Uncover Key Business Insights with Cohort Analysis
Introduction
Many business leaders struggle to identify potential customers effectively, but their greatest challenge is gaining the knowledge necessary to make it possible. For that reason, business analysts prefer using cohort analysis during their research to enable them to deliver clear information that gives leaders a true picture of their customers’ identities. With cohort analysis, you can classify customers based on their similarities and differences in terms of when they were acquired, channels used to acquire them, and the products they signed up for, making the analysis process much easier. Cohort analysis also helps companies understand their customers’ lifecycles which makes it easier to provide services and products for the identified groups.
In this blog post, I will discuss the following subtopics in detail to help you understand cohort analysis better:
- What is cohort analysis?
- Why do you need cohort analysis in your business?
- Types of cohort analysis.
- 5 key steps in performing cohort analysis.
- How your industry can benefit from cohort analysis.
What is cohort analysis?
Cohort analysis is an analytical technique that breaks down data into smaller groups and categorizes it based on common characteristics. Applied to your business data, cohort analysis gives you a better understanding of your customers’ trends and behavior toward specific products and services, helping you provide products and services that meet your customer’s interests and expectations.
Why do you need cohort analysis in your business?
Cohort analysis is an important type of analysis needed for growth in many companies. Organizations need to break down large volumes of data gathered in their departments into smaller groups for easy analysis. This is very important as it helps business operators identify key trends in the lifecycle of consumers in different cohorts instead of analyzing each customer individually since groupings are made based on similarities in the characteristics and experiences of users. In this section, I will discuss the following reasons in detail to help you understand why you need cohort analysis in your department or business:
- To know the effects of your customer’s behavior on your business.
- To create more effective customer engagement.
- To reduce the customer churn rate.
- To understand sales cycles.
To know the effects of your customer’s behavior on your business
Cohort analysis gives you a better understanding of your customers’ interaction with your company. This helps you know what products and services to offer. Knowledge gained through a marketing and sales analysis dashboard enables you to have an overview of your customers’ relationship with your brand. By using your customers’ buying trends within past and current data, you can easily predict how best to market and sell your products and services in the future. Further, you can develop well-informed strategies that help minimize lost sales as you boost sales performance in your company.
To create more effective customer engagement
Cohort analysis helps sales representatives engage their customers with all the products they offer. This is made possible by monitoring positive customer feedback on high-selling products and identifying features that are praised frequently. Using this information, leaders can apply the winning features behind top-selling products to poorly selling products and address negative feedback from customers in the process. This helps business managers effectively engage their customers with all products in the company and grow their business.
To reduce customer churn rate
Cohort analysis allows leaders to monitor customer churn rates in their departments. This will enable them to know when customers were acquired by the company, and if they left, when. Examining different cohorts allows you to know why customers who signed up on the same date or month chose your company. Knowing this allows you to promote a specific offering or provide a new feature that falls in line with the customers’ original need, helping you keep customers longer. If customers leave, you can get a better idea of why they left by examining cohorts divided by how long they stayed with the company. This will enable you identify issues with your business that may otherwise have gone unnoticed and work towards building products that synergize with what customers signed up for.
To understand sales cycles
Through examining sales analysis data from different cohorts, you will be able to understand various trends in sales cycles in your business. In the context of an e-commerce business, it improves the business leaders’ ability to know what customers are likely to order and when, giving them the chance to ensure the products’ availability. With this insight, they can better manage their inventory, improve their sales performance, and enhance the business’s productivity. In the context a SaaS business, the company can better anticipate when they are likely to lose a customer and take proactive steps to avoid it.
Types of cohort analysis
Cohort analysis is mainly divided into two types:
- Acquisition Cohorts
- Behavioral Cohorts
Acquisition cohort
An acquisition cohort is a group of customers that signed up for the company’s products simultaneously. Monitoring this type of cohort gives company heads an overview of their customers’ full details, including products they signed up for, how long they have been a customer, and when they end their relationship with the company. This allows the company to keep sufficient inventory of products common to this cohort, offer new benefits to this cohort to prevent customer loss, and when future customers are likely to leave. This helps the business reduce churn rates.
Behavioral Cohorts
A behavioral cohort is a customer group based on interactions with the company’s products and services. Information received from this analysis helps leaders identify the effects of their customer’s interactions with their brand. This allows the company to use their customers’ feedback on low-performing products and services to improve their quality and reduce the risks of losing customers.
