burn your churn: understanding cohorts, customer segmentation and ltv

Burn Your Churn Using Cohorts RYAN KOONCE, CEO SAAS MANAGEMENT GROUP

WWW.SAASMGMT.COM

@Kissmetrics

#KissWebinar

@thuelmadsen

Thue is the Kissmetrics Webinar Wizard and Marketing Ops Manager. Before joining forces with Kissmetrics, he was a Lyft driver in SF, which is also how he ended up as a Kissmetrics marketer. Whenever Thue is not trying to

automate everything around him, you can find him hiking in the Sierras.

THUE MADSEN Marketing Operations Manager, Kissmetrics

@ThueLMadsen

Before founding SaaS Management, Ryan created a number of data-driven testing methods that helped him

build multi-million user companies.

RYAN KOONCE CEO, SaaS Management Group (SMG)

ryan@saasmgmt.com

ryan@saasmgmt.com

#KissWebinar

@ryankoonce

1 Section One - Introduction

What’s the difference between a Cohort and Segmentation?

Cohort examples

Comparing Cohorts for better insight

Churn

Segmenting Cohorts to better understand Churn

2 Section Two - Understanding Cohorts

3 Section Three - Determining your “True LTV”

TABLE OF CONTENTS

WATCH WEBINAR RECORDING NOW

A cohort is a group of people banded together or treated as a group.

A segment is the division of something into separate

parts or sections.GENERALLY WE WILL SEGMENT A COHORT

Cohort Example

SUPPOSE WE HAVE A CHICKEN HATCHERY…

We will create cohorts of chicks by the month they hatched.

Then we can look at things like:

How long did it take them to get a certain size? How much do they eat?

What is their mortality rate?

January February March

THEN WE CAN SEGMENT EACH COHORT…

This could tell us things like:

Chicks born in Jan that eat a certain type of feed have a higher mortality rate; or

Chicks born in January that have blue eggs grew 2x faster; or

Cohorts by birth month are the wrong measurement!

Gender Color of Egg Type of Feed

But wait… You’re not a farmer?

NON-FARMING COHORT EXAMPLE

Suppose we have a website/app that sells subscription access to instructional videos.

We want to answer a couple common business questions: • What is my revenue per subscriber? • Which is my most profitable channel? • What type of user behavior (engagement) is likely to predict retention? • What type of user behavior is likely a precursor to churn? • Who are my most valuable users? What are they worth?

COHORT BY SUBSCRIPTION MONTH

Jan Feb Mar

Jan 10 8 6

Feb 10 8

Mar 14

Total 10 18 28

Of the 10 people that subscribed up in January, 8 were still subscribed in February and 6 were still subscribed in March.

REVENUE BY COHORT @ $10 PER SUBSCRIPTION

Jan Feb Mar

Jan $100 $80 $60

Feb $100 $80

Mar $140

Total $100 $180 $280

While you generated $280 of revenue in March, only 21% was from users that subscribed in March!

IF YOU WEREN’T USING COHORTS

Jan Feb Mar

Subscribers 10 18 28

Revenue $100 $180 $280

But 34 people subscribed between January and March. Why do we only have 28 now? What happened to them?

Churn is losing customers through cancellations.

SUBSCRIBERS AND CANCELLATIONS (CHURN)

Jan Feb MarJan 10 8 6Feb 10 8Mar 14Total 10 18 28

Jan Feb MarJan 0 2 2Feb 0 2Mar 0Total 0 2 4

Subscriptions Cancellations

Total New Subscriptions 34

Total Cancellations 6

SEGMENT YOUR COHORTS TO BETTER UNDERSTAND CHURN

In our example, we’ll call video views “engagement”. You could also get fancy and add other vectors like logins and video views etc. but lets

keep it simple.

Did the number of videos viewed have something to do with churn?

Jan Feb MarJan 10 8 6Feb 10 8Mar 14Total 10 18 28

There are 6 subscribers in March that signed up in the Jan cohort.

SEGMENT YOUR COHORTS TO BETTER UNDERSTAND CHURN

Zero 1x 2-5x 6-10x < 10x

0 0 0 2 4

Videos Viewed

Date Range: March Cohort: January

Of the people that were still subscribed in March from the Jan cohort (6 people):

NONE of the users viewed < 6 videos. ⅔ viewed >10

SEGMENT YOUR COHORTS TO BETTER UNDERSTAND CHURN

What’s the activity of users that churned?

There are 4 subscribers in March that were not still subscribed from the Jan cohort.

Jan Feb MarJan 0 2 2Feb 0 2Mar 0Total 0 2 4

SEGMENT YOUR COHORTS TO BETTER UNDERSTAND CHURN

Zero 1x 2-5x 6-10x < 10x

1 3 0 0 0

Videos Viewed

Date Range: March Cohort: January

Of the people that were not subscribed in March from the Jan cohort (4 people):

None of the users that churned viewed more than one video!

If a user does not view at least 6 videos, they have a high likelihood to churn.

Watch that number! FIGURE OUT A WAY TO GET THEM ENGAGED!

You can use cohorting for lots of things!

COHORTING ATTRIBUTION

You an use cohorts in your attribution model to see the effectiveness over time (and LTV) from your advertising channels.

Not accounting for specific attribution models, for a fixed date range:

Visits Conversions RevenueFacebook 5000 500 $50Adwords 5302 530 $52

Bing 5829 574 $57Total 16,111 1604 $159

COHORTING EMAIL

If you send an email today, you’ll get half of your clicks from that email today, but an equal number over the next 30 days. Use a cohort to find out revenue by send date (rather than revenue per day).

Sent Opens Clicks Revenue11/1 5000 500 50 $5011/2 5302 530 53 $5211/3 5829 574 52 $57Total 16,111 1604 155 $159

The total sent is fixed, but the rest of the data “bakes” over time.

Defining Your Cohorts

DEFINING YOUR COHORTS

How you define your cohorts depends on your type of business.

You can define your cohorts any number of ways: • First Time Purchasers • Trial Start Month • Subscription Start Month • Subscription Cancellation Month • Cancelled Users

Use cohorts to get “True LTV”

CALCULATING “TRUE” LTV

There are lots of formulas you can use to calculate LTV. Or you can see your REAL LTV by cohort.

Jan Feb MarJan $100 $80 $60 $240Feb $100 $80 $180Mar $140 $140Total $100 $180 $280

2013 2014 2015 Total2013 $50k $20k $10k $80k2014 $75k $60k $135k2015 $100k $100kTotal $50k $95k $170k

LEARN MORE NOW

Discover how Kissmetrics can help you optimize your marketing

THANKS!

RYAN KOONCE CEO, SaaS Management Group

@saasmgmt

ryan@saasmgmt.com

THUE MADSEN Marketing Operations Manager, Kissmetrics

@ThueLMadsen

tmadsen@kissmetrics.com

Questions?