What is cohort analysis?

For B2C ecommerce brands, cohort analysis is the process of grouping customers by shared behaviours or traits to learn more about their purchase patterns at scale. When brands analyse these groups over time, they can gather the evidence they need to make data-informed changes to their customer acquisition and retention strategies.

For example, customers who have subscribed to SMS marketing are a cohort. If a brand were to track how much and how frequently members of this cohort purchase, they may be able to identify opportunities to convert customers in the cohort and grow cohort membership to increase their overall customer lifetime value (CLV).

The benefits of cohort analysis for B2C marketers

When B2C marketers invest in long-term cohort analysis, they’re investing in evidence-based marketing practices. 

The data behind cohort analysis isn’t theoretical—it’s based on real customer interactions attached to real outcomes. When B2C marketers analyse these interactions at scale and adjust their marketing strategies accordingly, they can expect to see:  

  • Higher campaign engagement: Customer behaviour is the most important clue to what people want to see from brands—and at what stage they want to see it. With cohort analysis at every stage of the customer lifecycle, brands can design stage-specific campaigns that drive higher engagement because they reflect real customer behaviours. 
  • Higher marketing return on investment (ROI): Cohort analysis removes a lot of the guesswork from marketing, which can ultimately improve efficiency. For example, a brand with high customer acquisition costs (CAC) may conduct a cohort analysis on people who make their first purchase during the holidays. If that same brand can identify the long-term value of those customers, they can optimise their holiday messages and discounts and improve their ROI.
  • Higher customer retention rates: Cohort analysis can help keep existing customers happy and spending more. For example, a brand that wants to launch a loyalty program may analyse their highest-spending cohort and discover that top spenders tend to purchase at the end of the month. The results are evidence that can inform the incentives or outreach timing of the loyalty program.

How does cohort analysis compare to other marketing analyses?

Cohort analysis is a long-term view of customer behaviour. Marketing strategies are often also informed by more immediate types of analyses like:

Funnel analysis

Funnel analysis tracks the customer journey and identifies where and why people drop off before an action or conversion. This is helpful for understanding where you can “plug holes” in your marketing funnel to reduce drop-off rates and move more people to the next stage, faster. Whereas cohort analysis is about the “who”, funnel analysis is about the “why”—why people aren’t moving to the next customer lifecycle stage.

Segmentation analysis

In B2C marketing, segments are groups of people with shared characteristics or behaviours that receive personalised marketing messages. Whereas cohort analysis tracks shared behaviours over longer periods of time, segmentation analysis is a dynamic snapshot that can reveal key insights such as average order value or device type.

RFM analysis

Recency, frequency, and monetary values (RFM) analysis can tell you how recently a customer made a purchase, how frequently they purchase, and how much they spend on each purchase. This is specifically helpful for designing retention strategies that can increase repeat purchases and CLV.

How to conduct a cohort analysis

  1. Choose your cohort parameters. Before you can run a cohort analysis, you need to define the criteria that makes a cohort a cohort. For example, you may want to track how long it takes for customers to make a purchase after subscribing to email marketing. 
  2. Gather your data. With a marketing automation platform that centralises customer data, start gathering the data that fulfills your initial criteria. For example, start collecting email sign-ups on your website with software that integrates with your online store and tracks purchases.
  3. Analyse cohort behaviour. Use your marketing automation platform to measure the online behaviour, engagement, and retention of your cohort over a period of time. This is a process you’ll run through multiple times in a year, so you can take action on long-term, persistent patterns of behaviour. 
  4. Evaluate and refine your analysis. As you adjust your marketing strategies to the behaviours of your cohort, you’ll create a cycle. If they’re effective, your strategies will alter behaviours, which will alter your cohort analysis, which will further inform your marketing strategies. It’s this constant evaluation and refinement that can increase your marketing ROI. 

Klaviyo makes it easy for brands to conduct cohort analyses with consolidated customer data and easy-to-read reports. Sign up for Klaviyo and get started today.