Unlock The Power
of Cohort Analysis
Written by Franco Varriano.
2. What Is Cohort Analysis?
A cohort analysis is a way to measure your company’s customers quality by breaking them down into related groups. Most people segment their cohorts by month, as in, the initial month of purchase or sign-up. It enables you to track all customers behaviors from the first purchase to the moment they stopped buying from you.
If you were to ignore a cohort analysis, you’d only see the big picture, and wouldn’t be able to see the order velocity and how well customers interact with your product or service over time. If you were simply to be concerned with top line growth, you could go ahead and acquire expensive new customers. In order to build a sustainable business, it is imperative to have repeat customers, and keep those customers as engaged as possible, since they’re much cheaper to retain than constantly acquiring new customers. A cohort analysis helps you understand the life cycle and behavior of your customers.
3. Important Metrics
A cohort analysis shows you key metrics to assess the state of your business over time:
- Retention rate: For online store, it is imperative to be tracking retention of customers based on the sales cycle, or when they stop buying from you. This is usually done in 30-day, 60-day, 90-day, and 1-year retention, and potentially further. A healthy business will want to keep its customers as long as possible, as they’re much easier to make money from than attracting new customers.
- Repeat rate: For an eCommerce, repeat rate measures how frequently someone is coming back to buy. Unlike a subscription business, there’s no obligation to return, but similarly, it is much easier to get customers to return than having to acquire new customers. Repeat rate benchmarks will vary by type of business. For example, for a mattress company, you might expect a customer to come back every 5 years, whereas for a beauty-appointment business, you might expect customers to book every 3 months.
- LTV: Using your retention rate and multiplying it by your monthly repeat rate, gives you your customer lifetime value. Alternatively, you can measure actual revenue data if there is variation. Ideally, this would be over the rough lifetime the customer stays with the business, but it can also be measured in a finite amount of time, such as a 1-year LTV. This can be measured by the amount of purchases over a year, multiplied by average order size.
- CAC: Customer acquisition cost is the amount of money a business spends to acquire a customer. In general, it will be monthly marketing spend divided by the number of new customers attracted to the platform (subtracting any marketing spend on retaining existing customers)
- LTV/CAC: This ratio will tell you how much value you get from a customer, relative to the amount of money you spend on them. Good ratios will vary by business; however, an LTV:CAC of minimum 3x is a good general threshold.
4. Accessing Cohort Reports
Under the report tab, merchants have the ability to look at their customers’ timeline which presents over 50 metrics about the store. They can easily be dissected in days, weeks and months for deeper insights. Those tools help you track trends and understand the way your customers behave in order to time your email marketing campaigns and business strategy to them. Get started today with cohort analysis by logging into your Rare account.
If you’re an ecommerce merchant and don’t have automated email marketing campaigns setup for your store, you’re losing money. Right now.
Rare.io makes it easy to start using automated email campaigns for common challenges like: Welcome Series, Abandoned Carts, Order Follow-up emails and more! You can learn more about our powerful email marketing automation features here or go ahead and get started right away by using Rare.io for FREE.
And if you’re one of the thousands of merchants who are already using Rare’s Smart Email Marketing software and want to see how our Customer Success Team can work with your brand to grow your revenue – feel free to book a call at your convenience here.
Want More Email Marketing Insights - Specifically Designed to Help You Grow Your Online Store?
Sign-up for the Rare.io Newsletter to get exclusive insights, tactics, and proven strategies from Top Ecommerce Experts that we don't publish here: