Cohort Revenue Decay: Tracking Where Your MRR Actually Goes
Last updated: February 10, 2026
The dashboard showed $180,000 MRR and steady month-over-month growth. But when the CFO pulled the cohort analysis, a different story emerged. Customers acquired in Q1 were retaining at 94% monthly. Customers from Q3 were retaining at just 87%. That seven-point gap meant the Q3 cohort would generate 40% less lifetime revenue. Aggregate metrics were masking a serious acquisition quality problem.
Cohort analysis groups customers by when they signed up and tracks how their revenue changes over time. Each cohort starts with initial MRR that decays as customers churn or downgrade. The decay curve reveals whether your retention is improving, whether certain acquisition channels produce better customers, and how much runway older cohorts have before they fade out.
This visualizer lets you model multiple cohorts with different start dates, initial MRR, and retention rates. You see how each cohort decays over time, how they stack together to form total revenue, and what lifetime revenue each cohort will contribute.
How Cohort Revenue Decay Works
Revenue decay follows an exponential pattern. Each period, a cohort retains a fixed percentage of its previous period's revenue. The rest is lost to churn.
Decay formula:
Revenue at month N = Initial MRR × (Retention Rate)^N
| Month | 95% Retention | 90% Retention | 85% Retention |
|---|---|---|---|
| 0 (Start) | $10,000 | $10,000 | $10,000 |
| 6 | $7,351 | $5,314 | $3,771 |
| 12 | $5,404 | $2,824 | $1,422 |
| 24 | $2,920 | $797 | $202 |
A five-point retention difference (95% vs 90%) cuts cohort revenue nearly in half by month 12. By month 24, the gap is even more dramatic. Small retention improvements compound into massive lifetime value gains.
Retention Rate vs Revenue Decay Rate
Retention and decay are two sides of the same coin, but framing matters for how you think about the problem.
Retention Rate
The percentage of revenue kept from one period to the next. A 95% monthly retention rate means 5% of revenue churns each month. This is the metric you can influence through product improvements, customer success, and pricing strategy.
Revenue Decay Rate
The inverse view: how fast revenue disappears. A 5% monthly churn compounds to 46% annual revenue loss. Decay rate makes the urgency of churn reduction more visible than retention rate alone.
Annual Decay Conversion
Annual decay = 1 - (Monthly retention)^12. At 95% monthly retention, annual decay = 1 - 0.95^12 = 46%. At 97% monthly retention, annual decay drops to 31%. That two-point improvement saves 15% more revenue annually.
How Decay Affects Lifetime Value
Lifetime value per cohort is the sum of all revenue that cohort generates over time. Faster decay means lower LTV. Slower decay means the cohort keeps contributing for years.
Simplified LTV formula:
LTV = Initial MRR / (1 - Monthly Retention Rate)
At 95% retention: LTV = MRR / 0.05 = 20 months of revenue. At 90% retention: LTV = MRR / 0.10 = 10 months.
High retention cohorts
These are your most valuable customers. They often came from referrals, strong product-market fit channels, or enterprise sales. Identify what made them retain and replicate that in acquisition.
Low retention cohorts
These may have come from paid ads with weak targeting, promotions that attracted deal-seekers, or periods when onboarding was broken. Diagnose what went wrong and fix the root cause.
Cohort Metrics to Track Weekly
Aggregate MRR tells you where you are. Cohort metrics tell you where you are headed.
- Cohort retention at month 3. Early churn signals onboarding or product-market fit problems. If month-3 retention is below 80%, investigate the first-time user experience.
- Cohort retention at month 12. Annual retention shows whether customers integrate your product into their workflow. Below 50% annual retention is a warning sign for long-term viability.
- Newest cohort vs oldest cohort retention. Are newer cohorts retaining better or worse? Improving retention over time suggests product maturity. Declining retention suggests quality drift.
- Cohort contribution to total MRR. What percentage of MRR comes from cohorts older than 12 months? Healthy businesses have substantial revenue from mature cohorts, not just recent signups.
Worked Examples
Example 1: B2B Analytics Platform
Setup: Q1 cohort started with $45,000 MRR and 96% monthly retention. Q2 cohort started with $52,000 MRR but only 91% retention.
At month 12: Q1 cohort: $45,000 × 0.96^12 = $27,600. Q2 cohort: $52,000 × 0.91^12 = $17,100.
Insight: Despite Q2 starting 15% higher, it contributes 38% less revenue at month 12. The retention gap erased the acquisition advantage.
Example 2: Consumer Subscription App
Setup: Three cohorts with $20,000 initial MRR each. Organic cohort: 94% retention. Paid social cohort: 88% retention. Influencer campaign cohort: 82% retention.
Lifetime revenue (24 months): Organic: $310,000. Paid social: $215,000. Influencer: $158,000.
Decision: Organic acquisition costs more per customer but generates 2x the lifetime revenue. Shift budget toward organic growth and improve onboarding for paid channels.
Sources
For Educational Purposes Only - Not Financial Advice
This calculator provides estimates for informational and educational purposes only. It does not constitute financial, tax, investment, or legal advice. Results are based on the information you provide and current tax laws, which may change. Always consult with a qualified CPA, tax professional, or financial advisor for advice specific to your personal situation. Tax rates and limits shown should be verified with official IRS.gov sources.