What is Cohort Analysis? Strategies to Boost Retention

Cohort analysis helps marketers track customer behavior by grouping users with shared characteristics. This blog highlights its benefits, offers a straightforward guide to get started, and shares relatable examples to enhance retention and drive growth.

Cohort analysis is a powerful tool for understanding user behavior and driving business growth. By using cohort analysis techniques businesses can uncover trends that lead to actionable insights by grouping users based on shared characteristics or behaviors and tracking their actions over time.

For example, an e-commerce platform might use cohort analysis to assess how users acquired through different marketing channels purchase over time. This will help optimize marketing spend and enhance customer acquisition strategies. Similarly, a subscription service can use cohort analysis to identify patterns in user retention, thereby pinpointing the most effective tactics for reducing churn.

However, cohort analysis is not without its challenges. The analysis may yield misleading results if the groups are too broad, too small, or not reflective of significant user behaviors. Hence, it’s important to define meaningful cohorts. Unlike RFM Analysis (Recency, Frequency, Monetary value), which segments users based on purchasing behavior and value, cohort analysis focuses on time-based trends. 

Cohort analysis provides valuable time-based perspectives. However, to get a more holistic view of user engagement it should be complemented by other segmentation methods, such as behavioral segmentation or psychographic segmentation. In this blog, we’ll dive deeper into the concept of cohort analysis, and why it is important for all marketers. 

What is Cohort Analysis?

Cohort analysis is the process of examining groups of users over time to observe how their behavior changes. It allows businesses to track how different cohorts perform over time, defined by their acquisition date or behavior. 

Cohorts can be analyzed at a global or segment level.  Often cohort analysis is most useful when comparing granular segments, assuming there is sufficient data to do so.

For instance, if you send out an email campaign to 1000 people, you might observe different buying patterns: some may purchase on Day 1, others on Day 2, and fewer on Day 3. Compare this with a new cohort sent the same email after a few weeks. It will enable you to identify how the timing of the email campaign affects purchasing decisions and gauge the long-term impact of your marketing efforts.

To illustrate the concept, here’s an example of cohort analysis. With this cohort chart, let’s track a daily cohort of users who launched an app for the first time and revisited it over the next 10 days.

• Initial Launch: On January 26, 1,358 users launched the app.
• Day 1 Retention: 31.1%
• Day 4 Retention: 16%
• Day 7 Retention: 12.9%

From this data, we observe that by the 7th day, only 1 in 8 users who launched the app on January 26 were still active. Only 27% remained on Day 1, out of 13,487 new users in this timeframe, whereas it decreased to 12.5% on Day 7, and 12.1% on Day 10.

Key Metrics Derived from Cohort Analysis:

1. Product Lifetime Metrics: This involves comparing different cohorts at the same stage in their lifecycle. In the cohort chart above, product lifetime metrics are depicted vertically down and provide insights into the percentage of people who are returning to the app after 1 day, 2 days, and so on. It enables you to assess the impact of onboarding experiences and customer success efforts. For instance, an early retention rate may reflect the quality of the onboarding process.
2. User Lifetime Metrics: This helps analyze the long-term engagement with people in any cohort. In the cohort chart above, user lifetime metrics are depicted horizontally across and provide insights into the value of different cohorts and how long people are returning to the app. This can highlight the effectiveness of the product, operations, and customer support in retaining users over time.

Using Cohort Analysis to Enhance Customer Retention

Customer Cohort Analysis is instrumental in tracking and improving user retention by observing behavioral changes over time. For example, if you send an email notification to 100 users, you might see varying purchase behaviors. Some may buy immediately, whereas others may take a few days. To compare the immediate response to the lag effect of the initial email, send another email to a different cohort after a few weeks.

Types of Cohorts 

Grouping users into different types of cohorts for further analysis can unlock valuable insights that can help you tailor your engagement and retention strategies effectively. Broadly speaking, users can be segregated into the following cohorts:

Acquisition Cohorts: These cohorts are based on when users first interacted with your product, such as by day, week, or month of sign-up. Analyzing these groups helps gauge how long users stay engaged from their initial start, highlighting trends and the impact of the onboarding process on retention.

Behavioral Cohorts: These are created based on specific user actions within a set period, like app installs, launches, or transactions. For example, you might group users who made a purchase within the first three days. This approach helps assess how different behaviors affect long-term engagement and retention.

