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Cohort analysis is a type of behavioral analytics that breaks down data sourced from avenues like e-commerce platforms or web applications into related groups for further analysis. These are called cohorts as they share common characteristics within a defined time span. Through this, cohort analysis measures user engagement over time and helps to know whether it is improving or only appearing to improve over time.
For example, a B2B SaaS company can consider cohort analysis involving clusters of customers that are segmented as per the timeline of signing their first contract and tracking the performance of their ARR, engagement, and other trends over a period.
Cohort analysis is a valuable tool since it helps to separate growth metrics from engagement metrics because growth can easily mask engagement problems. In reality, the lack of activity of the old users is often hidden by the impressive growth numbers of new users. This results in concealing poor engagement from a small number of clients.
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