Cohort Analysis: WTF is it and how do you read it?

📈 What is cohort analysis?

Cohort analysis is a fancy word and chart that helps you break down all of your customers or subscribers into groups that look alike in certain characteristics so you can see what impact they are having on your business.

The cohort analysis is just one subset chart and tool used in the overall business intelligence community.  Pretty much every business intelligence dashboard (paid or unpaid) will give you access to a cohort chart for you to analysis your customer groups.

We use Profitwell and absolutely love them.  And not just because they are free.  There UI and mission statement is far better than the paid services such as ChartMogul, etc we feel.  Their CEO and Co-Founder Patrick is putting out some great content lately.

What does a Cohort Analysis chart 👓look like?

Typically it is an upside down triangle that is used to show behavior over time in customer groups.  It can be used to examine all sorts of data but it is typically used to illustrate churn more than any other data set.

cohort analysis

At AccelerList.com and MerchLab.io we use cohort analysis to come up with unique ideas to address churn issues we may have.

Oh, and by the way…you will have churn issues. 🤬  99% of all businesses, especially SaaS businesses have churn issues.  It’s how you address that churn that will be crucial for the longevity of your online business.

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Our cohort analysis chart…

Just like in any chart you look at, you want to see as much green as possible.

Our cohort analysis chart for AccelerList looks bloody red like a nice Ruth’s steak but we’re ok with that for now because there is some context to the situation that we’ll explain later in this article.

BTW, make sure “context” isn’t really just “excuses.”

If you lie to yourself and it is then you’ll never make it in your business.

You’re never losing if you’re always learning. Apply what you learn. Adapt and overcome.

Negative Cohort Analysis

  • The chart is too fucking red and we’re only retaining 30% of our subscribers 12 months after they sign up
  • We’re losing them early on in the life cycle at month 4; that’s too early
  • Some months are better in overall annual retention than other which means we have inconsistent processes around churn prevention

Positive Cohort Analysis

  • Jeff and I never created a SaaS application before and just creating one was a good first step so mistakes were bound to happen
  • We improved Month 3 retention from 30% to 72% which is huge
  • We’re seeing a lot more yellow and longer strings of green recently which marks improvement
  • Our customers sell on Amazon one day and quit the next so a lot of this churn is due to the specific niche we are in

cohort analysis