Cohort retention analysis is a strategy aimed at improving retention and reducing customer attrition.
It involves looking at active users according to common characteristics. Each group of users with a certain characteristic is called a cohort. Analyzing user behavior within a cohort is the starting point of a strategy to reduce churn.
Customer retention is essential for the long-term stability of any SaaS company. It is a steep challenge to generate sustainable, consistent profits from new customer acquisition alone.
The hallmark of maturity of a SaaS company is passing the stage of the startup and reaching the stage of spending equal resources on getting new users (user acquisition) and keeping established users (user engagement).
What is Cohort Analysis?
Cohort analysis is a method of looking at segmented groups of your active users to determine targeted retention strategies. Typically, there are two types of cohorts: behavioral cohorts and acquisition cohorts.
Behavioral analysis groups users by activity within your product, where “Activity” is broadly defined. For a SaaS company, some behavioral metrics might include transactions, reports, or other activities users can perform.
The Baremetrics feature, segmentation, can do this directly for any Baremetrics users.
Acquisition analysis uses cohorts of users grouped by when they signed up for your service.
Cohort analysis is essential because it gives you more in-depth information about customer churn.
In periods of new user acquisition, you may only see steady revenue increase, and fail to notice the number of active users you are losing.
You may miss important indicators of customer dissatisfaction that will harm your company’s success in the long run when new user acquisition rates level off.
How Can You Use Behavioral Cohorts to Improve Retention?
Behavioral cohorts tell you what users do when they are engaged with your product.
This analysis can tell you what aspects of your product are most valuable to individuals so you can enhance and promote those areas. It also lets you know what people don’t use — maybe that’s because it’s an unnecessary feature, or just too difficult to use.
You can eliminate this feature or work on its functionality to improve customer satisfaction, but you can’t fix it if you don’t know it’s a problem to begin with, which is why behavioral analysis is so important.
Behavioral cohorts also tell you which users are still active and which aren’t using the product. Even if they maintain a paid subscription, if they’re not using a product it’s a big heads-up that cancellation is imminent.
Your sales team can be in touch with customers who are underutilizing the service to offer help and guidance with the tools, preventing customer drop-off.
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How Baremetrics Gives You the Necessary Tools
Baremetrics is committed to providing next-level data analysis tools for SaaS companies.
That includes a customer segmentation tool that allows you to group your users according to behavior.
Baremetrics helps you do a deep dive into customer retention metrics, so you know where to focus your engagement efforts.
Learn more about Baremetrics tools with a free trial.
Improving Cohort Retention for a Long-Term Growth Strategy
You can see the value of cohort analysis by reviewing a specific example. Take the cohort of all customers who signed up during a specific period.
You can track the retention rate over a timeframe, from acquisition date and onboarding to present-day or cancellation.
If you find you have a large attrition rate in the early days of the customer life cycle, there is something amiss with your product, the recommendations of your marketer, or something else.
Your marketing campaigns may have not targeted the right people, or the service is not fulfilling your clients’ needs. Cohort analysis can help you understand what’s going on.
If your team focuses only on increased revenue, they can miss the deep insights from different cohorts of customers who choose to leave.
Looking Closely at the Data for SaaS Companies
Baremetrics can help you get the job done with your cohort analysis. We have the tools you need to analyze user behavior and improve user experience.
This information not only helps you keep your current customers, but also improves conversion rates of first-time buyers as well.