What is Cohort Analysis for Ecommerce Small Businesses?
Cohort analysis is a way to understand your customer base better by grouping them by certain qualities and seeing their performance by group.
First, we need to understand what a cohort is though!
What is a Cohort?
Simply, a group of customers! Here are some very common ways to group customers;
Their first purchase month
What product type they buy first
What ads they see or respond to
What discount or free trial they participate in
There's a lot of noise in ecommerce data, so first finding something that's fixed about a customer is really important for analysis.
Those are things that don't change - things like their first XYZ will always be their first. Hence three of the bullet points above.
Whatever you decide to group customers by, make sure it'll lead you toward their buying behavior and allow you to give them what they want so they spend more with you!
What's cohort analysis?
Cohort Analysis is determining how a certain cohort of customers acts. The more you know, the more you can target them, sell to them, get them to become advocates, etc.
The easiest way to describe this might be through examples:
Customers that buy your workout gear in January might be one-time purchasers
So maybe you can advertise programs and discounts to “stay with it” come February
Maybe a new piece of gear will keep them in the gym a bit longer - don't let it be someone else's gear
Free trial participants of your pet company will need to buy the full price version after their free trial - how many stay?
How many leave but buy something else?
How beneficial is the free trial program? What's the ROI?
Customers that buy in December might just be holiday shoppers… what would they buy that needs a second purchase?
How can we give them incentive to continue buying throughout the year?
There's dozens of other holidays throughout the year, how can we make it so they come to us for their standard holiday gift?
Once you establish the right cohorts and watch their buying behavior, you can learn more about them and get creative with ideas to target them.
Then you could go even deeper and say “customers that buy workout gear in January and buy again in February are more likely to buy supplements than a third piece of workout gear”.
Essentially, a cohort of a cohort… how do those act?
You can see how this can be endless. Don't get too too deep down the rabbit hole, but as long as you have numbers to back up your decisions, you can justify what you want to do.
Benefits of Cohort Analysis
Understand your customer and they'll spend more with you.
On most sites, there's always the “you might also like…” and this is essentially understanding your customer and doing a small cohort analysis.
This isn't meant to be in a used car salesman tone by any means. This is meant to use data to identify what the customer also wants or needs and present it to them. They want to buy it, why not make it easy for them to do so!
The “numbers” approach to the benefits can be quantified with a few staple metrics:
Lower Cost Per Acquisition
Higher Retention rate
Higher Long Term Value
Tracking those metrics in Cohort terms can be really impactful, give you a goal to hit, help set goals for the team and specific initiatives, etc. Basically allowing you to be more data-driven the easy way!
Get yourself a dashboard to show all of this for you and you'll be able to use your data easily, track progress, set goals, and get your customers to spend more with you!
Pineapple is a data analytics company ready to help you become data-driven! We help analyze and visualize your data in custom dashboards so you can see your full business performance at a glance, and provide analysis to drive your strategy. Our interactive dashboards will save you time, provide deeper insights & analysis, and help you make better business decisions.
Learn more about our custom dashboards: