analysis in your organization, remember that the goal isn't just to collect more data but to develop deeper insights that lead to better decisions. The SaaS companies that thrive in the coming years will be those that not only track cohorts but systematically transform cohort insights into strategic advantage.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.