Cohort analysis is a powerful tool that authorizes organizations to understand user behavior and measure their retention and engagement over time. In light of the ever-evolving technological landscape and the increasing accessibility of mobile device labs, businesses often face hardships when determining the most effective approach for conducting cohort analysis.
What Is Cohort Analysis?
Cohort analysis is a behavioral analytics subset that fetches the data from a given eCommerce platform, online game, or web application and then breaks them into corresponding groups for analysis rather than looking at users as one unit. These cohorts or related groups share common experiences or characteristics within a specified time.
Cohort analysis is a valuable tool to assess and monitor user engagement over a specific period. It assists in knowing whether user engagement is improving over time or only appearing to enhance because of growth.
Cohort analysis separates growth metrics from engagement metrics. This is valuable for organizations as growth can efficiently mask engagement issues. In reality, the old users’ lack of activity is masked by the remarkable growth numbers of new users. This results in obscuring the lack of engagement from a small group of people.
There are two types of cohort analysis:
Acquisition Cohorts: The concept of acquisition cohorts involves categorizing users based on the time in which they acquired a product or signed up for it. The acquisition, or when the user signs up for a product, must occur within a specified period. The acquisition event incorporates buying a product, downloading an application, registering with a brand, and more.
Acquisition cohorts typically answer the Who and When questions like:
“Who is purchasing the products?”
“When did they first purchase?”
Besides, acquisition cohorts help identify new users churning for a specific period, facilitating the organization to adequately measure customer retention and churn rates across a particular time.
Behavioral Cohorts: In the behavioral cohorts, users are categorized and grouped based on their actions after acquiring the product in a specified time frame. Whether the user enjoys the product or not is influenced by their little behaviors and activities.
For instance, utilizing a particular feature, the frequency of social media platform posts, the number of television shows they watch sequentially after subscribing to a streaming service, or the selection of restaurants made on a food delivery application by users. The advantage of utilizing the behavioral cohorts is acquiring more insight into the user base. This helps track what people do or do not do with the product.
Ways To Measure User Retention & Engagement Using Cohort Analysis
User retention is necessary for the success of an organization. It describes an organization’s ability to turn new users into repeat customers. User retention differs from customer loyalty. It refers to the users continuously purchasing from a particular enterprise or brand and not vigorously looking elsewhere.
User retention and customer loyalty are linked together because user retention is often the foremost step in establishing customer loyalty. You should keep track of various metrics to measure user retention and engagement using cohort analysis:
Assessing User Retention & Engagement
To assess user retention and engagement effectively, organizations ought to consider multiple factors and employ a combination of metrics and analysis techniques. A vital metric to monitor is the user churn rate, which quantifies the proportion of users who discontinue their product or service usage within a designated time frame. A low churn rate implies higher user retention and engagement.
Besides, organizations can assess user activity levels by monitoring metrics such as daily or monthly active users, session duration, and frequency of interactions. These metrics provide insights into how often and deeply users engage with the product. Another valuable approach is conducting survey feedback or user interviews to understand user satisfaction and identify any pain points or areas for improvement. By combining quantitative and qualitative data, businesses can thoroughly understand user retention and engagement and make informed decisions to enhance the overall user experience.
Calculating User Retention Rate
The most apparent and straightforward metric to measure user retention is the user retention rate. Calculating the number of loyal customers and the amount of repeat business generated is essential to understand better whether your business is performing well.
The user retention rate is represented quantitatively as a percentage. To fetch this user retention rate percentage, you must deduct the number of newly acquired customers from the total number of customers at the end of a given period. Subsequently, the outcome should be divided by the initial number of customers within a given timeframe and multiplied by 100.
Net Incremental Revenue
Net incremental revenue focuses on the shift in net revenue generated by an organization after increasing the sold quantity, that is, running a promotional offer. The expense of performing such an activity is also considered.
The net incremental revenue metric is a crucial measurement because it assists in tying the market to the much larger objectives of the business. Also, it helps executives understand a program’s influence and prove the ROI (Return on Investment) of marketing.
Existing Customer Revenue Growth Rate
Basically, the customer revenue growth rate measures the revenue an organization generates from customer success, loyalty, and retention. A rising customer revenue growth rate implies that the marketing team works competently for cross-selling, upselling, increasing purchase frequency, and more. Otherwise, this rate will flatten or decline.
