What is Cohort Analysis? A Simple Guide for Beginners
If you run a service business—like a marketing agency, IT consultancy, or home repair company—you deal with clients who pay you over time. Some stick around for years, paying reliably. Others disappear after a few months. How do you figure out which groups of clients are worth your time and effort?
That's where cohort analysis comes in. It's a straightforward way to group your clients and track their behavior. No fancy math required—just a smart look at your data.
In this guide, we'll break it down for anyone new to the idea. We'll explain the basics, dive into two key metrics (GDR and NDR), and show why they matter for your business. Plus, we'll touch on how tools like CohortGenie can make this easy without spreadsheets.
Imagine sorting your clients like you sort your laundry: by when they "started" with you.
A cohort is simply a group of clients who first paid you around the same time. For example:
Why group them this way? Because it lets you see patterns. Do June clients pay more over time than July clients? Do they stick around longer?
Think of it like tracking a class of students: Who graduates (stays loyal)? Who drops out (churns)?
In your business, cohorts help answer: "Which starting months bring the best clients?"
If you're in services, your revenue isn't like a subscription box—predictable and automatic. It's from projects, retainers, or one-off jobs. Clients might pay big upfront, then trickle in (or stop).
Without cohorts, you might think: "Revenue is up 10%!" But really, it's from one lucky month of new clients, while old ones fade.
Cohort analysis fixes that. It shows:
For small businesses, 85% still use Excel for this—wasting hours. But with the right tool, it's automatic.
GDR is your "retention report card." It tells you how much of your original revenue from a cohort you still have after time passes.
"Month 0" is when the cohort started.
Let's say your June cohort (all clients who first paid in June) brought in $50,000 that month.
GDR = $40,000 ÷ $50,000 = 80%
You kept 80% of the original revenue. The other 20%? Maybe clients canceled, paid less, or stopped altogether.
Picture a table:
| Cohort Month | Month 0 | Month 1 | Month 6 |
|---|---|---|---|
| June 2024 | $50K | $48K | $40K |
If GDR dips below 80%, it's a red flag—time to investigate why.
For your agency: Low GDR might mean clients from a bad marketing campaign aren't renewing retainers.
NDR is like GDR's smarter sibling. It doesn't just show what you lost—it factors in gains from upsells.
NDR = (Original Revenue + Upsells - Downgrades - Lost Clients) ÷ Original RevenueStarting revenue: $50,000.
Total by Month 6: $45,000
NDR = $45,000 ÷ $50,000 = 90%
You ended up with 90% of the original—better than GDR's 80%, thanks to those upsells.
If NDR is over 100%, you're winning: Revenue grew from the same clients!
For your consultancy: High NDR means you're good at expanding contracts (e.g., adding strategy after initial setup).
| Metric | What It Shows | When to Use It |
|---|---|---|
| GDR | What you kept (ignores gains) | Spot pure losses |
| NDR | What you grew (includes upsells) | Measure overall health |
Tip: Track both in a cohort table (like a calendar of your business). If GDR is low but NDR is high, you're great at upsells—but fix the leaks!
Cohorts aren't just numbers—they're your business story.
For service businesses, this means less guesswork on who to chase and more focus on revenue that lasts.
CohortGenie pulls your QuickBooks data and does the work:
No learning curve. Just results.
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