tl;dr
The Cohort Report clusters your customers based when they made their first order (one cluster of new customers in a specific time frame = one cohort) and allows you to measure the retention and monetization of your customers over time as well as highlight areas of improvement.
When you have configured your Cost datasources, the Cohort Report enables you to set Customer Acquisition Costs (CAC) targets based on how quickly you want to break even and control whether or not you are reaching these targets.
The Cohort Report enables you to uncover seasonal effects on Customer Lifetime Value and monitor the health of your new customers as you grow your business.
⚡ Since this is a retention report, the Date Range you define in this report select customers that were acquired in that period, but all activities until today are used to calculate the values. More Information here - Date Range Definition
How does it work:
The Cohort Report is a great tool to understand your customers repeat purchase behaviour over time and shows you how it changes as you grow your business. **
The Cohort Report by default breaks up your customers into different groups on the vertical axis based on the month that they first made a purchase. So the data for all customers that placed their first order in let's say January 2021, will be shown in the row starting with Jan 2021. All those new customers from Jan 2021 are one cohort.
Next to that, there is a column for New Customers that show you how many people placed their first order in the respective month.
The following columns then define the elapsed time relative to the starting month. For example:
0 - this contains all activities that took place in month 0, so the month the first order was placed. In our examples January 2021. It contains all values from the first order of each customer plus the values of repeat orders from those same customers in January 2021.
1 - this contains all activities from customers one calendar month after they placed their initial order. So in the example above February 2021.
2 - this contains all activities from customers two calendar month after they placed their initial order. So in the example above March 2021.
You get the idea....
Our cohort reports are based on calendar months. So if a customer places his first order on the 17th of January, his Month 0 only contains his activity from the remaining 14 days in January.
If you want to more or less granular, you can also use the Timeframe toggle to switch weeks or quarters.
By defining the horizontal axis based on elapsed time since first order, you can easily compare of the retention and monetization of different customer cohorts .
What can I analyse:
The cohort reports offer different metics and controls so that you can display it exactly the way you need it.
Metric Display
Incremental - shows only the value for activities that have taken place in this month.
Accumulative - adds up the values from the current and all prior monts.
In most cases, looking at the accumulative values allows you to better compare different cohorts. For some metrics, like the AOV, incremental values are more useful.
Metric Summary:
Total - Shows you the total sum of the activities that took place.
Per Customer - Divides the total by the number of customers in the cohort.
Both of these are useful. To get a better understanding of the quality of a cohort, you should look at it Per Customer as this removes the impact from cohorts having different sizes. To see the overall impact in your business and your bottom line, look at the Total value.
Total - Shows you the total sum of the activities that took place.
% - Shows you the value divided by the size of the cohort.
Metrics
Net Revenue - How much Net Revenue did you make from the cohort's customers over the months.
Contribution Margin 1 - How much CM1 did you make from the cohort's customers over the months.
Contribution Margin 2 - How much CM2 did you make from the cohort's customers over the months.
Orders - How many (net) orders were placed by the customer cohort over the months.
2nd Order Rate - How many customers have placed a second order over the months.
Average Order Value - What was the (Net) Average Order Value of all order placed by a cohort's customers over the months.
What can I use this for?
The Cohort Report is certainly not something you need to look at every day. It highlights mid- to long-term trends in your retention, profitability and the overall health of you business.
Take 30 minutes every month or 1 hour every quarter to work your way through the cohort report to identify larger trends and monitor your business.
Define your Customer Acquisition Costs target
You can set yourself the target, that you want to start turning a profit from each new customer 3 months they have placed their initial order. To know how much you can spend for each new customer, just go to the cohort report and look at the Accumulative Contribution Margin 2 (also known as Customer Lifetime Value) after 3 months.
The CM2 is the profit you make before marketing expenses, so the accumulate 3 month value tells you what your CAC target should be if you want to break even after 3 months.
Monitor the Customer Lifetime Value and find out when your customers become profitable
Once the CAC target is set, the cohort report is also great at monitoring whether or not you are staying within the target that you have set yourself.
Monitor the quality of your new customers as you grow
A common phenomenon is that as you grow your new customer acquisition efforts, your Customer Lifetime Value (CLV) of these new customers shrinks.
The reasons for that are obvious - the initial customers you acquired were easier to convince as they likely were looking for a product exactly like yours. As you grow and reach more people, the pain you are solving for those more mass market customers is less severe and thus they are less loyal.
The cohort report helps you to easily identify whether you are reaching this point. Customer are returning less frequently or not at all and also the basket sizes might go down.
When you see this, you need to start investing more into your retention efforts. The impact of those can again be measured in the cohort report.
Identify areas to focus on to boost retention
There are three main drivers of your customer retention:
How many customers even become repeat customer by placing a second order?
How frequently do repeat customers buy from you?
What is the Average Order Value of a repeat customer.
Often shops are struggling with the first one - getting people to buy a second time. But understanding exactly where you are allows you to define the necessary actions to improve.
Identify seasonal effects on CLV
Going back to the first example of setting a Customer Acquisition Cost (CAC) target. While some shops can just take an average cumulative CM2, others might experience severe differences in CLV based upon when customers were acquired.
Evaluate different products and marketing campaigns
Through the filtering options, you can also only look at the cohort report for people that came from certain marketing campaigns and/or purchased certain products.
While this is certainly possible, the layout of this report is not ideal, which is why we built the Cohort Comparison Report which makes such an analysis much easier.
What we plan on adding:
Marketing Costs to get the full view on profitability
We will add blended Customer Acquisition Costs (CAC) to every cohort by dividing the all your marketing costs during the cohort timeframe with the total number of customers acquired.
This will give you more insight into the correlation between the CLV of you customers and the investment made to acquire them.
Plus, you can now see, when you are exactly breaking even with your customers. As you know, the CM2 includes all variable costs apart from marketing. Thus, your break-even point for each cohort is reached when CAC to CLV > 0.