Cohort Analysis

Cohort Analysis is a subset of behavioral analytics. The term cohort implies “a class of people
who have common characteristics.” In ancient Rome, cohorts referred to military units with a
certain number of men. The extended implication of the word “cohort” now infers “any group of
people with a common statistical trait.” 

It is usually carried out for turning analyzing robust and relevant. There is a difference between
cohort and segments. When groupings are time-dependent, it is known as a cohort. When time-
dependent aspect is missing in group examination, it is a segment.

Example of Cohort Analysis

In Finance, Cohort Analysis can be defined as a reasoning scale to divide user data and study it.  
Cohort Analysis is common usage in today’s world where businesses have moved closer to their
customers. The most common examples appear in eCommerce firms. Take, for example, an e-
commerce business generating data on his customers who have purchased products from the
online portals. 

The information offers readings into customer spendings, experience, returning, negative
feelings and positive comments by happy shoppers. 
Notably, when the groupings are done based on time, any characteristic other than time-
dependent variables is referred to as a segment.

Another example is when acquired users are tracked and compared across different periods.
Check out this illustration:
In this example, a webpage owner wanting to evaluate the traffic on his webpage and the revenue
that it is creating. Following are some denotation:
 Series 1 – New-users revenue
 Series 2 – Old-users revenue
 Series 3 - Monthly revenue (Add series one and series 2)

He performs an analysis by segregating cohorts on timely-basis. He makes the following

classifications after examination -
 Cohorts in the time-period August to October have grabbed highest revenue in new-user
segment (as a proportion of monthly income)
 Cohorts analysis in the time-period January to March have the lowest revenue in the new-
user segment.
 Despite higher revenue from new-user cohorts, monthly income did not rise because of
low payment from old-user affiliates.

Performing Cohort Analysis

It can be completed in the following manner:
#1 - Determine the Objective of the Analysis
Like every other analysis, it also needs objectives that it can fulfill, and for that, the user must
preliminarily determine what is the goals of cohort analysis. 
E.g., Find the revenue generated by a website or a complex issues like strategizing for a
improvement to the webpage using cohort.
#2 - Carve out the Metrics that Associate with the Objectives
After having the determined objective, the user should look for appropriate metrics that will
improve the success rate of the cohort analysis.
E.g., the number of retained customers, the number of tickets sold, the per-user fee generated,
etc.
#3 - Determine important Cohorts

If the study is about finding customer retention rate on a webpage, then the user should
determine which customers to identify as a cohort between certain groups like old customers,
new customers one-time customers, etc.