What is Cohort Analysis? A Short Guide for Amazon Sellers to Unlock New Insights

As an Amazon seller, understanding your business's health and growth is crucial for long-term success. A powerful tool to help you achieve this is a cohort analysis. And don't panic! Although these types of charts can look daunting, in this blog, we will explore how Amazon sellers can use a cohort analysis to gain valuable insights into their business and make data-driven decisions.

What is a Cohort Analysis?

Before diving into the applications of cohort analysis for Amazon sellers, let's first define what it is. Cohort analysis is a method of analyzing customer data by grouping individuals who share a common characteristic, such as their first purchase date, into cohorts. By tracking these cohorts over time, you can observe patterns and trends in customer behavior, retention, and revenue generation.

What can you use a Cohort Analysis for?

Understanding Business Health

Cohort analysis can help you determine if you are increasing revenue without acquiring new customers. By analyzing customer groups based on their first purchase date, you can track their purchasing behavior over time. This will help you identify trends and patterns in customer retention and revenue growth, allowing you to make informed decisions about your business strategy.

Finding Your Most Valuable Customers

Cohort analysis can also help you identify which types of customers contribute the most profit to your business. For example, do customers who first buy ASIN A or ASIN B (or both) generate more revenue in the long run? By understanding your most valuable customers, you can tailor your marketing and product strategies to better target and serve these high-value segments.

Segment Your Marketing

By segmenting customers into cohorts, you can create more targeted marketing campaigns. For instance, if you know that 80% of customers place their second order between days 30 and 60 after their first order, and 35% buy ASIN B as their second order, you can create an effective remarketing campaign targeting these specific customer segments.

Increase Customer Retention and LTV

Cohort analysis can help you identify when people stop ordering from your store. By creating offers just before this point, you can increase customer retention and lifetime value (LTV). This proactive approach ensures that you are continuously engaging your customers and encouraging repeat purchases.

Benchmarking Performance

According to growth experts at Nozzle, a good benchmark for performance is the difference between the first purchase LTV and the 3-month LTV. A 20% increase between these two metrics indicates a healthy growing brand. By monitoring these benchmarks, you can ensure that your business is on the right track.

What Are Some Use Cases for Cohort Analysis?

Cohort analysis can also be used in some unconventional ways that you may not have thought of:

Seasonal Trends:

Analyze cohorts based on seasonal purchase patterns to identify opportunities for targeted promotions and inventory planning.

Impact of Pricing Changes:

Track the effect of pricing changes on customer behavior and revenue generation by comparing cohorts before and after the change.

Effectiveness of Promotions:

Measure the long-term impact of promotions and discounts by comparing the purchasing behavior of cohorts who received the promotion with those who did not.

In conclusion, cohort analysis is a valuable tool for Amazon sellers to better understand their business health, customer behavior, and growth opportunities. By leveraging this data-driven approach, you can make informed decisions that will ultimately lead to increased revenue, customer retention, and long-term success.