By Ankit Garg
Small and medium businesses often struggle with the time and bandwidth for analytics. As a result, they may be unable to get in-depth analysis from their data. Add to this, the difficulty of vanity metrics translating into actionable decisions and an entrepreneur can get further bogged down into the quicksand of arid numbers. In case something similar is bugging your business as well, perhaps it is time to look at cohort analysis. This type of analysis this digs deeper into your data and helps draw insights useful for meeting sales, marketing and customer service goals.
What is Cohort?
At its simplest, cohort is a group whose members have common traits. The word goes back to ancient Rome where it referred to a unit of soldiers within the Roman army. Later in general usage cohort took on the meaning of an ally or supporter.
In the context of business analytics, cohort refers to a subset of users grouped by shared characteristics during a particular time. Some of these common traits could be:
- highest or lowest tier customers in your business
- Customers who signed up with your service or product during a specific month
- visitors converted to customers as the result of a marketing campaign
- Customers who bought your product after a specific launch
- Customers who have been buying your product before that launch
- Customers who use or avoid using a specific feature on your app
- Users favouring a device like phone, laptop or platform like internet or app to reach you online.
What is Cohort Analysis?
Businesses make use of different types of behavioural analytics to understand what potential customers want, what influences buying decisions and how to retain customer base. Cohort analysis is one type of behavioural analytics which arranges users and customers into groups based on their common behavioural traits during a specific time. Companies adept at cohort analysis can help you arrive at insights into patterns across a user’s buying cycle, thus leading to actionable information situations. For example, cohort analysis would come up with certain traits of users who visit your website the first time so that you know what more to do to create a favourable first impression on such potential customers.
Eventually cohort analysis will help you compare the metrics and behaviour of different cohorts – or sub-sets of users/consumers – over time. Thus, you will be able to identify the highest or lowest buying cohorts in your business and look for reasons driving such behaviour.
How Cohort Analysis is Useful?
But then how is cohort analysis more effective at drawing insights than the suite of traditional business analytics. Generally, the latter scans huge amounts of data compiled from the behaviour of the entire lot of users and customers at any one point of time. But the important thing to note here is that these users and customers exist at different stages of their customer cycle. Thus, comparing the actions of long-time and new customers at the same time may lead to irrelevant and even inaccurate insights. Most of the times, the result is a whole lot of noise created by other data in which useful micro trends cannot be identified. More importantly since new and old customers behave differently, comparing their actions may lead to misleading interpretations further leading to waste of time and resources for the business.
Cohort analysis avoids these pitfalls since they focus on the behaviours of users or customers sharing common traits in a specific time. Thus, when you know what the biggest concerns of your first-time customers are or how to attract long-time customers, you can streamline your marketing campaigns with minimum waste of time and resources. At the end of the day, the main goal of an effective marketing campaign is to find out which strategies are working, which are not and how to use this feedback to redesign your marketing approach. And by highlighting the impact of a certain marketing strategy on specific groups marked by time, cohort analysis does that most effectively.
What You Can Test with Cohort Analysis
Using cohort analysis, you can test a variety of business characteristics to see what needs more work to expand customer base. You can put in motion a time-bound campaign and use cohort analytics to test:
- marketing channel of your business
- the target audience of your website
- its landing page design
- new products and offerings
- sales, promotional offerings and discounts
While any business analysis tool will compare the metrics for reach, engagement and conversion across varied marketing campaign, cohort analysis will focus on groups specified by time. This in turn will help you spot which aspects of the campaign actually added value to your business and what needs to be done more.
Who Can Use It?
Cohort analysis can be used by a wide spectrum of businesses – ranging from SaaS or ecommerce companies and marketing agencies to companies just interested in bettering their user experience. Saas companies might want to separate and analyze users based on their in-app behaviours to identify how their distinct habits impact critical metrics like retention and churn rates.
Likewise, for ecommerce companies, cohort analysis would help to identify which promotional offerings caused which customer groups to buy more, thereby better understanding factors that impact revenue stream. Ultimately all companies would benefit from improving the customer life time value of specific cohorts so that they can expand their high value customer segment – something that cohort analysis does most effectively.
How to Use Cohort Analysis
Cohort Analytics is present in the Google Analytics suite of business tools and according to some experts, is one of its most underrated features. However, you can also go for other Business Informatics tools and service providers like Thanksforthehelp which can employ cohort analysis to draw insights into user and customer behaviour and thus visualize the effectiveness of your digital marketing campaigns to meet your ultimate business goals.
Ankit Garg is a serial entrepreneur, having built and sold couple of online businesses. Currently he is busy building TFTH – The Help Platform for College Students. He is also aiming for an early retirement and blogs his FIRE journey at 60to45.