Cohort Analysis: Beginners’ Guide to Improving E-commerce Customer Retention

Cohort Analysis for E-commerce Customer Retention1

Customer Retention is one of the most critical metrics that e-commerce businesses should pay attention to. If an e-tail business can make customers stick to it for a longer time, it will have a steady stream of revenue coming in and much less customer acquisition costs. Cohort analysis is an excellent way to measure retention rates and identify where improvements need to be made.

This blog post will discuss what cohort analysis is, how it works, and some tips for improving your e-commerce customer retention rates!

What is Cohort Analysis?

behavioral-cohort-table

In the simplest terms, Cohort Analysis represents how customers engage with a brand over any given time period.

Cohort analysis can be performed on a daily, weekly, monthly, or yearly basis. It is often used to break down customers into groups and analyze their preferences over time to make adjustments to better the customer experience.

For instance, e-commerce brands may want to track how different customers (say first-time buyers) engage with them compared to more loyal customers who’ve purchased from them before. This would help identify what new products/services should be added or tweaked based on an individual’s previous interactions with the brand. Such an analysis also highlights whether specific audiences are being neglected/overlooked by the brand altogether.

When improving your company’s retention rates via Cohort Analysis, you can follow many strategies.

Significance of Cohort Analysis

Cohort Analysis is a statistical technique that e-commerce brands around the globe are increasingly using to understand customer behavior. Using this method, users can explore and identify how product/service adoption rates vary by different factors (like demographic, behavioral, geographic, etc.) or analyze churn rates for a specific customer set.

Cohort analysis is also helpful in spotting potential avenues for growth and figure out why certain sets of customers are leaving a company’s platform.

Industry experts believe that Cohort Analysis is becoming more common among digital businesses globally that want to understand customer behavior better to strengthen their business models.

Cohort analysis can offer numerous benefits as listed below:

  • Identifying products, features, or services that genuinely add value for customers
  • Mapping and predicting consumer behavior over time
  • Using existing customer data to find insights for different segments
  • Formulating informed marketing strategies
  • Building data-driven sales pipelines

Types of Cohort Analysis

There are majorly two types of Cohorts (however, there can be more depending upon your data reference). There are;

Acquisition Cohorts

This is the most common cohort analysis segment where the users are grouped based on their acquisition date and time. Frequent or multiples definitions can be applied to this type of tracking, like daily, weekly, monthly, etc.

E.g., an acquisition cohort includes a ride-sharing app where the company may analyze the user data for every individual since they downloaded it.

acquisition-cohort-table

Behavioral Cohorts

Behavioral Cohort Analysis segments the user base based on their actions while using the application or interacting with a website. For this, unique event triggers can be tracked via website/app analytics to understand the behavior of different user segments.

An e.g. of the behavioral cohort can be dividing the users of a food-delivery app by age groups. Then, these cohorts or groups can be analyzed as to which of them uses the food delivery app mainly after midnight for ordering food.

Below is an example of cohort analysis for different customers using different devices to access an e-commerce portal.

cohort-analysis-example

Boosting Customer Retention Rate with Cohort Analysis

The main aim for cohort analysis is to increase the Customer Retention Rate or CRR.

CRR is the reverse of your customer churn rate (CCR). It is the number of customers that continue to use your service after a specific time period. It’s the number of customers you keep at the end of the given time period.

Why is CRR important?

Your CRR is the indicator of how well your retention strategy is working. Keeping customers satisfied without much price manipulation will keep your retention rate higher than the average for your niche. 

How to calculate customer retention rate?

Use the following simple formula to figure out your CRR:

Number of customers who continue to buy from you/Total number of customers at the start of a period (multiply this by 100 to get a percentage)

How to boost CRR with Cohort Analysis?

With strategic cohort analysis, you can leverage the following tactics to drive actionable insights for better CRR for your brand;

Predicting Future Customer Behavior

With advanced cohort analyses, customers can set a predictable pattern for future behavior. For example, let’s say Black Friday. Some companies may think it is not good to sell or advertise their product offerings during this holiday season. Cohort analysis allows them to justify their campaigns or question why they don’t exist with the data in front of them.

Determine the Best Time to Upsell

A cohort analysis report tells you the best time to send an email or a push campaign to drive more upsells and cross-selling. It also shows customers looking to disengage with your brand so that you can take timely actions to retain them.

The crux here is that practical cohort analysis can help you maximize the Customer Lifetime Value for your brand.

Invest in Data-Driven Marketing

Cohort analysis reports give you a detailed look at your customers and their purchase behavior. You can use that data to determine which products they enjoy, allowing you to pinpoint new campaigns for those specific demographics.

Delivering a Personalized Customer Experience

There are many ways that you can personalize your business at scale, starting with understanding the more minor similarities between your customers. This understanding is called a ‘cohort.’ Personalization targeting these groups has had proven success, and there’s no time like now to put it to use in your venture.

How can you benefit from Cohort Analysis now?

For some, Cohort analysis may seem like a cumbersome analytical spree where you crunch numbers all the time to make a profit.

Luckily, it does not have to be the case for your e-commerce business with Wigzo! Wigzo is a full-suite marketing automation tool with deep e-tail analytics capabilities. It offers you automatic cohort analysis, RFM analysis, and highly granular automation workflows to maximize your customer acquisition, conversion, and retention.

Using Wigzo for your e-commerce brand can be one of the best investments ever – try it FREE and see for yourself 😉

Happy selling till then!

Kaberi Gogoi

Kaberi Gogoi

Kaberi is a Digital Marketing Manager in Wigzo with 4+ years of experience producing Goal Oriented Digital Strategies and Campaigns. In free time would be found shopping for plants and Pottery.

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