Cohort analysis is the analysis of the behavior of a particular group of customers over time. Cohorts are unchanging groups, e.g., no new customers join a cohort once formed, and customers cannot move from one cohort to another. The most common type of cohort is the group of people who became customers in a particular time frame, e.g., the second week of the month of January, or the fourth quarter of the year. Also known as “static pool analysis,” cohort analysis looks at how these specific, fixed customer groups behave over time and how they move along the curve of the customer lifecycle.
Customer LTV Excel Calculator Template
How do Marketers use Cohort Analysis?
Cohort analysis is useful to identify trends within customer behavior that may be hidden when looking at more general analytics data. For example, overall analytics data may indicate an increasing number of monthly purchases, a very positive sign for the business. However, cohort analysis can reveal that, in fact, the higher overall percentage is due to many first-time buyers, while cohorts of older customers are actually returning to make purchases much less frequently than in the past. Thus, by following the behavior of particular cohorts over time, a more accurate view of business performance is possible.
Likewise, when the company experiences a “bad month,” it is critical to understand if the unexpected performance drop was due to a market-wide factor (e.g., a quiet summer month) or to a specific problem that might be identified and adjusted. For example, if it is discovered that most new customers in a particular month spent much less than the customers acquired in previous months, it would be wise to examine any changes in acquisition strategy (e.g., traffic sources) and identify under-performers.
Advanced Cohort Analysis
As was illustrated in the above examples, most cohort analysis performed today looks at groups of people who became customers in a particular time period. The specification and tracking of more sophisticated cohorts, however, can lead to far deeper insight into customer behavior trends.
A more advanced use of cohort analysis is tracking the longer-term impact of a particular marketing action on the group of customers who were treated with that marketing action. Take, for example, a group of 5,000 customers who received a 20% discount coupon code by email. A sophisticated marketer will want to track the behavior of these 5,000 over 3-6 months, instead of just measuring the immediate response rate to the offer. By creating a cohort of this customer group and tracking its behavior (spending patterns, churn rate, etc.) over time, the marketer can achieve much deeper insight into the long-term effects of a particular marketing action.
Another advanced use of cohort analysis is combining cohort analysis with behavior-based customer micro-segmentation. A gaming website, for example, might define a cohort of VIPs (high spenders) who spent more than 75% of their money on Bingo over the past six months and who joined the site in January. Spotting trends among very specific groups of customers often yields insights of tremendous value to customer acquisition, uplift marketing and customer retention.
Customer Lifetime Value Excel Calculator
Download this Excel-based template for a fast and easy method to calculate your customers’ lifetime value.
Survival Rates and Cohort Analysis
Survival rates help marketers understand the percentage of users who remain customers over time. You can use cohort analysis to compare the survival rates of multiple cohorts to understand which segments are performing better. Comparing the survival rates of cohorts allows marketers to determine the best action to retain more customers and engage different market segments.
Optimove’s Next-Generation Cohort Analysis
Optimove combines cohort analysis with multi-dimensional behavioral-based dynamic segmentation to achieve highly sophisticated customer tracking and customer analytics. The resulting customer insight and marketing action optimization can revolutionize the way marketers and retention experts ply their craft.
Frequently Asked Questions
How does Optimove calculate customer lifetime value?
Optimove’s customer LTV forecasting technology combines two technologies:
Continual dynamic micro-segmentation – intelligently and automatically segments the entire customer base into a hierarchical structure of ever-smaller behavioral-demographic segments. This segmentation is dynamic and updated continually based on changes in the data.
Predictive behavior modeling – this mathematically intensive modeling is based on the fact that the behavior patterns of individual customers frequently change.
By merging the most exacting micro-segmentation available anywhere with a deep understanding of how customers move from one micro-segment to another over time—including the ability to predict those moves before they occur—an unprecedented degree of accuracy in customer LTV forecasting is attainable.
Does Optimove implement predictive analytics?
Absolutely! Optimove’s predictive behavior modeling applies mathematical, statistical and machine learning techniques to transactional, behavioral and demographic data in order to predict future customer behavior and value, including churn prediction, reactivation propensity, conversion likelihood and future value. Optimove maintains a sophisticated customer model, based on LTV forecasting and predictive micro-segmentation, that allows marketers to tailor their customer messaging and offers to individual customer personas. It also provides exciting new methods with which to explore the customer database, in order to find insights and opportunities marketers would not be able to find in any other way.
Start Using the Most Advanced Cohort Analysis Available Today!
Contact us today – or request a Web demo – to learn how you can use Optimove to perform advanced cohort analysis and easily maximize the impact of every marketing action in order to convert more customers, increase the spend of existing customers and reduce customer churn.
Get a Personalized Tour of Optimove
Let us show you how to go from tens to hundreds of segments