
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 today's data-driven SaaS landscape, executives are constantly searching for deeper insights into customer behavior patterns beyond surface-level metrics. While traditional KPIs like monthly recurring revenue and customer acquisition costs remain essential, they often fail to reveal the complete story of how specific user groups interact with your product over time. Enter cohort analysis—a powerful analytical framework that segments users based on shared characteristics and tracks their behavior across their customer journey.
Cohort analysis is a data analytics technique that groups users who share common characteristics or experiences within defined time periods, then tracks their collective behaviors and metrics over time. Instead of looking at all users as a homogeneous group, cohort analysis divides them into related groups to identify patterns that might otherwise remain hidden.
A cohort is typically defined as users who started using your product during the same time period (such as January 2023 sign-ups) or who share another meaningful characteristic (such as acquisition channel, subscription tier, or company size).
The most common type in SaaS is acquisition cohorts—groups of customers who subscribed or began using your product within the same time frame. For example, all customers who signed up in April 2023 would form one cohort, while those who joined in May 2023 would form another.
Aggregated metrics can mask serious business problems. For instance, your total MRR might be growing while retention rates among newer cohorts are actually declining—a warning sign of future trouble. As David Skok, venture capitalist at Matrix Partners, notes, "Cohort analysis is the single most important analysis for understanding the true health of your SaaS business."
Cohort analysis helps identify exactly where and when users experience friction or find value in your product. According to Amplitude's 2023 Product Analytics Report, companies that regularly perform cohort analysis are 26% more likely to achieve product-market fit than those that don't.
When you make specific product changes, pricing adjustments, or feature implementations, cohort analysis allows you to compare how different user groups responded—providing clear data on whether your changes improved key metrics.
By understanding how different cohorts behave over time, you can build more accurate revenue and churn prediction models. According to ProfitWell, companies that incorporate cohort-based forecasting improve their prediction accuracy by up to 35%.
Not all customers are created equal. Cohort analysis helps identify which customer segments deliver the highest lifetime value, lowest acquisition costs, or strongest product advocacy.
Retention rate measures the percentage of users from the original cohort who continue to use your product over specified time intervals. A classic retention cohort analysis looks like this:
| Cohort | Month 0 | Month 1 | Month 2 | Month 3 |
|--------|---------|---------|---------|---------|
| Jan 2023 | 100% | 87% | 82% | 79% |
| Feb 2023 | 100% | 85% | 80% | 77% |
| Mar 2023 | 100% | 89% | 85% | — |
This visualization immediately shows whether retention is improving with newer cohorts (a positive indicator) or degrading (a warning sign).
Beyond user retention, tracking revenue retention reveals whether customers are upgrading, downgrading, or maintaining their spending levels. This metrics includes:
According to OpenView Partners' 2023 SaaS Benchmarks Report, elite SaaS companies maintain net revenue retention above 120%, meaning each cohort generates 20% more revenue over time despite some customer churn.
This metric tracks how long it takes for a specific customer cohort to generate enough gross profit to cover its acquisition cost. Measuring CAC recovery by cohort helps determine if your acquisition efficiency is improving over time.
Tracking feature adoption, login frequency, or other engagement metrics by cohort can provide early indicators of retention problems before they manifest in financial metrics. According to Gainsight's 2023 Customer Success Industry Report, SaaS companies that track engagement cohorts identify at-risk customers an average of 45 days earlier than those using standard reporting.
Start with specific business questions you want to answer:
While time-based cohorts are most common, consider other meaningful groupings:
For most SaaS businesses, monthly intervals make sense, but consider your product's usage patterns. A social media tool might benefit from weekly analysis, while an annual tax software would use yearly intervals.
Several tools can facilitate cohort analysis:
Cohort heatmaps provide an intuitive visualization where colors represent performance—typically with darker colors showing better retention or other metrics. This allows executives to quickly spot trends across multiple cohorts at a glance.
Ensure your cohort analysis incorporates data from all relevant sources—product usage, billing systems, support interactions, and marketing touchpoints.
Be cautious about drawing conclusions from cohorts with small sample sizes, as they may not represent statistically significant patterns.
Seasonal variations can significantly impact cohort behaviors. For example, customers who sign up during holiday promotions might behave differently than those who join during other periods.
Start with a few fundamental cohort analyses before expanding. According to McKinsey, companies often see diminishing returns after tracking more than 5-7 core cohort metrics.
The true value of cohort analysis emerges when insights drive specific actions:
Product Development: If certain cohorts show significantly better retention, investigate what unique experiences they had with your product.
Customer Success Interventions: When a cohort shows early signs of declining engagement, trigger proactive outreach before churn occurs.
Marketing Optimization: Redirect acquisition spending toward channels that produce cohorts with higher lifetime value.
Pricing Strategy: Test different pricing structures with new cohorts and measure the impact on long-term revenue retention.
In an increasingly competitive SaaS environment, surface-level metrics no longer provide sufficient insight to drive strategic decisions. Cohort analysis offers a deeper understanding of how different user groups experience your product over time, revealing patterns that aggregate data often conceals.
By implementing robust cohort analysis, SaaS executives can identify early warning signs of problems, capitalize on successful strategies, and make data-driven decisions that improve retention, increase lifetime value, and accelerate growth. In a business model where small improvements in retention can dramatically impact long-term profitability, cohort analysis isn't just helpful—it's essential.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.