Cohort Analysis

Cohort Analysis is a subset of behavioral analytics. Cohort means “a class of people who have
uncommon characteristics.” In ancient Rome, cohorts used to be a military unit with a certain
number of men. The extended implication of the word “cohort” now infers any group of people
with a standardized statistical factor. 

Usually it is carried out for turning the analysis, robustness and relevance. There is a difference
between cohorts and segments. When the groupings are time-dependent, it is known as a cohort.
When the time-dependent aspect is missing in a group examination, it is known as a segment.

Example of Cohort Analysis

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

The information offers readings into customer spending, experience, returns, negative feelings
and positive comments by happy shoppers. 
Notably, there are times 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 the segment is acquired, the users are tracked and compared across
different periods.
Check out this illustration:
In this example, a webpage owner wants to evaluate the traffic on his webpage and the revenue it
is creating. Following are some denotations:
 Series 1 – New-users revenue
 Series 2 – Old-users revenue
 Series 3 - Monthly revenue (addition of series 1 and series 2)

The analysis is performed by segregating cohorts on a timely-basis. The following classifications

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

Performing Cohort Analysis

You can complete this 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, you must
preliminarily determine on what are the goals of cohort analysis. 
E.g., find the revenue generated by a website or complex issues. This might involve strategizing
for an improvement to the webpage using cohorts.
#2 - Carve out the Metrics that Associate with the Objectives
After having the determined objective, you should look for appropriate metrics that will improve
the success rate of cohort analysis.
E.g., finding out the number of retained customers, the number of tickets sold, the per-user fee
generated, etc.
#3 - Determine important Cohorts

The study might be about finding the customer retention rate on a webpage. For this, you should
determine which customers to identify as a cohort between certain groups. For example, this
might involve old customers, new customers one-time customers, etc.