Quite a number of my customers and potential customers ask me this question: “What is cohort analysis? How does it help boost my site’s retention rate?” I think making post here will help more people understand the value of cohort analysis.

From Wikipedia:

“A cohort study or panel study is a form of longitudinal study (a type of observational study) used in medicine, social science, actuarial science and ecology. It is one type of clinical study design and should be compared with a cross-sectional study. Cohort studies are largely about the life histories of segments of populations, and the individual people who constitute these segments.”

“A cohort is a group of people who share a common characteristic or experience within a defined period (e.g., are born, are exposed to a drug or a vaccine, etc.). Thus a group of people who were born on a day or in a particular period, say 1948, form a birth cohort. The comparison group may be the general population from which the cohort is drawn, or it may be another cohort of persons thought to have had little or no exposure to the substance under investigation, but otherwise similar. Alternatively, subgroups within the cohort may be compared with each other.”

Although this method has been used primarily in medical fields in the past, many marketing firms are adopting cohort analysis into their marketing strategies to study customers behaviors.

For online web analytics, customers/users can be grouped based on different criteria, such as signup date, first purchase, age, gender, etc. Each cohort group’s behavior is analyzed and compared with other cohorts. By observing those cohort overtime, businesses will understand users’ engagement overtime and obtain a true picture of how people love your products and features. .Additionally a cohort analysis is a great way to assess the lifetime value of an acquired user. As you look at older cohorts, you can measure, on average, how long a user will stick with your service, and, depending on your business model, how much a user is worth to you.

Cohort analysis provides the single best insight into how people love your products and services.