
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 fast-paced SaaS landscape, making data-driven decisions is no longer optional—it's essential for survival. While surface-level metrics like MRR and churn rates provide valuable snapshots, they often miss the deeper behavioral patterns that drive long-term success. This is where cohort analysis becomes indispensable.
Cohort analysis is a method of evaluating your business performance by grouping customers into "cohorts" based on shared characteristics—typically when they first subscribed to your service. Rather than looking at all users as one homogeneous group, cohort analysis segments users into distinct groups to track how their behaviors evolve over time.
For SaaS businesses, a cohort might be "all customers who signed up in January 2023" or "enterprise clients who upgraded their plan in Q4." Each cohort is then tracked independently across various metrics, allowing you to identify patterns that would otherwise remain invisible in aggregate data.
According to a study by Bain & Company, increasing customer retention by just 5% can boost profits by 25% to 95%. Cohort analysis provides the most accurate picture of retention by showing exactly how long different groups of customers stay engaged.
"Companies often see a 'false positive' in their overall retention numbers when rapid acquisition masks underlying retention problems," explains David Skok, venture capitalist at Matrix Partners. "Cohort analysis cuts through this noise."
When you launch new features or make significant changes to your platform, cohort analysis allows you to precisely measure the impact on user engagement and retention. For example, you might discover that users who onboarded after your new UI launch have 30% better retention in month three compared to previous cohorts.
Not all customers deliver equal value. Cohort analysis helps identify which acquisition channels, pricing tiers, or user personas generate the highest LTV (Lifetime Value). According to research by ProfitWell, the top 20% of SaaS customers typically generate 80%+ of profits—cohort analysis helps you find these golden segments.
By understanding how historical cohorts have behaved over time, you can more accurately forecast revenue, churn, and growth. This becomes invaluable for planning everything from cash flow to expansion strategy.
According to Andreessen Horowitz, strong product-market fit typically shows up as improving retention curves in successive cohorts. If newer cohorts consistently outperform older ones, you're likely moving toward stronger product-market fit.
The most common cohort division is by signup date (monthly cohorts), but don't stop there. Consider analyzing cohorts by:
While retention is the most commonly tracked cohort metric, expand your analysis to include:
A standard cohort table shows time periods in columns (Month 0, Month 1, etc.) and cohort groups in rows. Each cell represents the percentage of users still active in that period.
For example:
| Cohort | Month 0 | Month 1 | Month 2 | Month 3 |
|-------------|---------|---------|---------|---------|
| Jan 2023 | 100% | 75% | 68% | 65% |
| Feb 2023 | 100% | 78% | 70% | 67% |
| Mar 2023 | 100% | 82% | 76% | 72% |
This visualization immediately reveals if newer cohorts (Mar 2023) are retaining better than older ones (Jan 2023).
"Standard retention" shows users active in a specific month, while "rolling retention" (or "unbounded retention") shows users who came back at any point after a given timeframe. The latter is especially useful for products with less frequent usage patterns.
According to Amplitude's 2022 Product Report, SaaS businesses with high rolling retention are 3.5x more likely to see rapid growth compared to those focused only on acquisition.
For SaaS companies, dollar retention often tells a different story than user retention. Even if some customers churn, expansion revenue from remaining customers can lead to net revenue retention above 100%—a critical indicator of business health.
Public SaaS companies with net revenue retention above 120% typically command valuation multiples 2-3x higher than those with retention below 100%, according to Bessemer Venture Partners' State of the Cloud 2022 report.
Beyond simple retention, examine the full lifecycle journey of different cohorts:
This builds a more complete picture of the user journey for different segments.
Using machine learning models to predict which current users are likely to churn based on behavioral patterns from previous cohorts. Companies like Zuora and ProfitWell offer tools that can identify at-risk accounts with 85%+ accuracy, allowing for proactive intervention.
Compare cohorts across different dimensions, such as:
These comparisons reveal which elements of your product and customer experience drive the most value.
Focus on actionable insights rather than creating dozens of cohort views that don't drive decisions. Start with retention and revenue metrics before expanding.
Small cohorts can show dramatic percentage changes that aren't statistically significant. Ensure your cohort sizes are large enough to draw meaningful conclusions.
SaaS is a long game. Track cohorts over extended periods—ideally 12+ months—to understand the true retention curve.
The most sophisticated analysis is worthless without action. Build a regular cadence of reviewing cohort insights and implementing changes based on findings.
Cohort analysis transforms raw data into actionable insights that drive SaaS growth. By understanding how different customer segments behave over time, you can make informed decisions about product development, marketing strategy, and customer success initiatives.
The most successful SaaS companies don't just track cohorts—they build their entire growth strategy around cohort-based insights. They recognize patterns early, double down on what works, and quickly pivot away from what doesn't.
As you implement cohort analysis in your organization, remember that the goal isn't perfect data—it's better decisions. Start with simple cohort views, look for clear patterns, take action, and then refine your approach over time. Your future cohorts will thank you.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.