Cohort Analysis: Metrics You Should Be Tracking

If you’re running ads, you know that you have to track them. Tracking your ads the right way will save you a ton of time and especially money so that you get better results.

But are you sure you know what to track?

Nobody wants to sit there and have to sift through mountains of data, which can be overwhelming.

On the other hand, it’s also deflating to go through the data with no clear direction on where to start or what to optimize, only to scale or kill an ad and then see your campaigns fall short.

You need to dive deeper into what you’re tracking; cohort analysis may be the solution.

Cohort analysis can provide valuable insights into how your business is performing over time and is a powerful tool that can help you understand how different groups of customers behave and how they change over time.

Understanding Cohort Analysis

Cohort analysis is a powerful method for you to use to understand customer behavior and measure key metrics across various periods. By tracking the behavior of different cohorts of users over time, you can identify trends and patterns that can help you make better decisions about your marketing, product development, and customer support.

It involves grouping customers into segments based on a shared characteristic, such as acquisition channel or sign-up date.

Benefits Of Cohort Analysis

Using cohort analysis to determine the value of your ads and where you’re getting people to convert from gives you powerful insights that can determine the health of your ads and make informed decisions to enhance revenue and customer behavior.

In simple terms, cohort analysis involves grouping users or customers based on common characteristics and tracking their behavior, retention rates, and revenue over some time.

One of the main benefits of cohort analysis is that it enables businesses to understand their customers better.

You can then create targeted marketing campaigns and optimize your marketing efforts for greater effectiveness by segmenting customers into cohorts based on their behavior or characteristics.

For example, a restaurant could use cohort analysis to group its customers based on age, gender, or location and develop marketing campaigns tailored to each group’s preferences. Or if you’re running high-ticket products, you can differentiate who you’re targeting, such as what industry your primary volume is coming from, and devise ads to target those areas more effectively.

Another benefit of cohort analysis is that it helps businesses increase customer retention.

By analyzing different cohorts’ behaviors and retention rates, businesses can identify which groups are the most loyal and which are at risk of churn.

This information can be used to develop targeted retention strategies focusing on retaining the most valuable customers.

For example, an e-commerce company could use cohort analysis to determine which customers are most likely to return and develop special promotions or rewards to encourage them to stay.

Finally, using cohort analysis can also help you optimize the user experience.

By analyzing cohort data, you’ll better determine which features or product offerings are most popular among different groups of customers and optimize their website or app accordingly.

For example, a SaaS business could use cohort analysis to determine which features are most used by high-value customers and focus on enhancing those features for greater engagement.

You’ll gain valuable insights into your customer engagement, retention, and revenue generation by comparing the performance of different cohorts over time than you would by just looking at ad performance overall.

By analyzing these groups, you can identify trends, patterns, and areas for improvement in your ads. However, this type of analysis can be daunting for those who are unfamiliar with it.

There are several metrics that you can track as part of your cohort analysis. Some of the most important metrics include:

• Acquisition: You’ll want to track how users find your product or service. You can track acquisition by channel (e.g., organic search, paid search, social media, etc.), by source (e.g., website, app, etc.), and by campaign (e.g., specific ad campaign, email campaign, etc.).
  The insights you gain here will let you decide which ads to scale, which ones need to be better optimized, and which ones to kill off.
• Engagement: This metric tracks how users interact with your product or service. You can track engagement by measuring page views, time spent on site, number of sessions, etc. Engagement is a good reference point for how people interact with your content, but you should put much of your eggs into the conversion metric.
• Retention: It’s easier to get a person to buy from you a second time than it is to get a cold prospect to act. So retention is a crucial aspect of your long-term approach. This metric tracks how users stay engaged with your product or service over time. You can track retention by measuring things like churn rate and average customer lifetime value.
• Conversion: Focusing on your sales and where they come from is the single most important data point to go after. This metric tracks how users take desired actions, such as making a purchase, signing up for a free trial, or subscribing to your newsletter. You can track conversion by measuring things like conversion rate, cost per acquisition, etc.

Tracking Metrics With Cohort Analysis

When you do this correctly, cohort analysis will provide valuable insights that allow businesses to identify issues with customer retention, understand the impact of marketing campaigns, and optimize product features.

Acquisition Cohorts

In your cohort analysis, acquisition cohorts will play a crucial role in tracking and analyzing user behavior over a while.

These acquisition cohorts should be segmented based on the acquisition date or time of service, making it easier to track how long people continue to use a product from their starting point.

By knowing how long it’s been since you acquired a potential customer and dividing users into cohorts based on their acquisition date or time of service can reveal patterns in user retention and churn rates.

