
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 landscape of SaaS, understanding your customers isn't just beneficial—it's essential. While traditional metrics like Monthly Recurring Revenue (MRR) and Customer Acquisition Cost (CAC) provide valuable insights, they often tell an incomplete story. This is where cohort analysis comes in, offering a dynamic lens through which you can assess customer behavior over time and make data-driven decisions to optimize your business strategies.
Cohort analysis is a method of segmenting and analyzing groups of users who share common characteristics or experiences within a defined time frame. In the SaaS context, these groups (or "cohorts") are typically formed based on when customers started using your product, such as all users who signed up in January 2023.
Unlike single-point metrics that provide a snapshot of your business at a specific moment, cohort analysis tracks how these distinct groups behave over time. This longitudinal approach allows you to identify patterns, trends, and changes in customer behavior that might otherwise remain hidden.
While aggregate metrics can mask underlying issues, cohort analysis exposes the reality beneath the surface. For instance, your overall revenue might be growing, but cohort analysis could reveal that retention rates for newer customers are actually declining—a potential warning sign that recent product changes aren't resonating with users.
According to a study by ProfitWell, SaaS companies that regularly perform cohort analysis are 30% more likely to have higher long-term customer retention rates compared to those that don't.
By tracking how previous cohorts have behaved over time, you can make more precise predictions about the future value of your current and prospective customers.
"Cohort analysis fundamentally changed our understanding of our business economics," notes David Skok, venture capitalist at Matrix Partners. "It allowed us to see that certain customer segments had 5x the lifetime value of others, completely changing our acquisition strategy."
When you implement product updates, pricing changes, or new onboarding processes, cohort analysis allows you to precisely measure their impact by comparing the behaviors of cohorts before and after these changes.
By analyzing which cohorts have the highest retention or conversion rates, you can identify the characteristics and behaviors that correlate with customer success—and then optimize your product, marketing, and sales efforts accordingly.
Perhaps the most fundamental cohort metric, retention rate tracks what percentage of users from each acquisition cohort continue to use your product over time.
A typical retention curve might show that 80% of users remain active after one month, 70% after two months, and so on. By comparing retention curves across different cohorts, you can determine whether your product's stickiness is improving or deteriorating over time.
Beyond just user retention, tracking how much revenue each cohort generates over time provides insights into your monetization effectiveness. Revenue retention consists of:
According to OpenView Partners' 2023 SaaS Benchmarks Report, top-performing SaaS companies maintain net revenue retention above 120%, meaning they generate 20% more revenue from existing cohorts year over year through upsells and expansions.
How long does it take for a cohort to generate enough revenue to cover its acquisition cost? This metric helps you understand your cash flow dynamics and the efficiency of your growth engine.
Tracking which features cohorts adopt, and in what sequence, can reveal the product elements that drive long-term retention. This insight is invaluable for product development prioritization.
The appropriate analysis period depends on your business model:
While time-based cohorts (grouped by signup date) are most common, consider other grouping factors that might yield insights:
Cohort analysis produces rich datasets that are often best understood visually. Heat maps, in particular, are effective for spotting patterns across multiple cohorts.
Several specialized tools can simplify this process:
Cohort analysis should be an ongoing practice, not a one-time exercise. Establish a regular cadence for reviewing cohort data:
The real value of cohort analysis comes from the actions it informs. Here are examples of how leading SaaS companies have leveraged cohort insights:
Dropbox discovered through cohort analysis that users who uploaded at least one file in their first day had significantly higher retention rates, leading them to redesign their onboarding to emphasize this activation event.
HubSpot identified that customers who used specific integrations had 30% higher retention rates, which prompted increased investment in their platform ecosystem strategy.
Slack used cohort analysis to determine that teams reaching the threshold of 2,000 messages had much higher retention rates, helping them define their key activation metric.
Newer cohorts haven't had time to mature, so their data doesn't tell the full story. Always include older cohorts in your analysis to understand long-term patterns.
Cohorts acquired during different seasons may exhibit different behaviors. For instance, customers acquired during a major industry conference might have different characteristics than those who sign up during typical periods.
The wealth of data from cohort analysis can sometimes lead to indecision. Focus on identifying the most impactful insights and translate them into clear action items.
Cohort analysis provides the longitudinal perspective needed to truly understand your customers' journey and your business's health. For SaaS executives, it transforms decision-making from reactive to proactive by revealing not just what is happening, but why it's happening and what's likely to happen next.
As you implement cohort analysis in your organization, start with the basics: track retention and revenue metrics by signup cohort. As your analysis capabilities mature, expand to segment-based cohorts and more advanced metrics.
Remember that the goal isn't simply to collect data—it's to uncover actionable insights that drive tangible improvements in product development, customer success, marketing, and ultimately, your bottom line.
With systematic cohort analysis as part of your analytics toolkit, you'll be equipped to make more informed strategic decisions, optimize your growth levers, and build stronger, more sustainable customer relationships in an increasingly competitive SaaS marketplace.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.