Cohort Analysis: How to Better Understand Your Customers

As an e-commerce store owner, it's important to understand how customers engage with your site, because then you can optimize your pages accordingly. By using cohort analysis, you can achieve an even deeper understanding of your customer base, because you're relying on data parsing and predictive modeling for the future.

Now, you may share the common misconception that you need a data scientist to do this analysis—but you don't. You can easily and successfully do it by yourself, thereby benefiting from its significant advantages, particularly in the context of e-commerce.

e-Commerce Cohort Analysis

An e-commerce cohort analysis will group your clients according to common traits and characteristics. Within each cohort, you can track users' entire customer journey to identify key patterns and any changes in their behavior. Cohort analysis can answer questions like:

• How often do customers shop in your store?
• How much do they spend (average order value)?
• How long do they engage with your store?

Understanding Cohorts

Every cohort is time-bound: it has a start and end date. This is because one user can belong to multiple cohorts during different time periods. For example, a user can buy different products, use different devices to access your site, or carry out actions on different days. You can conduct your analysis more easily when you focus on data set in a certain time period.

For e-commerce, you can analyze the following cohorts:

• Product or service Find out which of your products or services encourage repeat purchases. You can focus on these items in your marketing campaigns.
• Country What works in one country doesn't always work in another. Understanding the different trends according to geographical areas will give you deeper insights into your customers' behavior.
• Marketing channels Determine how customers engage with your marketing channels, because this will help you optimize your ad campaigns.

» Struggling with ad campaigns? Follow this ultimate guide to e-commerce ads

Behavioral Cohorts

Behavioral cohorts allow you to define a specific group of users based on their actions over a specified period of time. For example, customers who buy a discounted product on the same day during a sale period are a behavioral cohort because they have a high affinity for discounts.

Behavioral cohorts can help you understand your customers better because:

• You get to see how your users engage with your business.
• You find out which of your marketing campaigns attract which customers.
• You'll learn how to retain customers and get valuable insights into your churn rate.

Acquisition Cohorts

Acquisition cohorts focus on the "when" and "how" of acquiring a new customer. This can be replicated to acquire more customers. Examples of some grouping factors in acquisition cohorts include:

• Types of discounts used
• Type of marketing campaign with the highest engagement
• Marketing channel with the highest engagement
• Products purchased
• Acquisition dates

The insights you can get from these grouping factors can help you determine which discounts are most popular, which marketing campaigns and channels work best for your business, which products are more popular, and when customers are more likely to convert. Acquisition cohorts will also tell you at which point of the customer lifecycle or journey your users are more likely to drop off.

» What does it cost to acquire customers? Here's how to calculate customer acquisition cost

Additional Benefits of Cohort Analysis for e-Commerce

But that's not all. Here are additional benefits of cohort analysis that you simply can't ignore:

• Identify best sellers Other than identifying your popular products, you can identify best sellers and seasonal trends. This will help you to plan your stock holding according to what your customers want and when.
• Identify your best-performing acquisition channels Knowing which of your channels is enabling the most sales will help you adjust the other channels in a similar way, streamlining the purchasing process for all customers on all channels.
• Reinforce your marketing efforts with data When you know what works and what doesn't, you can adjust your campaigns accordingly— eventually reaching a point where you give your customers exactly what they want.

» Do you have a Shopify store? Learn how to conduct cohort analysis for Shopify

Bottom Line

If you want a thriving e-commerce business, you need to get into the minds of your customers successfully. Cohort analysis will help you achieve this.

Sure, there are other data analytics you can use, but beware of "vanity" analyses that give you numbers that may make you feel good, but don't give you engagement (like cohort analysis does). Engagement is a much richer and more valuable look into the characters and behavior of your customers.

If you need some help with cohort analysis, consider BeProfit's innovative app to help you effortlessly solve the pain points of profit tracking and calculation.

» Need an all-in-one data analytics partner? Explore BeProfit's solutions