Cohort Analysis – Why It’s Vital To Your Biz

There’s something about the word ‘cohort’ that seems to put people off. Kinda like when we see ‘Monkfish’ or ‘Flounder’ or “Mackerel” on a menu. Never order those fish, even though they’re probably quite tasty. Just something about the name!

So don’t let the word bug you, cohorts can be dee-lish for your business. Over here at Dasheroo HQ we’re hooked on them!

First, what is a ‘cohort’? Well, a cohort is a grouping of people (leads, customers, www visitors, etc.) who share a common behavior over a specific period of time. Think ‘people with their first order from my website in April 2014’, or ‘people who signed up for my email newsletter in March 2014’. You get it. That, my friend, is a ‘cohort’.

Now, how & why do you perform cohort analysis? You look at cohort analysis because it allows you to break down activity on a periodic basis, say monthly. Then you can put leads or buyers or web visitors, or any other segment that’s important to you, into those buckets and measure their behavior over time. Let’s use the cohort analysis below as an example:

Cohort Analysis of people signed up for a fish of the month club

Cohort Analysis of people signed up for The Fish ‘O The Month Club

In this example, of the people who first signed up for the (fictional) Fish ‘O The Month Club in January, only 20% stayed active in the following month (see ‘a’). Doesn’t sound like a great retention rate! But look! Maybe these clever folks at FOTMC learned something – see the improving retention rates in this cohort (see ‘b’): Just a  few months later they are retaining over 1/2 the folks the next month. Maybe they switched from sending Flounder as the first shipment to sending Halibut or Salmon?!

As you can see, it’s not just Month 2 that is important, it’s the subsequent months as well, of course. And you also need to consider any seasonal or offer based changes too when reviewing your cohorts.

Looking at your KPIs in this way allows you to separate growth metrics – “hey, look at all the new FOTMC (yes, Fish ‘O The Month Club) members we are getting” – from engagement metrics “hey look how much better our sources of customer acquisition are now!”

Both growth & engagement metrics are important, but if you aren’t measuring engagement, your biz is at risk of sleeping with the fishes!

You can pull these numbers yourself and put them into an XLS, or use great services like KissMetrics or RJMetrics which offer scads of cohort and other reporting tools as part of their service.

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