Cohort Analysis

Cohort analysis is one of the leading analytics tools for marketers. Let's find out what it is, how to conduct it, and why businesses need it.

What is Cohort Analysis?

Before discussing cohort analysis, it's worth understanding what a cohort is and how it differs from a target audience segment. A cohort is a group of people who have performed a certain action (meet specific characteristics) in a certain period of time. For example, these can be users who visited the website in March of this year and left a request, asked for a callback, placed an order, etc.

At the same time, a segment is a group of people with certain characteristics regardless of time. For example, the segment of customers who came to the site through contextual advertising or social media.

Accordingly, cohort analysis means conducting analytics by cohorts that include customers with certain characteristics.

Why Cohort Analysis is Useful

Conducting a cohort analysis allows you to adjust the company's marketing strategy correctly, for example:

• redistribute the advertisement budget for the most profitable channels and campaigns; to do this, you need to analyze advertising conversions for different periods and calculate ROI and ROMI;
• еvaluate the A/B testing results when updating webpages design, CTAs, or subscription forms – discover how conversion has changed over time, not just after the update;
• analyze the effectiveness of updates in mobile applications — see how the activity in the app has changed after the update;
• understand whether it is necessary to connect a new promotion channel;
• see the season's impact on sales and adjust your actions at the peak and the trough;
• increase website conversion by working out all the weak points and emphasizing the strong ones;
• іdentify the most loyal customers and develop methods to retain them by comparing retention and repeat purchase rates for different cohorts;
• рredict and increase the customers' lifetime value – see what actions led to visitors making repeat purchases;
• reduce customer churn and their switching to competitors, analyze how long it takes for users to start visiting the site and making purchases less frequently, and, for example, send an email with a promo code to this segment, offer to join a bonus program, etc.

When to Conduct a Cohort Analysis 

Cohort analysis is most relevant for businesses that sell their goods or services online, for SaaS, and niches where even one customer can bring significant revenue to the company.

Cohort analysis should be conducted as part of a marketing strategy effectiveness overall assessment, as well as in cases where:

• there was a sharp customer outflow and a significant decrease in their lifecycle;
• the average check size decreased, and the number of upsells and cross-sells fell;
• the usual methods of promotion do not bring the same results, and you need to identify a priority traffic source;
• you need to understand what kind of advertising is the most effective and allocate your marketing budget correctly;
• you need to create a customer profile to optimize your USP and increase sales;
• you need to track users' transition from a trial version of the product to a paid tariff (relevant for optimizing the sales cycle in the SaaS industry).

Please note: for cohort analysis to be as accurate and reliable as possible, it is important to collect customer data correctly for further cohort creation.

The omnichannel CDP Yespo will help to combine customer data from different systems. By the way, the functionality of our system allows you to perform cohort analysis without using other platforms. To do this, we integrate with your CRM, collect and transmit data on user actions on the website using web tracking, and combine online and offline purchases.

How to Split Your Customer Base into Cohorts

Suppose you need to conduct a marketing analysis, and you’ve decided to divide the customer base into cohorts rather than segments. To form cohorts, you need to:

1. Select a characteristic that will be used to classify customers into the relevant cohort, such as first visit to the website or registration, ordering, etc.
2. Define the period for which the cohort will be formed, such as a specific date, week, or month.
3. Decide how long you will analyze the cohorts.
4. Establish a key indicator, such as average check size, ROI, or LTV, to measure the effectiveness of a particular cohort.

Let's say that a person came to your website from social media in September, ordered a manager's consultation in October, and placed an order in November, becoming a real customer. During the cohort analysis, this person can be included in three cohorts at once:

• people who came to the website from social media in September;
• people who received a consultation in October;
• people who made an order in November. 

Cohort Analysis and Yespo

In Yespo, you can easily customize reactivation emails for a specific segment of your customer base, which will help you retain customers for a longer period of time.

With the right approach, cohort analysis will become your indispensable marketing tool. Consider the priorities and specifics of your business when you divide customers into cohorts, and evaluate the analysis results in conjunction with other research. In this case, it will be as realistic and understandable as possible.