You’ve probably heard the term retention many times. This 3-minute read article will explain what retention and cohort groups are and why you should care.
What is Retention?
Retention is how many times (and how often) your customers perform a specific action. In eCommerce terms, this action is placing an order with the online store.
What is a Cohort?
Cohort is a group of people who share the same characteristics or experiences. You can analyze your retention across these customer cohorts. That way, you can see which one of those characteristics brings more valuable customers to your eCommerce business. For instance, people who became your customers for the first time using coupon code may have a smaller lifetime value (total revenue to your business) compared to customers who don’t use a coupon code at all.
In Metrilo we have three different cohort types that (we think) are really important for any eCommerce business.
Retention with Metrilo
Metrilo analyzes your customers’ retention automatically and generates customer cohorts for you. It groups your customers based on how many orders they have with you and spreads those customers across your customer cohorts.
The different cohorts types within Metrilo are based on:
- Month: This cohort groups all your customers that made their first purchase within a certain month. For example, a cohort called “February 2015” of customers includes all your customers who did their first purchase between 1st and 28th of February 2015.
- Coupon: This cohort groups all your customers that made their first purchase with a specific coupon code. For instance, Metrilo can analyze customer retention for customers who made their first purchase by using the coupon 25%OFF.
- Product: This cohort groups all your customers based on the product that they purchased when they first became your customers. For instance, a product based cohort is the group of people who made their first purchase by buying the GT-500 smartphone.
Metrilo shows the following performance indicators for each cohort group:
- People: total number of customers within the cohort
- Revenue: the total revenue generated by the customers within that cohort
- Rev./person: the average revenue per person
- One-time: shows the percentage of customers who have only 1 purchase – the lower this indicator is, the better
- Retention Graph: a chart that shows the number of purchases generated by each unique client within a specific cohort.
A cohort whose first column (1 order) is the highest simply means that the people from this cohort made one purchase and then never bought again from your online store.
On the other hand, a cohort group that has higher rate in the last column (8 orders or more) means that most customers from this cohort made 8 purchases or more, which is great fro you and shows that people like coming back to your store. Of course, their lifetime revenue to your business will be much higher than that of the first group.
Why should I care?
Attracting new customers is harder and more expensive than keeping existing customers. Also, your advertising expenses make better sense when you’re certain in the high lifetime value of the new customers you’re acquiring. A customer who makes more purchases from your online store is always preferable to the one-time customer.
Cookies and Retention
Let’s assume that I’ve had an online store for home baked cookies since December 2014.
Each customer who made their first purchase in a specific month is added to the cohort of that month. If I had 21 new customers in December 2014, they will be in my cohort for December 2014. Metrilo will keep following their engagement with my bakery, and every time they generate additional purchases, this cohort’s lifetime value will increase. This is a good metric for me to check every once in a while, since I can compare my first-time customers from December 2014 and those I acquired in May 2015 – different incentives may have worked better for activating people in different months.
I also offer some special coupons to attract new customers. One of my coupons is spring15OFF. All customers who ordered cookies for the first time using the spring15OFF coupon will be added to the cohort group with this coupon. Metrilo displays all coupon cohorts and I can easily compare which coupon generates more valuable customers to my bakery.
My bakery offers different types of cookies and I have my best-sellers among them. I can easily identify those by checking my product-based cohorts. I can discover that my customers whose first purchase was my “special ginger cookies” are completely in love with my bakery and turn into customers with high value to me.
Cohorts give valuable answers to in-depth questions about segments of customers. The retention rate of each cohort may depend on varying factors, characteristic for this group only, and Metrilo gives you the opportunity to discover them and act on them.