How To Calculate Annual Recurring Revenue Cohort Analysis in SAP ERP | Arithmix

Annual Recurring Revenue (ARR) Cohort Analysis is a powerful tool that can help businesses understand their revenue streams over time. By analyzing customer cohorts, businesses can identify trends and patterns in customer behavior, which can inform strategic decisions and drive growth. In this article, we will explore what ARR Cohort Analysis is, when it is valuable to calculate, and how to perform the analysis.

What Is Annual Recurring Revenue Cohort Analysis?

Annual Recurring Revenue Cohort Analysis is a method of analyzing revenue streams over time by grouping customers into cohorts based on the time they became customers. By tracking the revenue generated by each cohort over time, businesses can identify trends in customer behavior and revenue growth. This analysis can help businesses understand the impact of changes in customer acquisition and retention strategies, as well as changes in pricing or product offerings.

For example, a software company may use ARR Cohort Analysis to track the revenue generated by customers who signed up for their product in Q1 of 2020. By comparing the revenue generated by this cohort to the revenue generated by customers who signed up in Q2 of 2020, the company can identify whether their revenue growth is driven by new customer acquisition or by increased revenue from existing customers.

When Is It Valuable To Calculate Annual Recurring Revenue Cohort Analysis?

ARR Cohort Analysis can be valuable for any business that relies on recurring revenue streams, such as subscription-based businesses or businesses with long-term contracts. By understanding the behavior of customer cohorts over time, businesses can make informed decisions about customer acquisition and retention strategies, pricing, and product offerings.

For example, a subscription-based business may use ARR Cohort Analysis to identify the most profitable customer segments and adjust their marketing and sales strategies accordingly. By targeting the most profitable cohorts, the business can increase revenue and profitability over time.

How to Perform Annual Recurring Revenue Cohort Analysis

To perform ARR Cohort Analysis, businesses need to track the revenue generated by each cohort over time. This can be done using a spreadsheet or specialized software. The following steps can be used to perform ARR Cohort Analysis:

1. Identify the cohorts: Group customers into cohorts based on the time they became customers.
2. Calculate the revenue generated by each cohort: Calculate the total revenue generated by each cohort over time.
3. Calculate the revenue retention rate: Calculate the percentage of revenue retained by each cohort over time.
4. Identify trends: Analyze the data to identify trends in customer behavior and revenue growth.
5. Make strategic decisions: Use the insights gained from the analysis to inform strategic decisions about customer acquisition and retention strategies, pricing, and product offerings.

By following these steps, businesses can gain valuable insights into their revenue streams and make informed decisions about how to grow and optimize their business over time.

How Do You Calculate Annual Recurring Revenue Cohort Analysis in SAP ERP

SAP ERP itself isn’t naturally geared towards letting you calculate complex metrics like Annual Recurring Revenue Cohort Analysis. As an alternative, teams typically use products like Arithmix to import data from SAP ERP and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like SAP ERP, combine it with data from other systems, and create calculations like Annual Recurring Revenue Cohort Analysis.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Annual Recurring Revenue Cohort Analysis in Arithmix

Calculating metrics like Annual Recurring Revenue Cohort Analysis is simple in Arithmix. Once you've created your free account, you’ll be able to import your SAP ERP data, and use it to create natural language formulas for metrics like Annual Recurring Revenue Cohort Analysis.

Arithmix is designed to give you the power to build any calculations you want on top of your SAP ERP data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.