Cohort Analysis is a Tool for Understanding Customer Behavior Over Time

Cohort analysis is one of the most important tools in innovation accounting. Instead of looking at cumulative totals or gross numbers such as total revenue and total number of customers (which are often vanity metrics), cohort analysis looks at the performance of each group of customers that comes into contact with the product independently.

Each group of new customers is called a cohort. By analyzing the behavior of each cohort over time, a startup can get a much more accurate picture of its progress. For example, a cohort analysis can show whether product changes are improving the conversion rate, or whether a new marketing campaign is attracting more valuable customers.

Cohort analysis is a powerful tool for understanding cause and effect. It allows a startup to see the real impact of its actions on customer behavior. This is essential for making informed decisions about where to invest time and resources.

The key benefit of cohort analysis is that it provides actionable metrics. It helps a startup to understand what is working and what is not, and to make changes accordingly. This is in stark contrast to vanity metrics, which can be misleading and can lead a startup down the wrong path.