
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 customer behavior over time is no longer optional—it's essential for sustainable growth. While traditional metrics like monthly recurring revenue (MRR) and customer acquisition cost (CAC) provide valuable snapshots, they often fail to reveal how different customer segments perform throughout their lifecycle. This is where cohort analysis becomes invaluable.
Cohort analysis groups customers who share common characteristics or experiences within the same time period and tracks their behavior over time. For SaaS executives, this analytical approach provides crucial insights that can inform product development, pricing strategies, retention efforts, and ultimately drive business growth.
At its core, cohort analysis is a behavioral analytics methodology that segments users into related groups (cohorts) and observes how these groups change over time. In SaaS, cohorts are typically formed based on acquisition date—customers who subscribed during the same month or quarter.
Unlike aggregate metrics that blend all customer data together, cohort analysis preserves the integrity of distinct customer segments, allowing you to compare how different groups behave throughout their customer journey.
1. Acquisition Cohorts: Groups customers based on when they first subscribed to your service. This helps track how retention, engagement, and monetization evolve with product improvements over time.
2. Behavioral Cohorts: Segments users based on actions they've taken (or not taken) within your product. For instance, you might analyze users who have completed onboarding versus those who abandoned it.
3. Segment-Based Cohorts: Categorizes customers based on demographic or firmographic data like industry, company size, or pricing tier.
According to Bain & Company, increasing customer retention by just 5% can increase profits by 25% to 95%. Cohort analysis lets you visualize retention curves for different customer segments, helping you identify:
By comparing engagement metrics across cohorts, you can determine whether your product is genuinely solving customer problems. As venture capitalist Sean Ellis suggests, a product has achieved product-market fit when at least 40% of users would be "very disappointed" if they could no longer use it. Cohort analysis helps you track progress toward this benchmark.
Cohort analysis illuminates which acquisition channels bring in your highest-value customers. According to a ProfitWell study, companies that regularly conduct cohort analysis achieve 30% higher customer lifetime value on average compared to those that don't.
Different pricing tiers or packaging strategies can be evaluated by comparing cohorts of customers who joined under various models. This helps optimize your monetization approach and identify opportunities for expansion revenue.
Historical cohort performance provides a data-backed foundation for projecting future revenue. According to OpenView Partners' SaaS Benchmarks Report, companies that implement cohort-based forecasting improve prediction accuracy by up to 25%.
Implementing cohort analysis requires a structured approach. Here's how to get started:
Begin by clarifying what specific questions you want cohort analysis to answer:
Choose how to group your customers based on your objectives:
Common cohort metrics for SaaS include:
Retention Rate: The percentage of users from the original cohort who remain active in subsequent periods.
Churn Rate: The percentage of users who cancel their subscription within a specific timeframe.
Lifetime Value (LTV): The total revenue a customer generates before churning.
Expansion Revenue: Additional revenue generated from existing customers through upsells, cross-sells, and add-ons.
Customer Acquisition Cost (CAC) Payback Period: How long it takes to recover the cost of acquiring a customer.
The standard format for cohort analysis is a table with:
Convert your cohort tables into visual formats that make patterns immediately apparent:
Look for insights such as:
Improvements in newer cohorts: Do customers acquired more recently retain better than older cohorts? This could validate recent product improvements.
Seasonal patterns: Do customers who sign up during certain times of year (e.g., Q4) behave differently?
Critical drop-off points: Is there a specific month when most customers tend to churn?
A B2B SaaS company noticed that customer retention rates were declining. Through cohort analysis, they discovered that customers who completed their full onboarding sequence had 60% better 6-month retention than those who didn't.
The company redesigned their onboarding process to be more engaging and implemented automated follow-ups for users who hadn't completed key setup steps. Six months later, onboarding completion rates had improved by 35%, and new customer cohorts showed a 25% improvement in retention.
A marketing automation platform used cohort analysis to compare the performance of customers across different pricing tiers. They discovered that mid-tier customers had the highest retention rates and lifetime value, while enterprise customers cost more to acquire and support than they generated in lifetime value.
Based on these insights, the company adjusted their enterprise pricing and support model, resulting in a 40% improvement in enterprise customer profitability within two quarters.
Drawing conclusions too quickly: New cohorts need time to mature before making definitive comparisons.
Ignoring seasonality: Customers acquired during different seasons may behave differently for reasons unrelated to your product.
Analysis paralysis: Start with basic retention cohorts before adding complexity.
Failing to act on insights: The value of cohort analysis comes from the actions it informs, not the analysis itself.
For SaaS executives, cohort analysis represents one of the most powerful tools for understanding the health of your business beyond surface-level metrics. By revealing how different customer segments behave throughout their lifecycle, cohort analysis enables more informed decision-making about product development, marketing strategies, and customer success initiatives.
As the SaaS industry becomes increasingly competitive, the companies that thrive will be those that deeply understand their customers' journeys. Cohort analysis is not just a retrospective analytical tool—it's a forward-looking compass that guides strategic decision-making and sustainable growth.
Start by implementing basic retention cohort analysis, then gradually expand to more sophisticated approaches as your team becomes comfortable with the methodology. The insights you uncover will likely challenge some of your assumptions about your business while validating others, ultimately leading to more customer-centric decisions and improved business outcomes.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.