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Customer churn using cohort analysis

Why do customers churn? - Here’s cohort analysis for the rescue

Ever wondered what keeps your customers away from coming back to your site or store? You might be roping in new customers every day but what makes it hard for them to stick with your business. Few customers might bailout from the purchase on their first visit, few might bail out on the second visit, few after a number of visits, but have you ever tried to understand the factual reasons behind it?

Retaining an existing customer is one of the most important factors when it comes to a business. Customers don’t usually stick to a store because of one attribute or one behaviour, customers are persuaded by a combination of features and services.

Customers churn mainly because of two reasons, either they are not satisfied with your product or could be interested in your product but hesitant to pay the shipping or handling fee. These are the instances where customers tend to find an alternative with better offers.

How do you find the customer churn rate?

For instance, say Mike is a regular customer to your store, he’s been dropping by the store for years. He visits your store twice a month and keeps purchasing products every time he visits. Now Mike is a valuable customer to your business, a returning customer.

On the other hand, there are other returning customers too, they could be purchasing products from your store but not necessarily at Mike’s rate. However, the returning customers are grouped based on the frequency of their visits and purchases. This analysis is dynamic and it works only when it is subjected to a timeframe.

A cohort is nothing but a of users grouped by shared characteristics. In business analytics, a cohort usually refers to a group of customers specifically segmented by acquisition date.

customer-return-analysis

This pie chart shows the percentage of returning customers based on frequency over a period of 6 months, on feeding the data, cohort allows you to view the analysis based on various output formats.

Cohort analysis on the number of returning customers over a period of 12 months

Here’s another record where we have the number of customers who returned to a site/store over a time period of 12 months. The number of returning customers over a period of 12 months is constantly dropping, however, this doesn’t mean the business is on a low too.

New customers keep coming in but it’s a known fact that bringing in new customers is an expensive process than retaining existing customers because it involves a lot of marketing activities to start with. Whereas, the customers who already know your business can be roped back in with few offers or some deducted shipping prices.

This is where cohort analysis comes into play, it shows where customers lose interest and where they need a bit of guidance to get done with the process of purchase.

customer-return-table

Cohort analysis is made to identify the places where customers bail out from the purchase, where they lose interest. A cohort analysis also goes beyond basic data points to suggest the reason for changes in your site visitor’s behaviour like how long they stay in the site, how long they take to find what they came for, etc.

With Cohort analysis, not just the generic single-dimensional analysis but also multidimensional analysis can be conducted. In order to find the traffic for a website not just on a single dimension (Organic or Paid) but also on the device through which the traffic comes in (Mobile or Desktop or Tablet)

site-traffic

Cohort analysis might not be precise but it sheds light on the right path, that allows you to correlate your business’s data into actionable insights.

As each cohort is built with different marketing strategies, it paves way to identify which marketing approach works best. There are instances where customers are forced to sign up or register their emails in order to browse a product.

Overselling or harassing the customer into buying the product ultimately ends up in customer churn. So instead of analyzing your cohorts based on whether they consistently return to your site, you can focus on the actions that improve marketing as a whole and also keeps the existing customers satisfied.