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Cohort analysis involves segmented populations based on a shared characteristic, such as customers who signed up for a service during the same month, to better analyze and understand trends.
Investors and founders often use cohort analyses to understand product-market fit and customer experience. However, the metrics can vary depending on the type of business.
For example, if you run a software as a service (SaaS) company, you might track each cohort’s annual recurring revenue (ARR), net churn, and gross churn. However, if you have an e-commerce site, you might track return rates, repeat purchase rates, and basket sizes.
It’s important to monitor these metrics over time to identify trends and outliers. Good or bad, a change in a new cohort’s behavior might give you insight into how recent decisions (or market conditions) could impact your business overall.
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