Cohorted Retention groups customers by sign-up period (cohorts) and tracks how they retain over time.

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Formula
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Example: The January 2023 cohort's Month 3 NDR is equal to the ARR from the Jan 2023 cohort in April 2023 / ARR from the Jan 2023 cohort in Jan 2023.You can also look at the weighted average retention of all cohorts at a certain age, such as month 12.

Example: Weighted Average 12 Month NDR is equal to the ARR from all cohorts at least 12 months old in month 12 / the original ARR from all cohorts at least 12 months old.

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Retention by cohort is important because it allows you to see how customers behave at specifics points in the customer journey. Since many SaaS companies sell annual contracts, looking at retention at months 12, 24, 36, etc. helps show how renewals impact retention. When projecting how new customers will behave, cohorted retention helps show what they have done historically. For example, you may notice your customers have early expansion followed by flattening out, early churn that levels out after a few months, etc. Reading cohorted retention charts diagonally can also reveal what happened at a specific point in time, versus a specific cohort age.