Cohort Analysis for SaaS

One of the SaaS measurements tools that I don’t think is mentioned enough is that of running a cohort analysis (Wikipedia) on customer data. The idea behind a cohort analysis is to track a group of data over time as an independent unit. With SaaS, the major areas to do cohort analysis are for churn and up sells. A common example would be as follows:

• Analyze customers as a group based on the month they sign (each customer signing month would a new row in the spreadsheet with the left most row being the name of the month and year)
• Look at the renewal rate and annual recurring revenue for that group for each subsequent month (each month after signing would be a new column to the right of the signing month in the spreadsheet with the column names being the number of months as a customer)
• Look for trends in over time (e.g. renewal rates significantly increase after the sixth month)

For more information, please see Fred Wilson’s post on cohort analysis.