5 key steps to performing cohort analysis
To perform cohort analysis successfully, there are five steps you need to follow:
- Determine the sources of analysis.
- Examine your datasets.
- Create the cohorts.
- Establish the starting points.
- Create evaluation fields.
Determine the sources of analysis
Since there are many activities taking place in your business at different times, it can be difficult for your analysts to compare information from different sources to come up with a clear picture of your data. Therefore, the first step to cohort analysis is to determine which sources of data you are going to use. Not all of the information at your disposal is going to be relevant. At minimum, ensure that no matter what departments or sources you pull data from, the date, day, month, and week an activity was done by the customer is included.
Examine your datasets
With your data in hand, scan it for activities and metrics that you think are important characteristics viable for creating cohorts around. Pare your information down to the critical aspects you want to use. If you have overlapping data points, determine which one is most important to your analysis.
Create the cohorts
After completing steps 1 and 2, you need to create the cohorts for your analysis. A commonly defined cohort is the total number of days a customer has been with the company. Other common cohorts are all users who signed up for the same product, customer countries of origin, the amount of time customers have spent with the product (particularly in a SaaS business), and how frequently customers visit their sites (in an e-commerce business).
Establish the starting points
In this step, use tables, charts, and graphs of your cohort data to spot the starting points of trends and patterns across each group. From these, you can better understand customer life cycles, which allow you to provide better services based on customers’ interests and tendencies.
Create evaluation fields
Create evaluation fields to measure the performance of your cohorts. This enables you to create more useful metrics that can help inform future business decisions, identify current product successes, and eliminate product shortcomings.
How cohort analysis can benefit your industry
Cohort analysis benefits many industries by helping business leaders find an accurate picture of various sectors in their industry, allowing them to identify areas likely exposed to risk and areas in need of change. The following are some of the industries that have benefited from cohort analysis and continue to do so:
- Manufacturing
- Sales
- Retail
- Marketing
Manufacturing
Increased competition in the manufacturing industry has led businesses to use cohort analysis to give themselves an advantage in the market. With the help of cohort analysis, company managers can regularly monitor different groups of customers to determine what makes them enthusiastic about specific products. From these insights, manufacturers can produce higher quality end products that will attract even more customers. This knowledge also helps project managers minimize wasted time and resources as they will know the types of raw materials needed for the production of that particular commodity, allowing them to budget only for the essential components. Team leads can set customer- and product-appropriate timelines and encourage team members to accomplish their tasks within the stated timeline to deliver commodities to customers on time. When their customers are happy, manufacturers reduce churn, attract new customers, acquire more revenue, and stay a step ahead of their competitors.
Sales
Increasing sales transactions, offering fewer discounts, and lowering costs of acquiring new customers are crucial objectives every sales operator needs to achieve daily. Cohort analysis helps a sales department use their metrics and KPIs to know the income from sales to each cohort. This enables leaders to know whether they are losing or gaining profits from specific groups, which makes it easier for the salespeople to offer their commodities according to their selling pattern. Also, sales leaders can monitor the purchasing trends of their customers to predict which cohort is most likely to purchase. Knowing this, sales leaders can better prepare for future sales cycles and grow their revenue.
Retail
The many activities that take place in the retail industry, such as customer service, inventory management, and store management, need to be monitored and recorded frequently to give retail store managers an accurate picture of their enterprise’s performance. With cohort analysis, managers can identify which of their warehouses are at risk of overstocking and which inventories are likely to go out of stock. This can also help in identifying cohorts that are constantly performing poorly. Decision-makers in the retail industry can use this data to help the company reduce labor costs, excessive warehouse operations, and warehouse storage, as well as the cost of acquiring new customers by maintaining sufficient warehouse inventories. These all work in tandem to increase customer retention and the revenue a single customer generates for the business over their lifetime value.
Marketing
The introduction of cohort analysis in marketing departments has helped solve problems with potential customers misunderstanding products, whether the right potential customers are being pursued, and whether marketing campaigns are improving. This has led to great improvements and achievements in the marketing sector as marketers can easily determine the way their customers behave and conduct themselves towards the company’s products and services. With cohort analysis reports, marketers can classify their company’s customers based on similarities in actions, dates of acquisition, and marketing channels used to acquire them. Further, they can get information about products with the highest number of new customers, the highest customer retention rates, and frequently repeated orders. This improves their ability to identify products to be used in the next marketing campaign, such as products with high numbers of profitable users and products with higher transaction rates.
