Revenue Retention Analysis: Other Types of Cohorts

This blog post is part of a series of posts that serve as a step-by-step guide on conducting a revenue retention analysis from start to finish. Beyond the insights you will gain, conducting the analysis will be helpful for most expansion stage companies hoping to raise expansion capital. Many venture capital firms will perform this analysis at some point during the due diligence process. Presenting this data upfront will save them time and likely impress their management teams with your “metrics-driven approach” to management.

My last few posts have discussed the trends and patterns that you should look for in time period-based cohorts, and the business benefits you stand to gain from analyzing them. In this series of posts, I’ve explained how to create cohorts of customers that have signed up in a certain time period (month, quarter, or year), and analyze their behavior over time. It is important to note, though, that cohorts do not have to be time-period based. Instead, cohorts can be based on a certain product, product version, customer size, customer segment, customer bill amount, etc.

For example, if you want to find out which of the company’s products has the best revenue retention, you can create cohorts based on the different products the company offers and figure out which product has the highest retention rate, allowing the company to better distribute sales and marketing spend between products. Similarly, if you create cohorts based on customer segment, you will be able to discover which segment has the best revenue retention, which will allow the company to focus its sales and marketing efforts on a particular market segment. This is important to understand, as analyzing the revenue retention of customer cohorts that are based on segments, products, product versions, etc., can yield even more valuable insights than analyzing time-period based cohorts can, since these insights can guide product road map direction, sales and marketing spend allocation, etc.