All marketers know what their total mobile marketing spend is. Yet, only a few understand exactly how much their weekly ROI is. Cohort analysis is a great way to analyze and understand marketing at
a granular level.
It answers most of the fundamental questions marketing teams ask: How many days on average does it take for a new user to make a purchase? Did the users you acquired in a given week spend more money than users acquired during another? Cohort analysis is a powerful tool for marketers that want to use data driven methodologies to optimize their performance.
What is cohort analysis?
A cohort is a group of users who were acquired from a mobile marketing initiative over a certain period of time, for example, one week. Cohort analysis tools simply follow this group week over week and monitor their return. This type of analysis offers marketers a tremendous level of insight into users’ lifetime value, improves marketing funnel conversions and helps optimize campaigns directly to revenue generated.
Benefits of cohort analysis in mobile marketing
One popular way to look at cohort is to monitor the rate of return for the first week and set a target, such as 25% return on ad spend. Over time, you monitor your return and improve your marketing, which should enable you to beat your target. By looking at different cohorts, the true performance of your marketing becomes clear. When you make a change, it is represented in that week’s data. You don’t have the performance from a previous week masking the true performance.
Over a longer period of time, such as 12 weeks, the lifetime value of users acquired becomes very easy to understand. You simply add up the 12 week return of each cohort and compare. Some weekly cohorts will be stronger than others, but an average 12-week trend should emerge once you have collected enough data.
Cohorts are also good for spotting weekly, monthly or seasonal trends. In most mobile retail cohorts, you see a sharp drop in purchases seven days before a major holiday. This is because most mcommerce has to happen in advance of the holiday to have the goods shipped on time.
How does it work?
First, marketers need to have a conversion tracking solution in place to capture all the data they need to do cohort analysis. The data required to track differs by vertical. Retailers may want to measure registrations, purchase data, repeat purchases and total revenue per purchase. Travel marketers often measure hotel bookings, airline reservations and car rentals. For other verticals, marketers should measure data that is most relevant to their business.
Once conversion tracking is up and running, you can access the raw data you need. The more data you have, the more options you have to segment cohorts. Create cohorts based on the week in which newly acquired mobile app users downloaded your app. Then measure all purchases that cohort makes over time. The final product of a cohort analysis is an easy to read table or chart showing the breakdown of total marketing spend compared to data tracked and lifetime value for each cohort.
Recommendations for marketers
Finding a partner that brings a high level of accuracy to cohort analysis is critical, especially when optimizing to revenue. Marketers should seek out a platform that solves all of their technical challenges, including conversion tracking and cohort analysis, without requiring them to become technologists themselves. Find a platform vendor that speaks your language.