Cohort analysis is mandatory for improving customer retention. Cohort analysis reports are useful to make perfect decisions. With this, it is possible to avoid customer churn and improve business growth. The challenging part is to hold your customers stick around your product for a while.
In order to do this, implement customer retention strategies. One of the basic, and important steps to reduce customer churn is to analyze the problem. Hence, there is a necessity for cohort analysis to diagnose such issues.
What is Cohort Analysis?
A cohort is defined as a group of people who have similar characteristics. Cohort analysis is useful to track user engagement over a specific period of time. Cohorts help you understand whether user engagement is enhancing growth or not. Cohort analysis or customer churn analysis is necessary to differentiate between user engagement metrics and growth metrics.
Cohort analysis is the only answer to the following questions:
- Who is using the product?
- Why are they not showing interest in your product?
- When are they bouncing from your product?
Different types of Cohort Analysis
- Acquisition Cohorts
- Behavioural Cohorts
Acquisition Cohorts
These types of cohorts are mainly based on when a customer requests for a free demo/sample of your service/product or started using your app. You can track it on a daily or monthly basis. It differs from one app/product to another.
With the help of monthly acquisition cohorts, it is possible to track subscriptions. Furthermore, acquisition cohorts will help in understanding customer churn and finding ideas to improve it. These cohorts can help you study customers Lifetime Value, average churn time, and other necessary data related to retaining customers.
Behavioual Cohorts
Behavioural cohorts are defined on the basis of the behaviors of the visitors within the time frame. This is not the same for all products.
With these cohorts, you are able to define:
- A particular behavior of the visitor
- Time duration
Behavioral cohorts are really useful for understanding how customers behave with your product, this in turn helps in retaining customers.
Why Customer Cohort Analysis is required?
Customer cohort analysis is necessary to detect the probability of growth. This analysis is beneficial to identify customer churn rates for a particular time period.
Some major benefits of Executing a Cohort Analysis are:
- Identifying behaviors, product features, and modifications that work well for users
- Predicting the behavior of users
- Using current as a reference for upcoming plans
- Ensuring that marketing activities, and strategies are data-driven
- Preparing data-oriented sales pipelines
These details are very useful in increasing customer retention.
Use the following formula to calculate customer retention rate:
Customer Retention Rate = {(E-N)/S} * 100
Where E = Total number of customers within a specific time period
N = Total number of customers integrated with a product in that time
S = Total number of customers to start with
This formula is useful to take necessary actions that will boost Customer Retention Rate.
Top Benefits of boosting Customer Retention Rate
Following benefits, you will get if you increase CRR:
- Increase ROI
- Build strong customer relationships
- Enhance marketing strategies
- Invest less money on customer retention
- Discover which customer acquisition channels are offering customers higher retention rates.
It has a very common metric that informs that your product is still usable, valuable, and feasible.
5 tips to Use Cohort Analysis in Marketing to enhance Customer Retention
Cohort analysis in marketing helps businesses detect how, why, and what time users purchase products and why they start visiting your site. This data explains what works well for repeated customers.
You can rely on the below-mentioned ways to enhance customer retention:
- You can identify what drives customer retention via various categories like promotions, purchases, and coupons. Data like how promotional offers work will help in preparing a perfect marketing strategy.
- With cohort analysis, you can set pre-defined guides for future behavior.
- The added advantage of cohort analysis is, you will become an expert in identifying when is the best time to send the upcoming mail to users or encourage them to repurchase. These insights explain users who are planning to churn.
- Always ensure that your product is grabbing the attraction of users. Cohorts enable you to manage what forces users to look into the product. This in turn helps you determine which users like your product/service and why others dislike it.
- Marketing cohort analysis reports provide a clear idea of which campaigns are successful. With the help of such insights, you can target other users, and minimize marketing activities. This is the same as A/B testing.
Metrics to Check for when Executing Cohort Analysis
Repeat Rate: The share of repeated customers vs the new visitors in a cohort.
Orders per customer: If you have more repeated purchasers, they can make more orders.
Customer Lifetime Value (CLV): Estimates customer loyalty in money investment.
Average Order Value (AOV): Highlights differences in the money spending habits among cohorts.
Importance of Cohort Analysis in eCommerce
Almost all eCommerce companies make use of cohort analysis techniques to find out which products match with frequent purchases and high lifetime value.
This analysis is mainly useful to:
Plan a perfect and high conversion funnel that takes first-time customers from the awareness stage to a frequently visiting, and loyal customer status.
Difference between Cohort Analysis and Churn Analysis
These two are related to each other, but they are different. Cohort analysis discovers similar features of users so that message communication can happen in a better way. Churn analysis helps in analysing what forced customers to leave the product or app.
Customer churn is due to two major reasons either they are not happy with your product/app or could be interested in your app/product but not ready to pay the shipping fee. Hence, customers find an alternative option with better offers.
Don’t worry about customer churn, face it! Understand your audience, and their behaviour to keep your competition ahead. Cohort analysis for retention in a business is a goldmine of data, which enhances your marketing automation. It enhances retention and avoids further churn by providing you an opportunity to experiment with your marketing campaigns and find out what works well for you.
Author Bio:
Senior SEO Specialist at Express Analytics. Has experience in SEO, Social Media, Blogging, Online Reputation Management, Google Ads, and YouTube Video Optimization.
