Cohort Analysis - 4 Ways to Analyze Your Product Retention Rate

Roshni Khatri

30th Aug'22
Cohort Analysis - 4 Ways to Analyze Your Product Retention Rate | OpenGrowth

We cannot undervalue the consumer retention initiatives as they are the king of the market and a boon for the business. Your ability to examine them will determine your client retention success. Utilizing retention strategies and reducing marketing expenses can be accomplished by knowing when to make a subtle adjustment and when to make a sudden turn.

Retention is the prime element for the success of a business. It demonstrates the enduring engagement of your most devoted users, which is a potent indicator of a product/market fit as it affects the lifetime value of each user and the amount of money each cohort will generate over time. 

In short, product retention rates play a vital role in successfully leading the business. Let's explore product retention analysis in more detail and discuss how to make the most of it.

 

Cohort Retention Analysis

Cohort retention is an essential indicator of a company's health. The term "cohort retention analysis" refers to analyzing retention metrics across groups of consumers with certain common characteristics. 

In other words, every businessman should know it is a powerful technique. Product managers and marketers use cohort analysis to test theories about how customers interact with their products. Then, they use those insights to influence other company metrics such as revenue, retention, and conversions. 

 

Product Retention rate

 

Three categories of data—acquisition, behavioural, and predictive—can be distinguished using cohort analysis. Each can be used to respond to various kinds of business queries.

There are prime methods to analyze the retention rate of your company's product and sustainable business practices. Some of these are described as under a look!

 

1. The Basics

Regarding common retention reports, they use days, weeks or months based on the installation date for the cohorts, whether the mobile app or registration date. They count the number of users who started in a particular cohort and continue using the product. 

Moreover, the report reflects how many users started each day, week, or month. With this, it also states what happened to them next time, for instance, how many churned and continued to use the product. 

In the first 30 days, the average mobile app loses 58% of its users. And in 90 days, it loses 75% of its users. These numbers are based on the visit of the user on the app. Although tracking return visitors can help you gauge how engaged consumers are over time. 

For many brands and businesses, this is insufficient, and the retention must be based on a significant activity that the consumers are anticipated to repeat. Such as buying a good or assigning or completing a task. 

With this, several businesses use retention reports based on the months because a customer places an order once a month. Cohorts are determined based on registration dates; however, if your product experiences late conversion, like the significant action happens long after the first sign-up, then you may set the cohorts based on the first activity date rather than the signup date.

Every entrepreneur uses all these techniques to determine retention rates.

 

2. Shifting the Focus from Users to Revenue

There are some errors while measuring the retention based on the number of active users every month. Such as:

  • It cannot measure the number of sessions, deals, volumes and revenues.

  • It does not evaluate the frequency of using the app, for instance, once a month or every day.

  • With this, we cannot assess whether the same buyer is using the product every month or not.

Therefore, we can use two additional elements in cohorts to get rid of these problems. The first one is the retention rate based on meaningful actions produced by every cohort every month, like several sessions, orders, posts, games and many more. And the second is the retention rate based on the revenue or income produced by every cohort each month.

 

Product Retention rate

 

3. Focus on Cohort-Based Revenue

Here's another wonderful method to analyze your cohorts and comprehend how retention affects the effectiveness of your product, such as the below-mentioned graph, showing the monthly revenue generated by different cohorts.

Each layer in the graph above stands for a cohort. The data is the same as previously, but the visualization makes it clearer to understand: the thickness of each layer over time corresponds to the cohort's retention rate. Higher retention results in thicker layers, which support your monthly revenue stream in large numbers.

Thus, this kind of diagram can help you determine the revenue growth and the number of users each month. Many firms boost their user acquisition expenses to show growth, which causes the revenue graph to expand. 

However, seasoned businessmen may spot issues immediately by assessing retention rates, using this cohort-based analysis, and calculating the unit economics.

 

4. Google Analytics Used for the Cohort Analysis

Any marketer may extract data on website traffic, important KPIs, and conversions with Google Analytics. Even if you are not an advanced user of GA, it also includes a nice cohort analysis option that you may employ. Google Analytics is a good place to start when doing cohort analysis.

You can adjust several cohort options at the top of the report to produce the cohort report. Here are some options you can change, such as cohort type, size, metric, and date range.

 With this, there are some prime terms stand for:

Cohort Type

The customer or data set you to want to study. Google Analytics currently only provides one cohort type, the acquisition date, which refers to the user's initial interaction with your item.

Cohort Size

The length of time for which you intend to conduct the cohort analysis is referred to as the cohort size. A day, a week, or a month would be appropriate here.

Date Range

The date range is the time frame for which you want to do the cohort analysis. The date ranges for a month, such as "last two months" and "last three months" are available in Google Analytics.

 

Product Retention rate

 

Metric

Specific per-user metrics can be the focus of the cohort analysis report. User retention is the Google Analytics measure that is set as the default. Aside from that, there are some other metrics which you can use:

  • Goals attained by each user

  • Page view per user

  • Revenue Per user

  • Session or duration per user

  • Transaction per user

 

Conclusion

There are numerous techniques to investigate the cohorts' performance. Retention rates are the primary motivator for almost all of them. High retention rates can be translated into solid, recurring monthly revenue that supports both the stability of the business and its growth. Thus product retention is the high priority goal for every marketer. 
 

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A keen observer, who loves to spend time with nature. A fun loving person, enjoys to explore the new aspects of life. Passionate about reading and learning new things. Roshni is dedicated towards her work and has worked in different professions.

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