For this article about cohort analysis, we will pick where we left off by discussing following topics:
- Cohort Analysis And Conversion Optimization
- Cohort Analysis And SaaS
- Cohort Analysis And Mobile Apps
- The Most Important Cohorts In Cohort Analysis
- Specialized Apps For Cohort Analysis
- Final Tips And Tricks
- Recommended Reading: Articles And Guides
8. Cohort Analysis And Conversion Optimization
Defining and using the right cohorts can mean the difference between user churn and increased conversions. Doing it from the outset will help you in the long run. The best way to think about the proper cohorts is that you’re not limited to just one action.
Let’s say you have a mobile game and you want users to stay more within the app, return more often and eventually purchase an in-game item. If you’re looking for a specific number in terms of a good conversion rate, I’m sad to report that it is in the 2%-3% range. Let’s put it another way, if you’ve got 1.000 new users each month using your app, only 20 to 30 will end up buying something from the game. And they might only purchase once.
Given these stats, it is easy to see why conversion and retention optimization is crucial for your website or app survival. Moreover, Cohort Analysis is key to finding very specific user data you can act on.
Since you’ll be playing with many data, understanding the difference between segments, cohorts and personas are a useful piece of knowledge. This detailed article over on the Moz blog give you more insight into them.
9. Cohort Analysis And SaaS
In SaaS land, free trials are golden. Moreover, while some services like HiMama, BambooCricket and Kinsta do NOT offer free trials, they remain an excellent lead generation tactic for businesses. Of course, if it does not make sense to provide one, you probably shouldn’t.
Using this New Breed Marketing template, you get to determine things like:
- Free-trial-to-paid Conversion Rate by persona
- MRR generated by free trial by persona
- Customer churn by persona
- MRR churn by persona
- Cumulative revenue in lifetime month vs. CAC by
- and more
So not only are you using cohorts to improve your SaaS business, but you are also integrating Customer Personas for an even more personalized service for your customers.
Remember, a traditional Conversion Funnel can only take you so far. Moreover, if you are waiting 6 to 12 months to recoup those initial free trial costs, you’ll want to use Cohort Analysis to see what impact that initial investment in your users had in the long run.
When your SaaS Sales Funnel tends to get a bit more complex, you need the right tools to measure Conversion Rates at each step. Lucky for you, Pierre Lechelle has put together an impressive list of tools, services and info all about optimizing your Saas business.
10. Cohort Analysis And Mobile Apps
DAU (Daily Active Users) and MAU (Monthly Active Users) are standard metrics anyone should track in their mobile app. To grow your user base and retain more of them, you’ll need to dig deeper. Again, this is where Cohort Analysis comes in and saves the day.
The two largest cohorts to use for Mobile Apps are Acquisition Cohorts and Behavioral Cohorts. The first type shows you when and how your users signed up for/downloaded the app. The second type is more complex, tracking users’ actions within the app. These can range from just opening the app up to sharing it with their friends, buying in-game currency, and others. You’ll want to track how long these users stay with your app before they drop off.
What you’re looking for are predictable metrics that can help you understand how your users feel about your app. Most people employ review prompts and they track usage data. Based on this alone, you’ll have to see if users are interested in your app, if they’re using it out of boredom (nothing wrong with that), if they’re using it at particular times of the day, etc. Once you’ve started seeing patterns, you can improve your app and your in-app triggers to make them play more or share it with their friends, for increased conversions.
Take this graph from Evernote as an example. Over three years their app retention is bigger year over year. That is because of the nature of the app. It is natural to use the app more at first and then return from time to time to it. However, since you are filling your account’s storage little by little, you find yourself using it more and more. So they end up with a “smile graph” and what is essentially a negative churn. We should all be so lucky!
11. The Most Important Cohorts In Cohort Analysis
Depending on the type of business you are running, your cohorts will vary. For SaaS, for example, you are tracking things like:
- MRR (Monthly Recurring Revenue).New user acquisition costs add up. It is always better to retain more customers with a higher lifetime value than try to go for smaller clients with shorter lifespans.
Once you have an understanding about how much you are earning per month vs. how much you are burning, you can make plans and predictions for your products, services and business.
- VTCR (Visitor-To-Trial Conversion Rate).It is the classic Act element from the RACE framework. The bigger the number of visitors (Reach) and the higher your Conversion Rate at this step, the more users you’ll have signed up for your free trial.
Usually, the next phase in the funnel is transforming those trial users into recurring revenue clients.
- TTPCR (Trial-To-Paid Conversion Rate).Once the trial is over, you’ll want to see how many of those users are happy enough with your product/service to wanting to pay you on a monthly basis.
It is key here to start talking and listening to your customers as early as you can, so you can get a feel for what their pain points are and help them accordingly.
- MUV (Monthly Unique Visitors).You cannot have 1 million new clients a month without having at least 1 million new visitors on the website first (that is unless you are somehow converting users outside of your site to some referral system).
When you make plans for your business, once you go back from the MRR, you’ll end up at MUV. Not only quantity is important here, but also the quality of that traffic – a better lead is worth more than two bad ones.
Since SaaS is a different beast than a regular business, you might want to track your metrics in a dashboard similar to this one:
But going back to cohorts themselves, you’ll want to track things like:
- Users by the week or month when they signed up(you can get a feel for particular periods of the year when signups are higher than other periods)
- Users by traffic source(this will help you understand which channel is the best for user acquisition, in terms of quality and cost)
- Time first activated(when they first engaged with your website in a meaningful way – registered for the newsletter/webinar/demo, began a free trial, etc.)