Acquisition Cohorts: Identifying Key Drop-Off Points

Acquisition cohorts allow you to track user retention over time. This highlights when users are leaving your app. The retention curve plotted based on the chart above shows a sharp drop-off of around 75% after the first day. Moreover, a secondary decline occurs after Day 5, with retention falling to under 12%. By Day 10, only about 11% of the original users remain active.

This pattern suggests that users are not quickly reaching the app’s core value. So, this leads to significant drop-offs. To help users discover the app’s value faster which could help boost retention, focus on improving the onboarding experience. Acquisition cohort analysis is excellent for identifying when churn occurs. However, to understand the reasons behind the drop-offs, you need to look at behavioral cohorts.

Behavioral Cohorts: Understanding Why Users Leave

Behavioral cohorts provide insights into why users leave by grouping them based on specific actions or behaviors. Let’s examine two behavioral cohorts: users who completed a transaction and those who abandoned a cart.

• Users Who Did a Transaction: Out of 1,400 users, 43% performed a transaction on Day 1, but this drops to 13% by Day 2. There is a retention spike on Day 4 (25%). This suggests that the users might need additional engagement or reminders at this point to complete transactions.
• Users Who Abandoned a Cart: Of the 1,110 users, only 3.98% re-engaged on Day 1, followed by a further decline in the engagement rate to 1.71% on Day 2. While there is a minor uptick on Day 4, it is safe to say that the majority of users did not engage with the app after abandoning the cart on Day 1. This pattern suggests that abandoned cart users might need a different approach. This includes targeted offers or reminders, within the first few days to improve re-engagement rates.

Compare the two behavioral cohorts to identify critical moments for engagement. Then, develop strategies to reduce the churn rate, which may include timely retargeting campaigns and personalized incentives. 

Why Cohort Analysis Matters

Understanding the benefits of cohort analysis can help you leverage it to drive meaningful improvements in your business. When done right, it can provide actionable insights into user behavior that are critical for optimizing your strategies. 

For example, identifying why certain cohorts churn can lead to more targeted retention efforts. To refine your marketing and product strategies, analyze which cohorts are most engaged. Focus on these benefits to enhance customer experience, allocate resources more effectively, and ultimately drive growth.

• Reduce Churn: Cohort analysis helps identify when and why users leave your app by tracking retention rates over time. This insight allows you to address issues causing dissatisfaction, leading to targeted strategies to improve user retention.
• Improve Retention: Analyzing which cohorts stay engaged can guide enhancements to user experience. By understanding high-retention cohorts, you can replicate successful strategies and make data-driven improvements to keep more users.
• Optimize Acquisition Channels: Evaluate the effectiveness of different acquisition channels with cohort analysis. Focus resources on the channels that perform best, improving efficiency and results.
• Track Customer Journeys: Monitor cohort behavior over time to understand user interactions at different stages. This reveals opportunities to enhance their experience and optimize the customer journey.

How to Do a Cohort Analysis

Conducting a cohort analysis involves several steps that ensure you derive meaningful insights from your data. From setting clear goals to analyzing the results, each step plays a crucial role in making your cohort analysis effective. Follow these steps systematically to gain valuable insights. Make data-driven decisions that enhance your business strategies.

1. Set Goals

Begin by defining clear objectives for your cohort analysis. Define what you aim to achieve with your cohort analysis. Are you looking to boost retention, reduce churn, or understand user behavior better? Clear goals will guide your analysis and help you measure success. Setting specific goals will guide your analysis and help you focus on relevant metrics.

2. Determine Metrics

Identify the key metrics that align with your goals. Common metrics include retention rates, engagement levels, and conversion rates. Choose the right metrics to ensure that your analysis provides meaningful insights.

3. Define Cohorts

Group users based on relevant criteria, such as acquisition date or specific behaviors. Ensure that the cohorts are meaningful and representative of different user segments. Accurate cohort definitions are crucial for obtaining reliable insights.

4. Create Visuals

Visualizing cohort data can reveal trends and patterns more effectively than raw data. Use charts and graphs, such as retention curves, to illustrate how different cohorts perform over time. This makes it easier to identify significant changes and trends.

5. Analyze and Repeat

Regularly analyze the data to track changes and assess the impact of your strategies. Refine your cohorts and analysis methods continuously based on your findings to improve accuracy and relevance. 

How to Select the Right Tool for Cohort Analysis

Choosing the right tool for cohort analysis is crucial for gaining actionable insights. Look for a platform that offers flexibility, intuitive data visualization, and advanced analytics. Here’s what to keep in mind when evaluating your options:

1. Cohort Creation: The tool should allow you to define cohorts based on various criteria.
2. Data Visualization: An effective tool provides clear visualizations, like retention curves.
3. Usability: The tool should integrate easily with your systems and be user-friendly.

