SaaS Cohort Analysis

When it comes to combating customer churn, cohort analysis is a must for SaaS companies. It is one of the tools you can rely on to find and fix the causes of churn, which is one of the most common reasons for SaaS company failure. In this guide, you will learn what cohort analysis is, why it is important for your SaaS business, and how you can use it to grow your product by combating churn and increasing customer retention.

What Is a Cohort Analysis?

Cohort analysis is a type of behavioral analytics that helps you see what a subset of your users (a "cohort") is doing within your tool. The metric you typically measure with cohort analysis for SaaS is user churn — the moment when some users stop using your product and leave. For this reason, it can also be referred to as "customer churn analysis."

The two most common types of cohort analysis are:

• Acquisition cohort: This captures a user segment based on when they signed up for your product.
• Behavioral cohort: This categorizes a cohort based on their behavior when using your product.

How long does an average user stay with your product, and at what point do they churn? Which segment of your users (e.g., by persona, by plan, etc.) is most affected by churn? Cohort analysis is performed using a cohort database.

Why Is Cohort Analysis Important for SaaS?

A successful SaaS product is defined by one important characteristic: longevity. If your product's users disappear from your radar before reaching their maximum customer lifetime value (CLV), you need to know why. By examining when users churn and how the churn rate changes as a new cohort signs up for your product, you can determine whether your product and marketing strategies are working or not.

Cohort analysis helps you with the following tasks:

• Understand how long it takes for an average user of your product to become dissatisfied and leave.
• Recognize whether your product is used on an ongoing basis or only once.
• Find out whether the changes you make to your onboarding for new users are affecting your first-month retention rates.
• Determine whether the changes you have made to your product (e.g., new products, new product line, new offering), your UX, or your marketing strategy have had a positive or negative impact on your product.
• Improve your customer retention goals.