What is Cohort Analysis?
Cohort analysis is a part of behavioral analytics that examines data from large sets and breaks them down into related groups to parse them. These smaller groups—or cohorts—share similar characteristics in a specified time frame.
This way of breaking down data sets to examine them can lead to much more granular BI insights while highlighting patterns that may not be visible from a macro perspective.
When attempting to understand cohorts, it’s important to keep in mind that a cohort has two major dimensions: a shared characteristic, and a defined timeframe.
For instance, a cohort could be defined as all customers who paid for a service with credit cards in the month of July.
Cohorts can also be defined by other aspects like their size, the specific metrics being explored, and even the type of cohort being examined.
A major benefit of cohort analysis is that it creates specific and actionable insights that can be immediately used to effect a change in a company’s service.
More importantly, it determines not just the ‘what’ of a data set, but also the ‘who’, and the ‘why’ in a question.
A retail business, for instance, could run two parallel cohort analyses examining all the customers who purchased a specific product in a single month, and customers who paid for products via a mobile application.
By finding a correlation between certain purchases and how the payment method, a business gains insight relating to how they can encourage sales and plan their future strategies.
See it in action:
What Can I Do With Cohort Analysis?
One of the biggest benefits of using cohort analysis is the versatility of insights you can uncover by combining different variables and time frames. One of the most common cohort analysis examples is website flow.
Acquisition cohorts can visually display where in a product lifecycle customers drop off, the size of the group, and even show reasons in some cases when properly cross-referenced.
See it in action:
Another great use for cohort analysis is in marketing, where companies can see the effectiveness of a specific campaign with several distinct groups to determine best strategies for each cohort or find areas of need.
If you’re performing AB testing, you can see the effectiveness of each channel before finalizing a choice.