Cohort analysis

Cohort analysis consists of grouping customers by their entry date, for example the month of their first purchase, then tracking each group's behaviour over time. Rather than reasoning on a global average that mixes old and recent customers, it isolates each cohort's trajectory: revenue generated, retention rate and evolution of spending over the months.

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This reading is valuable for subscription and SaaS (Software as a Service) models, because it reveals the true quality of the customer base behind the aggregates. A cohort whose revenue rises over time signals a NRR (Net Revenue Retention) above 100% and a product that retains; a cohort that erodes quickly reflects a high Churn Rate that growth in new sales may mask for a while.

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Concretely, the cohort of customers acquired in January generates 100,000 CHF of revenue in the first month, then 108,000 CHF twelve months later: a net retention above 100% that reflects a loyal base, whereas a cohort fallen to 80,000 CHF would signal worrying attrition.

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In financial due diligence, cohort analysis distinguishes healthy growth, carried by a loyal base, from fragile growth resting on the continuous acquisition of volatile customers. It thus directly informs the valuation multiple a buyer will agree to retain.