A cohort is a group of people who share a common characteristic over a certain period of time.
For example, let's look at a group of students. All of these students graduated in 2010. This group of students is a cohort. All of the students graduated in the same year, and this is their commonality.
Cohort analysis is a study that focuses on the activities of a particular cohort. If we were to calculate the average income of these students over the course of a five year period following their graduation, we would be conducting a cohort analysis.
This graph shows us that the average member of the 2010 graduating class increases their income by approximately $16K over their first five post-graduation years.
Cohort analysis gets more interesting when we compare cohorts over a period of time. Imagine that there is another cohort of students that graduated in 2011.
- Cohort 1
- Cohort 2
Cohort analysis allows us to identify relationships between the characteristics of a population and that population's behavior. Looking at the average income over the five years after graduation in comparison to the income of the 2011 students over the same relative interval allows for a unique apples-to-apples comparison of these groups. In this case, there appears to be a relationship between a student's year of graduation and their income.
Here, we can see that both graduating classes increase in their average income per year. However, by the third year out, the 2011 grads make more on average than their 2010 counterparts (by an increasing margin).
Cohort Analysis for Business
Imagine that instead of graduating students, we were studying your customers. We could group them by how they were originally referred to your business and track how much money they spent over time.
Above, we see that customers referred by the blog deliver strong, consistent long-term spending. Search engines and other channels, however, refer customers who spend a decreasing amount over time.
Perhaps the most popular cohort analysis is one that groups customers based on their "join date," or the date when they made their first purchase. Studying the spending trends of cohorts from different periods in time can indicate if the quality of the average customer being acquired is increasing or decreasing in over time.