How Bold BI aids in cohort analysis
Bold BI integrates analytical and data visualization capabilities into your business applications without any hassle. With Bold BI, end users can quickly analyze their data — including through cohort analysis — on their own and build stunning dashboards from it.
Benefits of using cohort dashboards
Bold BI cohort dashboards help companies and departments in different industries monitor the performance of different cohorts to get an accurate picture of their company. This helps them make strategic plans that will reduce risk for the company. Consider the following areas:
- Education
- Health care
- Retail
- Human resources
Education
Tracking the performance of students is critical in the educational sector as it enables schools to group their students based on their capabilities and interest in their studies. By monitoring examination results and student metrics in the Bold BI School Performance Dashboard, schools can quickly identify regularly failing students in a given class or semester. This helps staff find ways of helping these students improve their studies devise a solution that will increase the overall performance of the school. Schools can also use these metrics to compare the total students registered for an exam with the number who actually took it. This helps the school form separate classes for active students and truant student, allowing staff to deal with the unique needs of each group appropriately.
Health care
Hospitals need to know the number of patients in their care, the level of services patients receive at each visit, and the number of days a patient spends in the hospital. The Bold BI Hospital Management Dashboard can help hospitals analyze key metrics such as patient count by week, average treatment cost by age group, average length of stay, total number of patients, and the amount patients paid for their treatment. Doctors can use these metrics to classify their patients into different cohorts based on the illness they suffered from and the number of days they stayed in the hospital. This improves the hospital’s ability to recruit new doctors that specialize in illnesses with high incidence rates.
Retail
The Bold BI Retail Inventory Management Dashboard helps store managers and inventory managers keep accurate records of their products and inventories in their respective departments. It gives managers easily understandable widgets that visualize information like stock availability and top-selling items in different cohorts. This knowledge allows managers to look for ways of marketing poorly selling items better to increase revenue.
Human resources
Bold BI’s HR Employee Details Dashboard helps HR professionals identify the skills required for a certain position in the company. By monitoring feedback details and employees’ overall labor effectiveness metrics, HR managers will be able to identify cohorts containing employees with positive feedback and highly effective work. This helps HR find the skills and characteristics that make an employee perform highly in their department, which can be used in future recruiting and hiring.
Key features of Bold BI
Data visualization
Bold BI allows you to easily create a data visualization interface by combining widgets in an intuitive way. Its robust customization system offers an excellent user experience in representing your data just the way you need. These features are very useful in cohort analysis for pulling together your data in a clear view.
Placement
Placement is an important part of using Bold BI in your business operations. Bold BI deployment is always self-contained to suit your environment and remains under your control. This helps business analysts do their work quickly by allowing them to work from their preferred platform.
Extensibility
Bold BI offers various features that make it suited for embedded use. It supports mobile apps, multiple development languages, theming, and more. When analysts are able to do their work in their daily applications and are supported with customizations tailored to their specific needs, their productivity increases.
Data connectivity
Data connectivity is an important feature of Bold BI that helps business operators connect all types of data used in their business, from files and databases to web services. This makes it possible for team members to easily access data from Excel files and common relational data sources such as SQL Server, Oracle, Postgres, MySQL, and more, and them use the information to perform cohort analysis.
Collaboration
Collaboration is a feature of Bold BI that is very useful for operational intelligence. It enables team members to share analytics and collaborate with others by adding comments directly to the analytics interface in a secure manner and use URLs and email alerts to keep everyone in the know. This helps stakeholders in cohort analysis gain insights from their data collaboratively, which allows them to take action quickly
Manageability
Bold BI provides control over every aspect of deployment and routine management through a rich API layer. With simple manageability, leaders have complete control of embedded automated provisioning for tenants, users, groups, and permissions, enabling them to add or remove tenants using platforms such as a provisioning API or code from within their application.
Conclusion
Now that you have some knowledge of cohort analysis and its benefits, I would advise you to apply it in your business and enjoy the profits, both informational and monetary.
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Originally published at https://www.boldbi.com on May 26, 2022.
