Cohort Analysis

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Cohort analysis is a method of studying groups of customers who share a common starting point, such as the month they signed up, to see how their behaviour, such as retention or spending, changes over time.

Looking at all customers together can hide important patterns. Cohort analysis separates customers by when they joined, so each group's behaviour can be tracked and compared.

For example, an app company might find that 40% of customers who joined in January are still active after six months, while 55% of those who joined in June are still active after six months. This suggests that recent product improvements have increased retention.

Cohort analysis is widely used by subscription businesses, online retailers, mobile apps and lenders. Common measures include retention rates, revenue per customer over time, repeat purchase rates and default rates for groups of loans issued in the same period.

It helps businesses judge whether growth is healthy. Total revenue can rise because many new customers are joining, even while each cohort is leaving quickly. Cohort analysis reveals this. It also shows the effects of changes in marketing, pricing or product features on new customers.

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