Marketing Blueprint - Layered Cake Chart

What is a Layered Cake Chart?

Imagine a cake with many layers, each one representing revenue from different cohorts of customers. In a Layered Cake Chart, each "layer" of the chart corresponds to a cohort—a group of customers who started using your service in a specific year, such as 2021. By plotting these cohorts on a graph, you can see how each one contributes to your business revenue year by year.

As the years progress, you add a new layer for each new cohort. The result is a chart that resembles a layered cake, hence the name. This layered view helps you visualize revenue growth, retention, and potential weaknesses in your customer base. Let’s look at what you can learn from this visualization.

The Story Behind the Layers

Each layer in your chart represents a story about how well your business retains and grows customer revenue. Here’s what each layer can reveal:

1. Upsells and Cross-Sells: If the line for a cohort rises over time, it’s a positive signal. This means you’re successfully increasing the revenue generated by that group through upsells (upgrading the service tier) and cross-sells (adding complementary products). For instance, if a company started with a small subscription plan and eventually moved to your premium offering, that’s an upsell.

2. Churn and Downsells: If the line trends downward, it’s a warning sign. This drop may indicate churn (customers leaving) or downsells (customers moving to a lower-priced plan). A downward trend suggests that the business isn’t capturing or retaining the full value of its customer base over time.

3. Stability and Predictability: A stable or slightly rising line indicates predictable, reliable revenue from a particular cohort, showing strong customer retention and satisfaction. This kind of stability is especially desirable in SaaS, where recurring revenue is the backbone of growth.

Creating the Chart: How to Build a Layered Cake

To create a Layered Cake Chart, start by following these steps:

1. Define Your Cohorts: Group your customers by the year they started using your product. Each cohort will be represented as a separate layer.

2. Track Revenue Contributions Over Time: For each cohort, track the revenue they contribute each year. This includes renewals, upsells, cross-sells, and any other income generated from this cohort. If you’re using a SaaS analytics platform, it likely offers tools to help gather this data automatically.

3. Plot Each Cohort: Start with your oldest cohort and plot it on the chart, showing revenue for each year. Stack each subsequent cohort on top to form the layers.

4. Analyze the Trends: Now comes the interpretation. Look at how each cohort performs over time and pay close attention to any trends in upsell, churn, or stability.

Interpreting Your Layered Cake

Once your Layered Cake Chart is complete, what should you look for? Here are some patterns and insights that can inform your business strategy:

• Upward Slope: When cohort lines slope upward, you’re seeing success in upselling and cross-selling. A consistently upward trend is a great indicator that your customer base is finding increased value in your products over time, which supports long-term growth.

• Flat Lines: Flat lines are neither good nor bad—they indicate that customers are sticking around but not significantly increasing their spending. This suggests a stable customer base, but one that may need more incentive to adopt additional products or services.

• Downward Slopes: Downward trends indicate a need for improvement. If customers are downgrading or leaving altogether, investigate whether the issue lies with the product, service, pricing, or customer engagement strategy.

Optimizing Based on Your Chart

Once you understand your Layered Cake Chart, it’s time to take action. Here’s how you can apply these insights to improve business health:

• Enhance Customer Success Programs: If you notice churn in a particular cohort, reach out to understand why. Adjust your onboarding, support, and ongoing success strategies to address the needs of these customers.

• Strengthen Upsell and Cross-Sell Efforts: For cohorts that show little growth over time, consider ways to increase their spending by introducing relevant new features or offering tailored service tiers that better fit their evolving needs.

• Improve Product Fit and User Experience: If churn or flatlining revenue is widespread, it may be a sign that your product isn’t fully addressing customer needs. Survey customers and analyze user data to understand where improvements can be made.

• Forecast with Greater Accuracy: Use your Layered Cake Chart to create more accurate revenue forecasts. By understanding past cohort behavior, you can make more informed predictions about future growth and retention.

The Layered Cake in Action: Example Case

Let’s imagine a SaaS company with a customer cohort that signed up in 2021. In their first year, this cohort generated $500,000 in revenue. In 2022, the revenue from this group increased to $550,000, indicating successful upsells or cross-sells. By 2023, revenue from this cohort remained stable at $550,000, signaling a well-retained customer base, though without significant growth.

In contrast, the 2020 cohort, which started at $450,000, dropped to $400,000 by the second year and further to $350,000 the next year. This downward trend shows churn and downsells, indicating an issue that requires investigation—perhaps through customer feedback or service improvements.

By layering these cohorts, the SaaS company can clearly see where they’re succeeding and where they need to adjust strategy.

Final Thoughts

A Layered Cake Chart is more than just a graph; it’s a tool for uncovering deep insights into customer behavior and revenue trends over time. In SaaS, where recurring revenue is critical, understanding these layers can mean the difference between stagnation and growth.

So, next time you’re analyzing your SaaS business’s health, consider building a Layered Cake Chart to reveal the bigger picture. You’ll be equipped to make data-driven decisions that support long-term success.

Stay tuned for the next concept on Marketing Blueprint!

Julien Rio.