Reading the Layer Cake Graph

What is the Layer Cake?

The Layer Cake breaks down your customers by the quarter that they were acquired. Each quarter creates a “layer” of revenue for your business and over time, the revenue that each cohort provides will change. How dramatically it drops off can be a big indicator of the health of your business.

How to Read the Layer Cake Graph

If you mouse over a line in the graph, you can see the month that is represented. In our example image below, the Kelly Green line represents Q3 2017. Mousing over the very beginning of the line shows that it starts with July 2017, or the first month of the 3rd quarter in 2017. As you move the mouse along the line, you’ll see the month change and the “peak” in the line is September 2017, the end of the 3rd quarter.

Reading the Layer Cake Graph

Each “layer” represents the start of a new cohort of acquired customers. The shaded areas under the lines show you how much revenue each cohort is contributing over time--since your business will always (we hope!) have a mixture of brand new customer purchases and returning customer purchases.

Reading the Layer Cake Graph - Q

Every business is going to have their layers shrink in size because everyone, except maybe Amazon, has customer attrition. Let’s outline a few example of how these graphs might vary based on your business model, product and customer lifecycle.

Type of business/product

Potential graph outcome

Monthly Subscription

May look similar to above, pending attrition rate the drop off after QoA (Quarter of Acquisition) would be steeper or less pronounced

Low Frequency Purchase (something seasonal; something high quality that doesn’t wear down; something a consumer tends to only need 1 of (i.e., a fan jersey of their favorite sports player)

This type of business would have a very steep drop off after the QoA. This could be alarming if the only method of growth is through new customer acquisition. Would recommend product line extensions to gain additional revenue from existing customers.

High Frequency Purchase

  1. You have a product that involves an initial purchase of a system and then customers purchase periodic refills
  2. A business with product breadth that has many different items consumers will buy for many occasions. Amazon would be the ultimate example.

In case #1, you would see a high peak at QoA followed by a drop off to a more steady state--pending the purchase frequency.

In case #2, Amazon would probably have a small drop in customer revenue because they sell so many different items, many use them as a 1-stop shop with high frequency.