This data will give you valuable insights into when and why users leave your product or service, letting you better create and optimize your offerings.

Depending on the product or service’s nature, you’ll want to create acquisition cohorts into different frequencies, such as daily, weekly, monthly, and so on.

For instance, if you want to measure user retention in a particular month, you can create monthly cohorts that track the retention rate for users who started using the product during that month.

By analyzing data from acquisition cohorts, you can identify which channels bring in the highest number of new users and which channels result in buyers or committed users.

Engagement: Behavior Analytics And Vanity Metrics

You can get a lot of crucial insights into the types of engagement your potential targets are taking by creating reports about behavior analytics.

While conversions are the most important metric to be tracking, engagement is probably the least important but can provide you with some good insights about what your ad content is doing.

One thing to remember is that the common pitfall of analyzing user behavior is focusing too much on vanity or surface-level metrics that don’t always reflect the true impact of specific marketing campaigns or product features. It’s like the beach muscles of tracking; engagement may look good but doesn’t do much regarding your sales.

These beach-type metrics include active users, page views, and bounce rates, providing essential information but don’t go deep enough, revealing deeper insights about user behavior.

For example, tracking user engagement metrics like click-through rates or time spent on site can help businesses understand which parts of their website or app are the most successful in driving engagement and conversion rates.

Retention Rate And Customer Lifetime Value (CLV)

Selling to a repeat customer is at least 10x easier than trying to try to sell to a newbie. Understanding your retention rate and customer lifetime value (CLV) are essential metrics in assessing your campaigns and your business’s profitability in general.

 So what is a reasonable retention rate? 5-20 percent in sales would be awesome.

Your retention rate is the percentage of customers who return to use your products or services over some time. Key retention metrics include the number of active users over time, churn, and customer retention rates.

For example, a business may see that customers acquired through one marketing channel have a higher retention rate than those obtained through another channel. This information can be used to adjust marketing efforts to focus on a more effective channel.

But take a look at your overall lifetime value of a customer.

This metric is the one that matters the most.

CLV is the total revenue a customer generates throughout their relationship with a business.

Understanding how long a customer has been with you, the length between repeat sales, and how much overall sales volume they’ve brought to you will help you target your campaigns to these types of individuals.

Think about Coke versus Pepsi. Of course, for an avid Coke fan, it’s foolish to drink Pepsi and vice versa. But analyzing the brand loyalty of Coke drinkers versus causal drinkers and even Pepsi drinkers helps Coca-Cola know who to target and estimate how much of their sales are from repeat fans.

Conversion Rate And Revenue Per User

At the end of the day, your sales and conversions are what is going to matter. most. Focusing on engagement will only help you make good-looking ads but understanding which ads and campaigns convert the best will see your returns soar.

In other words, measuring the success of your campaigns goes beyond simple vanity metrics such as the number of website visitors or social media followers.

The two most important metrics that help measure the effectiveness of a business’s marketing efforts are conversion rate and revenue per user.

A higher conversion rate indicates a more effective marketing strategy and increased revenue.

Conversion rates can be tracked for each acquisition channel to determine which marketing efforts drive the most desired actions.

On the other hand, revenue per user calculates the average revenue generated by each user. This metric considers various factors, such as the cost of acquisition and the lifetime value of a customer.

The value understanding these insights will help you scale the ads and campaigns that are most effective for your growth and to eliminate the ones that are anchoring you down.

For example, customers acquired through paid advertising may have a higher conversion rate than those obtained through organic social media. Additionally, certain product features, such as ease of use or convenience, can impact a customer’s likelihood to purchase and, ultimately, affect revenue per user.

In conclusion, measuring conversion rate and revenue per user is critical for a business to track the effectiveness of its marketing efforts and understand the lifetime value of its customers.

By considering acquisition channels, marketing efforts, product features, and user engagement, you’ll better optimize your strategies to increase revenue and retain customers.

With cohort analysis, you’ll get a powerful tool for analyzing data over time and gaining actionable insights into the behavior of different groups of users.

You can make informed decisions and stay ahead of the competition by tracking key metrics and normalizing your data by cohort size.

So tracking all the data you get from cohort analysis can be challenging to set up, customize, and generate. You can try and do it all on your own, or you can utilize the superpower that is Hyros.

Hyros provides software that will customize your reporting to the most granular level so you can see how much a person is engaged with your marketing, how long it took them to convert, and how often they come back.

If you’re ready to get detailed, accurate, and immediate insights into your campaigns and improve your ROI, you’ve got to check out Hyros.

Ready to get started? Book your free call today.