- Usage frequency/intensity(based on this, you’ll think of ways to reward premium users or reduce the free trial limits)
- User entry mode(were users referred to the system or did they sign up on their own?)
These help you gain a better understanding of your users’ motivations. You can see if they signed up on their own, if there are certain times when people sign up or individual sources that convert better than others. Once you’ve made the decision to track all these, it’s time to move on to step 2: use the data to take decisions about your website.
No matter what you sell or what your business model is like, you rely on your users to provide you with data you can work with. You can then implement new triggers, optimize signup forms, provide a better experience based on location, time of day, traffic channel, etc. All this – in order to optimize your Conversion Rate.
12. Specialized Apps For Cohort Analysis
While Google Analytics recently added Cohort Analysis to its first package, it’s quite limited at this time. Not only that, but since it’s part of a bigger analytics package, it’s hard to give you a complete and comprehensive experience. For that reason, we’ve assembled 3 apps we feel would help you more with your Cohort Analysis.
Focusing on your SaaS business, ChartMogul integrates with Stripe, PayPal, Braintree, Chargify and Recurly. This gives it access to your payment data so it can build custom recurring revenue reports.
Based on this data, it calculates your Monthly Recurring Revenue, Churn Rate, Customer Lifetime Value and much more. Moreover, since it is your data, you can be sure the created dashboards will always be unique to your business. You will not have to adapt to other apps’ ways of showing you insights; ChartMogul adapts to you.
Cohort Analysis is much more visible here, with a greater emphasis on what’s driving your business forward and what’s holding you back. It doesn’t hurt that the overall graphical interface is better than Google Analytics.
This allows you to connect the apps you currently use to run and analyze your business, in order to give you better insights. This helps you answer crucial questions like “Which of my ad channels have the highest ROI”, “How many subscribers upgrade, downgrade or churn [in a specified time period]?” or “What’s the optimal price point for my products?”.
With RJMetrics, you get to define how your metrics are calculated. This means that now longer are you restricted to the default ways of measurement. If your revenue model is different for your business, that is great. Just define that as you see fit, and you are ready to go with the right data.
RJMetrics is not mean to be a replacement for Google Analytics. In fact, it connects to it, Google AdWords, Trello, Stripe, Facebook Ads, Salesforce and a lot more. They all work together seamlessly in RJMetrics’ dashboards.
Initially just a basic analytics package, Woopra has come a long way since its launch. It now focuses on Real Time Customer Activity, whether that is your website, your app or both.
It builds comprehensive profiles for each one of your users. They are anonymous until they give you and email address or a phone number. After that, each action and interaction with your business become data in Woopra.
Based on your users’ behavior, build segments and analyze cohorts. Go further and use that data to your Funnel Reports, showing you where users drop off and what their conversion journey is like.
Since it connects to other apps like Box, Qualaroo, MailChimp, SendGrid, Slack and HubSpot, your data suddenly becomes actionable and, you can send personalized messages and notifications to your users through those channels. Time to say goodbye to the same generic words for all your visitors.
13. Final Tips And Tricks
- Define your cohorts early on.Once you have a few key actions you want your users to take (sign up for the newsletter, buy in-game items, etc.), you can start defining your primary cohorts. Since you’ll be doing this at the beginning, you’ll have a better understanding of what’s going on with your business. Be patient and look at the most important actions first. Along the way, you are free to define secondary cohorts and even combine key actions to build new ones. But don’t get too complicated at first.
- Pay attention to the right metrics for your business.Every business is unique. Even stores that sell the same type of sports equipment (for example) have different customers, a different location and different prices. The cohorts that are used for one business may not apply to yours. Figure out what makes you unique and define your cohorts so that you can provide a great user experience.
- Don’t be afraid of paid apps for Cohort Analysis.We’ve mentioned a few apps in the previous chapter that can help you with your Cohort Analysis. Even though Google Analytics is free and does provide this type of analysis, it is not its main focus. Therefore, it is harder for it to compete with specialized apps that do just one thing much better. Since most offer a free trial, there’s no risk of trying them out. You might find that you are less frustrated by free Cohort Analysis apps, and you get great insights from these paid ones.
- Build upon your Customer Personas.Plan your key user actions according to your Customer Personas. You can place your Call To Action at the middle of the page all you want, but if your users are mostly scanners, they will only glance at your text and never pay attention to all of it. The same goes for apps, games and websites. If you are not focusing your efforts on understanding your users and their behavior, you are missing out. Couple Customers Personas and Cohort Analysis to get an overview of what’s working and what needs to be improved in your business.
- Use the Conversion Funnel together with Cohort Analysis.The Conversion Funnel is not obsolete; it is just incomplete. It is definitely not broken, but it needs to adapt to the new digital marketing scenario. One where you are looking at a lot more data than before. A scenario where you can customize and improve your users’ experience, based on the data that they provide to you. Improve your existing Conversion Funnel by adding another layer of Cohort Analysis on top of it. You’ll be surprised and delighted by the results, if everything goes according to plan.
14. Recommended Reading: Articles And Guides
Now, I know what you’re thinking – there is simply too much information about cohort analysis in one sitting!
Fear not, for I have prepared a short overview of both articles that feature their main points and valuable links and resources that were featured throughout the articles.
To get access to the overview, download the PDF file below.