What Is Cohort Reporting?

What Is Cohort Reporting?

Cohort reporting isn’t common knowledge or a common practice. But, it is a valuable tool to ensuring that your customers’ experience is effective and successful.

Simply put, a cohort is a grouping of people or entities with a common element. When looking at a group of customers, the common element is usually the date they became customers. For example, everyone who purchased your product during any given quarter or month would all be cohorts for that specific time period.

Once cohorts are defined by their common element, cohort reports can be built. For example, customer retention for a subscription web-service by cohorts over time by month would look like this:

On the left hand side of the chart is the element in common with the cohort; customers who purchased during the listed month. Along the top are months since purchase, or age in months. The data in the chart itself is the retention rate where “Month 0” is defined as the month they purchased. Since most web subscriptions typically have customers pay for the first month up front, it’s impossible to churn that month, therefore the retention rate in Month 0 is 100%.

But, starting in “Month 1,” the retention rate begins to drop. For example, of all the customers who purchased in January 2012 [Month 0], 81% of them were still customers at the end of Month 1. Only 75% of the original cohort are still customers at the end of Month 2, and so on. Using whole numbers for convenience, if the January cohort is 100 customers, this means 81 are still active at the end of Month 1 and only 75 are still subscribing at the end of Month 2.

With an understanding behind the basic concept of the cohort report, it’s not too hard to see why they’re so valuable. The first is that looking at cohorts is a clean and concise way of looking at data. The reason is that once a cohort is defined, it is static and won’t change. So, in this example, when looking at retention rates by cohorts, you can really understand how well you’re retaining customers. If instead you looked at retention rates across your entire customer base, the data will be much less clean as you’ll have a mix of older customers-- who historically have high retention rates-- and newer customers, who generally have lower retention rates. So, as you try and understand why your retention rate may be to low or fluctuating a lot, you won’t really know if it’s being impacted by newer, older, or some other segment of customers because without defining that common element that groups the cohorts, the data seems too dynamic.

The second reason cohort reporting is valuable is it makes it very easy to identify patterns. For example, in the above chart, it is very clear that customers who purchased in May or later have significantly higher retention rates compared to customers who bought before then. So, if there was a major change in how you delivered your business in May, for example to your onboarding process, expectations set during sales, new product feature, etc., the above data would help show that the changes had a very positive impact on the retention rate of your customers.

Here is another example:

In the above cohort report it can be clearly determined that February and April cohorts outperform the other cohorts shown. While this chart doesn’t tell why that is happening, those customer cohorts can be investigated to find out. Once the reason why those cohorts are doing so well is determined, the identified cause can be reproduced and then another cohort report can determine if, as in the above example, it made an impact on retention.

This article was just a summary of what cohort reporting is and why it is valuable to your customer success.  If you’d like to learn more about cohort reporting, see examples of other patterns you might find, and learn about other kinds of reports for customer success, then please read our simple guide to churn analysis.