How would you measure pay-off of efforts put into your business

Are you a marketer working to increase brand loyalty and encourage repeat purchases, or a web developer working to decrease sign-up friction? Like you, everyone in online business is putting in efforts to improve one metric or the other, and how brilliant would it be if one is able to measure the effort pay-off. An effective way to measure it is through cohort analysis, one of the most trusted actionable metrics, which ties specific repeated actions to observable results.

Metrics such as number of hits or downloads are more vanity metrics as they are capable of only recording the current status of the product, and fail to assist at understanding how the current product has been achieved or figure out the roadmap ahead. In such a case, cohort can be an excellent method to measure the success of implementation of a technique or method and identify the specific area that needs attention. “It is important to take right decisions and cohort helps in doing so. But, it is more important to analyse the wrong decisions, and with cohort, it becomes easily possible” says Sasidhar Vavilala, Head, Campaign Management, at BankBazaar.com

What is cohort analysis

“Cohort” can typically be defined as a group of people who share a common characteristic over a certain period of time. It takes a small group with similar characteristics or situation and not the whole population. A close study of a specific cohort helps understand and analyse cohort behaviour. “Products are linked and cohort analysis make these links visible by categorising consumers. It also minimises the outliers and helps make impactful decisions,” adds Sasidhar.

How is it helpful?

This analysis can be used to:

1. Measure the impact of a short-term marketing effort like an email, poster, quiz etc. Individual cohorts can be examined to gauge response to these campaigns.
2. Helps monitor the gradual shift of behaviour of user, consumers or clients relative to when they were acquired. This monitoring can be done for small time intervals like day to day, week to week, and month to month.
3. To analyse important metrics like user retention, product preference, revenue generation or any other metric that we want to track. Cohort analysis can be used by organising the targeted group into cohorts based on shared characteristics like date of acquisition, plan chosen, sex etc.

Manish Karla, CBO, Craftsvilla says,

Of the various areas in business, where we employ cohort analysis, the major ones are for optimising marketing efficiencies and measuring repeated purchase behaviour.

Funnel approach vs cohort analysis

To understand the clarity of observation cohort analysis offers, let us compare it to the funnel approach. Funnel approach is very popular metrics used to track conversion rates. Pre-determined sequence of events is set and then the conversion on each step is recorded.

Taking an example of tracking the lifecycle from sign-up stage to purchase we look at the approach from both methods.

In the chart below, we observe that the funnel approach gives us the picture from the date of sign up to the date of purchase, but is unable to define the user events that happened during the course.

Now if we break this up week-wise for cohort analysis, we see that the events show a very different picture and it highlights the exact area that needs to be looked upon.

It is interesting to observe that the maximum sign-ups were in Week 4 where none converted into purchases, which clearly indicates that something went wrong in Week 4. Activities in Week 4 can be tracked and tied up with nil purchases.

“Cohort analysis is a great tool to measure success. We use this tool to track customer behaviour from sign-up to integration” says Clevertap founder Anand Jain. “We track for a three-week period, and tie it to the success goals,” he adds.

Conclusion

Cohort analysis is especially very handy for new businesses, where new ideas, technologies, and strategies are implemented every day and its impact needs to be closely monitored. It can be used to measure retention, loyalty, success of a marketing initiative and other metrics, very vital to monitor in case of a startup. Cohort analysis not only helps identify the exact pain point but also suggests how to rectify it.