Rayfe Gaspar-Asaoka (Canaan) & Evan Fitzgerald (Paubox) Earlier this month, Evan Fitzgerald and I met up with Rayfe Gaspar-Asaoka at Takahashi Market in San Mateo. It was my first time there and funny enough, Takahashi Market had more poi than most supermarkets back home in Hawaii.
For example, the Beretania Safeway only had four bags (I bought them all) when I was there last month. Earlier that week, Forbes named Rayfe to its 30 under 30 list for venture capital. Congratulations Rayfe, that's well-deserved recognition. We are acutely proud of you.
The last time I saw Rayfe for a meeting, he got me up to speed on Sales Efficiency and why it matters to Founders. This time around, the scope of our discussion was diving deeper into cohort analysis. See also: Brushing Up Our SaaS Metrics in Silicon Valley
What is cohort analysis and why is it important to founders?
David Skok is a leading voice in the SaaS world. He succinctly explains a cohort as: "A cohort is simply a fancy word for a group of customers. In the SaaS world, it is used typically to describe the group that joined in a particular month." Performing analysis on these cohorts yields the following benefits for SaaS founders:
- Improved customer retention
- Greater Lifetime Value (LTV)
- Adds context to data and helps reveal the story behind the numbers
- Enables founders to identify problematics areas of their business
- Gain better understanding of why, how, and when customers do certain things (i.e., churn, slip, buy more seats, buy additional products, etc)
- Enables founders to correlate performance with marketing campaigns, sales plans, pricing changes, and support policies (SLAs)
Here are my takeaways from our lunch:
- Support staff is part of Cost of Goods Sold (COGS)
- "I think you should explore it (Rayfe on Project Orca)."
- Average Contract Value (ACV) is more useful on a cohort basis
- Group cohorts by month, not by quarter. A quarter is too long
- Re: Cohort Analysis: "That's the world you're going to live in now." (Rayfe)
- "You're going to stall if you're not data-driven." (Rayfe)
- Cohort categories we are going to track:
- Annual Recurring Revenue (ARR)
- Number of customer logos
- Total Bookings
- Average Contract Value (ACV)
Useful articles on cohort analysis:
- SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters
- One Big Reason Your SaaS Business Needs Cohort Analysis
- SaaS Metrics Refresher #6: Cohort Analysis
- Cohort Analysis Explained for Your SaaS Business
- Know your user cohorts
- What is a Cohort Report and why is it important to a SaaS business?