CleverTap is one such tool that offers these functionalities, helping you create and analyze cohorts, visualize data, and derive actionable insights.

How CleverTap Can Help with Cohort Analysis

When it comes to effective cohort analysis, selecting the right tool is crucial. CleverTap stands out as a comprehensive platform that provides all the necessary features to conduct insightful cohort analysis and enhance user engagement.

Here are the key capabilities that set CleverTap apart from other platforms:

1. Cohort Creation and Segmentation
   CleverTap enables you to easily create and manage cohorts based on various criteria, such as user behavior or specific actions. This flexibility allows you to segment users in ways that align with your business objectives, providing a clear view of how different groups interact with your app over time.
2. Advanced Data Visualization
   CleverTap offers sophisticated visualization tools, including retention curves, cohort tables, and heatmaps. These visualizations help you quickly identify trends and patterns in user behavior, making it easier to pinpoint issues and opportunities for improvement.
3. Actionable Campaign Creation
   With CleverTap, you can take action directly from the cohorts you create, instantly launching personalized campaigns without leaving the platform. This seamless integration saves time and allows you to immediately act on insights from your cohort analysis.
4. Integration and Automation
   CleverTap integrates seamlessly with your existing CRM and marketing systems, streamlining data management and analysis. Its automation features support the creation of trigger-based campaigns and personalized user interactions, enhancing the overall efficiency of your marketing efforts.
5. User-Friendly Interface
   The platform’s intuitive interface simplifies the process of setting up and executing cohort analyses. Its easy-to-use dashboards and reporting tools make it accessible to users of all experience levels, from beginners to advanced analysts.
6. Custom Reporting
   CleverTap allows you to generate customized reports that focus on the metrics most relevant to your business. This feature enables you to tailor insights and share them with your team, facilitating data-driven decision-making.

By leveraging these features, CleverTap empowers you to conduct detailed cohort analysis, uncover valuable insights, and drive strategies that boost user engagement and business growth. For a deeper dive into CleverTap’s customer data analytics capabilities, visit our Customer Data Analytics page.

Case Study: How BukuKas Improved New User Activation by 60% Using CleverTap

BukuKas was launched in December 2019 by Krishnan M Menon. It is an SME digitization startup offering a digital ledger app for Indonesian small businesses. The company serves nearly 2 million monthly users by helping them manage cash, inventory, and analytics. BukuKas is expanding its services to include digital payments and social commerce. Here’s how CleverTap helped BukaKas hit outstanding goals:

Goals For BukuKas

• Total Cost of Ownership (TCO) Reduction: Needed an integrated solution for product analytics, A/B testing, and CRM.
• Engagement Automation: Required automated and personalized engagement strategies.
• User Education: Needed to help users transition from physical ledgers to digital.

Solutions with CleverTap

• Funnels: Tracked user behavior from app launch to feature engagement.
• Product Experiences: Enabled A/B testing and rapid feature iteration.
• Cohort Analysis: Provided insights into user retention and engagement across different groups.
• RFM Analysis: Identified valuable and at-risk users for targeted retention efforts.

Results

• 60% Increase in Conversion Rates: Enhanced onboarding and engagement strategies.
• Streamlined Operations: Reduced complexity with an integrated platform.
• Improved Retention: Better understanding of user behavior through detailed analysis.

CleverTap’s cohort analysis offers powerful insights into user behavior, helping businesses track and compare engagement across different groups. This enables tailored strategies that improve user retention and drive growth.

Last Words

Cohort analysis is a powerful method for gaining insights into user behavior and making informed decisions that boost retention and drive growth. Whether you’re tracking acquisition patterns or analyzing user behaviors, the insights gained from cohort analysis will help your business thrive.

FAQs

What is cohort analysis?

Cohort analysis is the process of grouping users based on shared characteristics or behaviors to track their behavior over time.

How do I use cohort analysis?

You can use cohort analysis to monitor customer lifecycles, identify patterns, and optimize marketing strategies for better retention and growth.

How to perform a cohort analysis?

Start by defining your goals, identifying key metrics, segmenting users into cohorts, and analyzing the data to refine strategies.

Does CleverTap offer cohort analysis solutions?

Yes, CleverTap provides a cohort analysis tool that offers real-time, actionable insights to help marketers improve retention and engagement.

How to read a cohort analysis?

To read a cohort analysis, track how different groups behave over time. Look for trends in retention, churn, or engagement to spot patterns and make improvements.