Cohort Analysis Use Cases
After understanding how to read your Lifetime Value (LTV) Report you can now leverage this information for a range of different situations such as the following:
Plan Customer Acquisition Budgets
In order to scale your store, you must be able to confidently balance how much you can afford to spend to acquire customers. Using cohort analysis you can understand how much revenue a new customer will generate over time.
If you are not profitable on the first purchase, you will first need to determine your payback period - the length of time it takes until your customer acquisition cost (CAC) is returned.
- Use the Accumulated Gross Margin metric on your Lifetime Value Report to see your gross profit from each cohort over the following weeks or months.
- Track your CAC and compare this figure to the Accumulated Gross Margin number to determine which month you have covered your CAC.
💡 Tip: To compare your business’ performance research what is normal for your industry. For example, the CAC payback period for many consumable products such as nutrition supplements, skin care products, and food is approximately 3 to 6 months.
Monitor Customer Behaviour
Imagine you have now doubled your marketing spend to acquire an additional 300 customers in the past few months. You can now use your Lifetime Value Report to monitor whether these customers behave the same or different from previous customers, or from new customers acquired by other channels.
- Use the Accumulated Gross Margin metric on your Lifetime Value Report and filter the results to see your gross profit from each cohort over the following weeks or months from each source/medium or marketing channel.
- Compare the CAC cost and revenue generated by each cohort and marketing channel to determine whether your customers are behaving similarly, worse, or are in fact driving more revenue than previous cohorts.
This exercise will also help you validate key assumptions based on changes to your marketing campaigns or initiatives designed to increase revenue.
Identify Valuable Products
Many direct to consumer brands employ a hero product strategy. Using cohort analysis you can identify which product categories and individual items provide the most long-term value.
- Use the Accumulated Sales per Customer metric on your Lifetime Value Report and filter by first-order product categories or first-order individual products to discover cohorts that provide the most LTV.
- Use the Repurchase Comparison Report and filter by products or collections to see which products drive the most repurchases.
Identify Valuable Segments
Lifetimely’s reports can help you analyze your customer database to understand which countries provide the most repurchases.
- Use the Repurchase Comparison Report and filter by countries or collections to see which areas drive the most repurchases.
- Use the Accumulated Sales per Customer metric on your Lifetime Value Report and filter your report by countries.
Monitor Lifetime Value
Are your marketing efforts improving customer loyalty? With cohort analysis, you can monitor changes to your customers LTV over short, medium, and long term periods.
- Use the Accumulated Sales per Customer metric on your Lifetime Value Report, and compare by weeks, months, or years.
- Consider key periods such as 3, 6, or 24 months to understand your customer retention and engagement over the long-term.
Evaluate Campaign and Channel Performance
It is well understood that customers acquired through different channels will behave differently, with some customers providing more future value
📚Example: A nutrient supplement store may run a promotion where customers can buy samples of products in return for only paying the shipping cost. Use the LTV report to determine the value of these customers after the initial sample purchase.
Use the Accumulated Sales per Customer metric on your Lifetime Value Report and filter your report by variables such as:
- First or last touch marketing channel, such as organic search versus email
- First or last touch source/medium channels, such as particular referring websites
- Coupon codes
Once filtered, you can further analyze your data by the following metrics:
- Accumulated sales by customer
- Accumulated gross margin per customer
- Total (repurchasing) customers
- Accumulated orders per customer
💡 Tip: We find that looking at weekly data provides the best insights into marketing performance in CPG industries. But don’t forget your long-term yearly analysis, too. This can give you useful information on how many customers come back to your brand in the long term.