Understand how many customers continue to be active over time
Mesure the impact of your customer engagement activities
Increase customer retention
What’s this? How does it benefit your business?
Cohort analysis is one of the most powerful tools to assess whether your SaaS business is going to thrive or not. But, first, let’s explain what a cohort is.
Simply put, a cohort is a group of users who share the same characteristic. This characteristic is typically the date or month they signed up for your product. But it can be anything else. For example, you can divide users into cohorts based on the type of plan they have.
For now, let’s focus on cohorts of users who signed up for your product at the same time. These are called acquisition cohorts. Once you have divided your users into acquisition cohorts, you can analyze the standard behavior of each cohort. The ultimate goal is to see which cohort tends to churn off the most, so you can identify the reasons and, of course, try to stop them from churning off.
In an acquisition cohort analysis report, you literally see how long your user cohorts have been using your product. Let’s say it’s August and you want to review your cohort report before your summer holidays. You’ve decided to break down your cohorts by month, so you can see that the cohort that signed up in February has been using your product for six months.
The cohort that signed up in May has been using it for two months, and so on. You can make sense of it easily even if it’s terribly hot outside, right? ;)
You notice that most users churn off during the first month, which makes you think that there could be something wrong with your onboarding process. Maybe the email sequence you created to welcome your users and show them around is not enough to make them understand how to use your product and achieve their goals.
You can then reduce your churn rate by implementing a more thorough onboarding process, with in-app tutorials, product tours, videos, and so on.
Instead, if you see that most users tend to churn off after a longer period of time, the reason is probably different. Probably, there is more of a long-term problem. Maybe you tend to attract customers who are not really qualified, your customer support needs improvement, or your product tends to be buggy.
In any case, analyzing data allows you to discover the real reason for your customer churn, which is the only way you can take action to reduce it. Without a deep understanding of your acquisition cohorts, you’d just go endlessly through this cycle:
Spend money on advertising to attract new customers;
Win new customers;
Lose said customers;
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