What Is Cohort Analysis? Types, Benefits and Metrics

What Is a Cohort in Business?

A cohort is a group of users who share a common characteristic or experience within a defined time period.For example:

All customers who signed up in January 2023
Users who made their first purchase during the Black Friday sale
Subscribers who joined after a specific marketing campaign

👆 Fun fact: The term “cohort” comes from ancient Roman military units. In business, we’re not conquering empires, but we are battling for customer retention! 🛡️

Why Cohort Analysis Matters

Cohort analysis helps you:

Understand customer behavior over time
Identify trends and patterns in customer retention or churn
Measure the long-term value of customer acquisition efforts
Make data-driven decisions about product development and marketing strategies

Types of Cohort Analysis

Time-based cohorts: Grouped by when they became customers
Behavior-based cohorts: Grouped by actions they’ve taken
Size-based cohorts: Grouped by purchase amount or company size

How to Do Cohort Analysis

Follow these steps to conduct a cohort analysis:

Define your cohorts: Identify the shared characteristic or experience.
Choose metrics to measure: Examples include retention rate, revenue, or engagement.
Track these metrics over time: Analyze how each cohort performs over time.
Compare cohorts: Identify trends and actionable insights.

Metrics to Track in Cohort Analysis

Retention rate: Percentage of customers who continue using your product over time.
Churn rate: Percentage of customers who stop using your product.
Customer Lifetime Value (CLV): Revenue generated from a customer over their lifetime.
Average Revenue Per User (ARPU): Revenue generated per user on average.
Engagement metrics: Examples include login frequency and feature usage.

Benefits of Cohort Analysis

Accurate Customer Lifetime Value: Understand how value changes over time.
Product Improvement: Identify which features drive long-term retention.
Marketing Optimization: Determine which acquisition channels bring in the best customers.
Churn Prevention: Spot patterns in when and why customers typically leave.
Revenue Forecasting: Make more accurate predictions based on cohort behavior.

Tools for Cohort Analysis

Many analytics tools offer cohort analysis features, including:

Google Analytics: Basic cohort analysis features for web traffic.
Mixpanel: Advanced event-based tracking and cohort analysis.
Amplitude: Focused on product and user behavior analytics.
Tableau: Data visualization and analysis for custom cohort studies.
Custom SQL queries: For advanced users comfortable working directly with databases 🥷.

Cohort Analysis