Furthermore, a stagnant existing customer revenue growth rate is inadequate because it indicates that the organization is not evolving or making any advancements. This could pose a problem for the sustainability of the business in the long run.
It is essential to note that this metric is calculated only every month. Besides, any revenue generated from recently acquired customers should be excluded.
Repeat Purchase Ratio
The repeat purchase ratio, also known as the loyal customer rate, measures the customer percentage that frequently do business with the organization in a particular time frame. This is an excellent way for the sales and marketing team to assess and evaluate the effect of the customer retention strategy that the organization has used. The repeat purchase ratio metric can be a lopsided way of evaluating customer loyalty as it does not consider individual customer behavior.
The repeat purchase ratio metric usually applies to tangible products. However, it can also be utilized for contract renewals or repeat subscriptions. Furthermore, the metric is useful for its applications to specific demographics. Identifying the types of customers that repeat their purchases authorizes the organization to acclimate its target buyers. This will also help the marketing and sales team to concentrate their efforts.
The churn rate calculates the percentage of customers who have stopped utilizing your product during a time frame. Generally, if an organization’s churn rate reaches 5% to 7% or above, it is a sign to examine the aspects that could be affecting customer satisfaction and take the required measures.
There are two types of churn rates:
- the revenue churn rate
- the customer churn rate
Daily, Weekly, & Monthly Active Users
An indication of customer churn commonly manifests when there is a decrease in customer interaction with your product. This can be thwarted by engaging the customers. For this, the organization needs to analyze the gathered behavioral data and develop a customer engagement strategy.
After that, it is crucial to monitor the activity and engagement. If the engagement benchmark is still unmet, new approaches should be utilized.
Utilizing A Mobile Device Lab
To augment user retention and engagement assessment, organizations may want to consider leveraging a mobile device laboratory. A mobile device lab is a dedicated testing environment that authorizes organizations to test their mobile applications on various devices, operating systems, and screen sizes. This lab furnishes a comprehensive view of how the app performs across different devices, guaranteeing a seamless user experience.
By utilizing a mobile device lab, organizations can identify any compatibility issues, performance bottlenecks, or user interface problems that may impact user retention and engagement. Besides, the lab enables organizations to conduct real-world testing scenarios, replicating various user interactions and conditions to measure the app’s performance and gather valuable insights accurately. Overall, utilizing a mobile device lab enhances the accuracy and reliability of cohort analysis, enabling businesses to make data-driven decisions to optimize user retention and engagement strategies.
Using Product Analytics
Product analytics platforms provide the greatest flexibility and depth in analyzing cohorts. Google Analytics solely offers acquisition data, whereas product analytics provides comprehensive insights into cohort behavior throughout the customer journey. Various other analytics tools help measure this, such as Heap, Userpilot, 30Amplitude, and more.
Locating the cohort groups that surface the most data can be tricky. Organizations might not know which activities or behaviors correlate most with churn or retention. This is why investing in a solution that effectively monitors and records every event occurring on the website is essential.
Unleash The Power Of Cloud Testing Platform
Cloud testing platforms provide a scalable and efficient solution for conducting cohort analysis on a large scale, enabling testing across multiple devices, operating systems, and network conditions. By utilizing a mobile device lab within a cloud testing platform, developers and analysts can efficiently gather data on user behavior and engagement metrics, such as app usage, session length, and retention rates. This data can then be analyzed utilizing cohort analysis techniques to pinpoint patterns and trends in user behavior over time.
Besides, cloud testing platforms often offer advanced features like automated test execution and real-time monitoring, authorizing quick and accurate data collection and analysis.
Furthermore, cloud testing platforms like LambdaTest deliver the advantage of testing under different network conditions. By emulating varying network speeds and connectivity, developers can analyze how user engagement and retention are affected by different network environments.
LambdaTest is an AI-powered test orchestration and execution platform to run manual and automated testing at scale. The platform allows you to perform both real-time and automation testing across 3000+ environments and real mobile devices.
In the end, an organization is all about that customer relationship. A proper cohort analysis helps a lot with customer retention. It helps to accurately track user engagement trends and reduce potential problems to ensure complete customer satisfaction. Customer retention rate is essential to measure a marketing and sales strategy’s overall success, but the cohort analysis furnishes a visual of that. Organizations can nurture existing customer relationships and develop new ones that last longer by understanding the customer’s behaviors and preferences.