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Cohort Analysis

What is the Cohort Analysis?

In the SaaS world, Cohort Analysis represents organized and structured data split into cohorts based on common attributes of your customers. These kinds of cohorts give you a clear picture of your customer. 

Instead of looking at every single one individually, which is time-consuming and impractical, analysis allows you to classify them. In other words, every customer inside one cohort has at least one common characteristic with everyone else inside the same cohort. 

MRR Churn rate, MRR cohort, SaaS customer retention rate, or any other useful SaaS metrics that you would like to know and compare among your customers across a certain period of time is possible thanks to this analysis.

Therefore, the usefulness of analyzing cohorts for SaaS is extremely important for the future of your company. By comparing cohorts you can spot changes over time and can predict next steps. Additionally, analysis of these sorts gives you precious time to act accordingly and avoid any potential losses.

  • Cohort analysis for SaaS gives you useful insights into how well is your product performing 

How to utilize cohort analysis for your SaaS business

To extract valuable information from cohort analysis, you need to distinguish specified variables.

First- What do you want to know about them? There is an ocean of information where one can be easily lost if you are not sure what exactly you are looking for. Customer retention rate, MMR, customer churn rate, or something else?

Track that variable across various customers in the same cohort and then look at the pattern. What characteristics do churned customers have? With the presented data, you can easily form an educated opinion.

Now, after all these, you need to act. Implement your guess in the business decisions and observe the changes. Leave things for the same if your parameters got better or change your opinion and try something else. 

So the path to a successful implementation of cohort analysis looks like this:

  • Research data → Act → Observe → Conclusion

How does a cohort analysis work in practice

Let’s say you developed an app and now you wish to leverage a cross-platform app promotion. This means you want to promote the app on both platforms (iOS and Android) for maximum exposure. But you definitely want to know which one is more profitable, so that you can put more focus, energy, and money towards that particular platform. 

This is where cohort analysis comes in handy. Define the time framework from which you want to count your revenue. Let’s say the defined time period is two months. Now all you need is to collect data about average revenue per user (ARPU) for both Android and iOS customers.

If the number of customers is equally divided among platforms then all that matters is which customers are more likely to download your app. Those are the ones with higher ARPU, hence higher profit. For example, you know that android customers are one with higher ARPU so the next step would be to act. Adjust your marketing budget so that more goes to the promotion of the Android version of your app.

Then next two months observe the results and see if you are gaining more with your newly-adopted marketing strategy.

Conclusion

In order for you to succeed in the SaaS world, you have to utilize insights that the cohort report is able to provide. With the SaaS customer cohort analysis, the goal is to increase the retention rate, lifetime value of customers, and ARPU. All of that is only possible if you are able to properly understand and act in a timely manner.