A way to evaluate your business is called cohort analysis. This involves grouping customers in groups and watching how they behave over time. Monthly cohort analysis is a common approach. Customers are placed in groups according to the month that they joined. This allows you to compare how someone who signed up in November with someone who joined the previous month.
Cohort analysis provides a multivariable and forward-looking view of the business, as opposed to static numbers like totals or averages.
Cohort analysis can be flexible and used to analyze many performance metrics, including revenue, acquisition costs, and churn.
Imagine that you are the Chief Marketing Officer of the Bluetooth Coffee Company. This tech-enabled coffee maker brews and tracks coffee consumption, orders replacement coffee when it runs low, and sends out reminders to customers. You make more money the longer your customers stay subscribed. A popular deal site recently featured a Black Friday section. You want to know if it should be repeated.
Below is a chart that you can use to evaluate your marketing performance. This chart shows the number of customers each month and the clear spike in November after the Black Friday promotion. It looks like you had more customers than October in November.
Before you book the promotion again, it is worth asking if these Black Friday customers are really as valuable as they appear. It is possible to compare monthly customer percentages.
Below is a monthly analysis of new customers for the period September 2020 to February 2021. We have included, as in the previous chart, the monthly cohort size. However, we also include the customer engagement rate. This is calculated by dividing monthly active users by daily active users, or DAU/MAU, for each month. (M1 refers to month 1, M2 refers to month 2, etc.).
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This analysis allows us to compare the customer engagement for each monthly cohort.
The above figures show that the majority of cohorts have a high customer engagement rate within their first month (M1, 42%-46%), which means that 42%-46% new customers use the coffee maker every day. However, the November cohort has a significantly lower engagement rate (M1, 30%) and it remains lower in subsequent months. (M2, 26%) as well as (M3, 27%). The customer engagement rate drops only with the November cohort. It returns to normal with December's cohort (M1, 45%).
