Any B2B or B2C marketer would be aware of the data-driven concept called cohort analysis. Who are the first responders to my latest marketing campaign? Which customers make the most number of repeat purchases? These are just some of the marketing-related questions that are answered by cohort analysis. In short, cohort analysis for marketing agency can indicate whether customers love or dislike your product.
Using B2B cohort analysis, digital marketers can start adapting their marketing messages and campaigns based on the insights gained from customer data. Additionally, they can customize their marketing activities and strategies for a specific target audience.
In the remaining sections of this article, we shall look at cohort analytics and its role in modern-day marketing.
What is Cohort Analysis?
By definition, cohort analysis is the mechanism of analyzing the activities (or habits) of a group of users (with shared characteristics) over a specific period of time. Examples of cohorts in marketing could include:
- The number of returning customers to a smartphone app in the second week after its launch.
- Acquired customers over a period of six months after a successful marketing campaign.
- The average income of graduating students (in 2015) over the last five years.
Additionally, cohorts could include grouping customers according to a common characteristic (example, age group, gender, device used, or purchase month).
What is the role of cohort analysis for marketing or advertising agency? Be it B2B or B2C marketing, cohort analysis can help in:
Converting sales leads
Using cohort analysis, marketers can group sales leads based on the marketing medium or campaign that got them interested in the business. Sales leads that positively respond to the same inbound marketing method in a selected day (or week) can be considered for cohort analysis.
For example, a digital marketing agency, Kissmetrics enabled B2B marketers to classify sales leads on the basis of the social media platform used for customer-business interaction.
Predicting future purchases
Cohort analysis can be used to understand and predict purchasing behaviors among consumers. How long does an average consumer continue to make repeat purchases? Or what is the average time between consecutive purchases?
For instance, an online clothing company, Spearmint LOVE used cohort analysis to understand purchasing trends among expecting and new mothers. Based on this insight, the company could predict the consumer’s next purchase and accordingly personalize their marketing message. The result was a nearly 1000% year-on-year growth for the company between 2015 and 2016.
Next, we shall look at some of the business benefits of cohort analysis for marketing and how to use it to grow business ROI.
Cohort Analysis & ROI
In today’s competitive digital environment, any business investment into cohort analysis tools is only justified by the business revenues and ROI that it generates. Fortunately for marketers, there are many ways to calculate cohort data and apply it to assess marketing goals.
For example, the above chart shows the results of user acquisition based on the type of marketing campaigns. While this visualization chart clearly shows the dominance of television campaigns over other mediums, the following chart displays the figures for post-acquisition by cohort analysis (example, user activity over a 12-month period after registration).
With such use cases, effective cohort analysis is useful in providing marketing insights that can help in improving campaigns along with a higher ROI.
Apart from generating higher ROI, cohort analysis has business benefits that go beyond marketing. For example, in sales, cohort analysis is used to measure individual performances of sales executives, or to spot trends in customer deals over a month or quarter. Cohort analysis can also be used in customer retention by grouping cohorts by the sign-up date and their activities over the next 12 months.
In the next section, we shall see how to read cohort analysis data using some key metrics.
5 Key Metrics Of Cohort Analysis
What are the Cohort Analysis key metrics that are crucial for any marketing agency? Here are 5 of the common metrics:
User retention metric
Among the key metrics for measuring returning customers, this metric is crucial for any marketing function looking to increase their incoming traffic and maintain a constant flow of repeat purchasers.
The user retention metric shows the percentage of returning cohorts on subsequent days as compared to the first visit.
User action metrics
This is a collection of metrics that depicts the average number of actions performed by each cohort member. A few of these metrics include goal completion, page views, or transactions. With these metrics, the business can evaluate the user actions that contributed the most towards fulfilling your business goals.
For example, the “per-user revenue” metric as shown below.
As an alternative to the “per user” model, user actions can also be measured as a cumulative total (for all users) for each of the above measures including goal completion, page views, or revenue.
Customer value metrics
This is another set of cohort analysis metrics that can measure customer value and determine if your marketing efforts are catering to customers at different “lifecycle” stages. For example, in eCommerce marketing, the most valuable customers are identified as the customers active for six months after the initial acquisition.
Additionally, metrics like the “customer lifetime value” (or LTV) can be used in cohort analysis to determine if there is a significant drop in user retention after the initial phase. Besides this, you can determine customer value on the basis of, for instance, the number of free trial users as compared to paid users on any website.
Marketing channel metrics
For cohort analysis, these sets of metrics are useful in determining which social media or marketing channels are driving the desired results. For example, you could segment your users based on how they came to your business (social media marketing, campaigns, or keywords).
Similarly, you could create cohorts on the basis of the marketing channels that are generating the most “one-time” purchases (or subscriptions) or a high number of repeat customers.
Customer engagement metrics
Finally, cohort analysis complements well with customer engagement metrics like average session time and frequency of visits. Digital marketers can measure the impact of a new marketing campaign or discount program on customer engagement.
For instance, you can measure if posting a new blog post every Friday results in higher engagement (including sign-ups or even website visits).
Future Trends In Cohort Analysis For Marketing Agency
With the continued business focus on customer retention, cohort analysis for any marketing agency offers a strategic plan for businesses to focus on specific cohorts. One such future trend is the growth of precision marketing with cohorts. Based on their individual interests and preferences, companies can communicate their message directly to the cohort. For example, a company selling kitchen accessories could build their precision marketing strategy specifically for housewives in middle-class families.
In summary, cohort analysis in marketing enables any business to understand the common and shared customer traits that are influencing purchases. Through insights from cohort analysis, companies can improve or personalize their product offering for the better.
With its emphasis on data-driven marketing, Countants is the right technology partner for any marketing agency. The company’s expertise in cloud analytics and data visualization is boosting global marketing through technology tools in business intelligence and marketing dashboards. If you are looking to maximize your returns from marketing data through cohort analysis, contact us today with your business details.