As a business enterprise, which data is most valuable for your overall success? Your user or customer data. With the advent of analytics tools, it has become easy to derive meaningful insights from the huge volume of user data that is being generated. For example, you can use analytics to analyze user data generated from a marketing campaign or mobile app launch and evaluate the overall success of any online marketing initiative.

To acquire and retain customers, business enterprises are adopting behavioral analytics tools that provide business insights into consumer behavior on a variety of online platforms including E-commerce platforms, smartphone apps, and product websites.

What is the Cohort Analysis?

Cohort Analysis can be defined as a subset of behavioral analytics that analyses the behavior of customers (or users) over a specific period. Rather than categorizing all users and their activities as a single unit, it categorizes them into smaller groups based on their common experiences within a shorter time span. Examples of a group for cohort analysis include the average income of the Year 2010 graduating students for the next 5 years or Quarter-wise customer spending based on different referral sources.

Cohort Analysis is also based on evaluating the lifetime value (or LTV) of the customer, which determine their monetary value over the entire lifetime of their interactions with your business as opposed to just the pre-conversion period. For example, an analysis of the above chart diagram shows that customers with the Blog referral source deliver a high and consistent spending pattern in the long run, as compared to other referral sources, which shows a gradual dip in spending.

Similarly, E-commerce companies can perform a cohort analysis on the number of orders made by online shoppers (as shown above) depending on the promotional strategy that caused the product sale. This can enable them to understand the factors that influence their revenue streams.

How Cohort Analysis can benefit business enterprises

Cohort analysis can benefit a variety of companies including e-commerce or SaaS companies, product marketing companies, or any online company looking to provide better customer experiences. Some of these benefits include:

Improve your customer’s LTV

By focusing on the lifetime value of cohort groups, you can identify your most valuable customer group and direct your efforts into increasing your business value and acquire more potential customers. An accurate understanding of specific LTVs can enable you, as a business leader, to determine your budget spending on lead acquisition and customer retention initiatives.

Optimize your customer acquisition channels and marketing campaigns.

Cohort analysis enables you to identify the acquisition channels and marketing campaigns that have resulted in producing the best customers. Along with investing more resources on the most productive channels, cohort analysis can help you redesign the less productive channels for better performance in the future.

Evaluate customer engagement metrics

Rather than focusing on growth-based metrics for mobile apps (such as the total number of app downloads and daily active users on your online platform), cohort analysis helps to derive engagement metrics that are more useful in evaluating customer behavior. These can include metrics for grouping users (or devices) based on the date and time of the app installation or clicks. An example of engagement metrics using cohort analysis is daily users who have launched a mobile app for the first time and their frequency of revisiting the app over the next 10 days.

Summary

By analyzing customer behavior using a variety of business metrics over a longer period, cohort analysis is more accurate and less prone to short-term influences. For business enterprises, cohort analysis provides the benefits of better customer engagement with a long-term growth perspective.

Contact Countants to know more about Cohort Analysis and it’s benefits.