How to interpret cohort analysis
In order to understand how to interpret cohort analysis, you have to realize that the time on the cohort table is passing in two directions. From left to right – as each cohort progresses with its life. From top to the bottom – with each new cohort being added at the bottom.
This means two things:
- You would expect younger cohorts to perform better compared to the older once. As time passes, hopefully, you improve the service you provide. It becomes more mature. You sell to customers that are a better fit for your product.
- You would expect a cohort to stabilize as more months pass. Hopefully, once customers have adopted your product, they will stay with it for longer and will not churn at such a high rate as at the beginning of the lifecycle.
Here is how we can apply this to churn cohorts:
Using cohort analysis to understand MRR churn
You can use quite a few different metrics as a value for your cohort. MRR is a very good example. By calculating the MRR retention rate for each cohort you can easily understand not only where you lose the most of your money but also if you manage to grow revenue over the lifespan of the specific cohort.
Let’s take a look at the example below:
You can see that in younger cohorts, specifically Feb 2020, Mar 2020, Apr 2020 our company managed to cover all MRR churn by expanding existing customers’ MRR. Thus achieving +100% MRR retention. These cohorts have more MRR in Month 2-4 than in Month 0. This is a great sign that you are doing something right and can expand your existing customer base.
Alex Co-Founder @ Probe