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Burn Your Churn: Understanding Cohorts, Customer Segmentation and LTV

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A cohort is a group of people banded together or treated as a group.
A segment is the division of something into separate parts or sections. GENERALLY WE WILL SEGMENT A COHORT
Cohort Example
SUPPOSE WE HAVE A CHICKEN HATCHERY… We will create cohorts of chicks by the month they hatched. Then we can look at things like: How long did it take them to get a certain size? How much do they eat? What is their mortality rate? January February March
THEN WE CAN SEGMENT EACH COHORT… This could tell us things like: Chicks born in Jan that eat a certain type of feed have a higher mortality rate; or Chicks born in January that have blue eggs grew 2x faster; or Cohorts by birth month are the wrong measurement! Gender Color of Egg Type of Feed
But wait… You’re not a farmer?
NON-FARMING COHORT EXAMPLE Suppose we have a website/app that sells subscription access to instructional videos. We want to answer a couple common business questions: • What is my revenue per subscriber? • Which is my most profitable channel? • What type of user behavior (engagement) is likely to predict retention? • What type of user behavior is likely a precursor to churn? • Who are my most valuable users? What are they worth?
COHORT BY SUBSCRIPTION MONTH
REVENUE BY COHORT @ $10 PER SUBSCRIPTION
IF YOU WEREN’T USING COHORTS
Churn is losing customers through cancellations.
SUBSCRIBERS AND CANCELLATIONS (CHURN)
SEGMENT YOUR COHORTS TO BETTER UNDERSTAND CHURN In our example, we’ll call video views “engagement”. You could also get fancy and add other vectors like logins and video views etc. but lets keep it simple. There are 6 subscribers in March that signed up in the Jan cohort.
What’s the activity of users that churned?
Videos Viewed Date Range: March Cohort: January Of the people that were not subscribed in March from the Jan cohort (4 people): None of the users that churned viewed more than one video!
If a user does not view at least 6 videos, they have a high likelihood to churn. Watch that number! FIGURE OUT A WAY TO GET THEM ENGAGED!
You can use cohorting for lots of things!
COHORTING ATTRIBUTION You an use cohorts in your attribution model to see the effectiveness over time (and LTV) from your advertising channels.
COHORTING EMAIL If you send an email today, you’ll get half of your clicks from that email today, but an equal number over the next 30 days. Use a cohort to find out revenue by send date (rather than revenue per day).
Defining Your Cohorts
DEFINING YOUR COHORTS How you define your cohorts depends on your type of business. You can define your cohorts any number of ways: • First Time Purchasers • Trial Start Month • Subscription Start Month • Subscription Cancellation Month • Cancelled Users
Use cohorts to get “True LTV”
CALCULATING “TRUE” LTV There are lots of formulas you can use to calculate LTV.
LEARN MORE NOW Discover how Kissmetrics can help you optimize your marketing

Published in: Marketing
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Burn Your Churn: Understanding Cohorts, Customer Segmentation and LTV

  1. 1. Burn Your Churn Using Cohorts RYAN KOONCE, CEO SAAS MANAGEMENT GROUP WWW.SAASMGMT.COM
  2. 2. @Kissmetrics #KissWebinar @thuelmadsen
  3. 3. Thue is the Kissmetrics Webinar Wizard and Marketing Ops Manager. Before joining forces with Kissmetrics, he was a Lyft driver in SF, which is also how he ended up as a Kissmetrics marketer. Whenever Thue is not trying to automate everything around him, you can find him hiking in the Sierras. THUE MADSEN Marketing Operations Manager, Kissmetrics @ThueLMadsen Before founding SaaS Management, Ryan created a number of data-driven testing methods that helped him build multi-million user companies. RYAN KOONCE CEO, SaaS Management Group (SMG) ryan@saasmgmt.com
  4. 4. ryan@saasmgmt.com #KissWebinar @ryankoonce
  5. 5. 1 Section One - Introduction What’s the difference between a Cohort and Segmentation? Cohort examples Comparing Cohorts for better insight Churn Segmenting Cohorts to better understand Churn 2 Section Two - Understanding Cohorts 3 Section Three - Determining your “True LTV” TABLE OF CONTENTS
  6. 6. WATCH WEBINAR RECORDING NOW
  7. 7. A cohort is a group of people banded together or treated as a group.
  8. 8. A segment is the division of something into separate parts or sections. GENERALLY WE WILL SEGMENT A COHORT
  9. 9. Cohort Example
  10. 10. SUPPOSE WE HAVE A CHICKEN HATCHERY… We will create cohorts of chicks by the month they hatched. Then we can look at things like: How long did it take them to get a certain size? How much do they eat? What is their mortality rate? January February March
  11. 11. THEN WE CAN SEGMENT EACH COHORT… This could tell us things like: Chicks born in Jan that eat a certain type of feed have a higher mortality rate; or Chicks born in January that have blue eggs grew 2x faster; or Cohorts by birth month are the wrong measurement! Gender Color of Egg Type of Feed
  12. 12. But wait… You’re not a farmer?
  13. 13. NON-FARMING COHORT EXAMPLE Suppose we have a website/app that sells subscription access to instructional videos. We want to answer a couple common business questions: • What is my revenue per subscriber? • Which is my most profitable channel? • What type of user behavior (engagement) is likely to predict retention? • What type of user behavior is likely a precursor to churn? • Who are my most valuable users? What are they worth?
  14. 14. COHORT BY SUBSCRIPTION MONTH Jan Feb Mar Jan 10 8 6 Feb 10 8 Mar 14 Total 10 18 28 Of the 10 people that subscribed up in January, 8 were still subscribed in February and 6 were still subscribed in March.
  15. 15. REVENUE BY COHORT @ $10 PER SUBSCRIPTION Jan Feb Mar Jan $100 $80 $60 Feb $100 $80 Mar $140 Total $100 $180 $280 While you generated $280 of revenue in March, only 21% was from users that subscribed in March!
  16. 16. IF YOU WEREN’T USING COHORTS Jan Feb Mar Subscribers 10 18 28 Revenue $100 $180 $280 But 34 people subscribed between January and March. Why do we only have 28 now? What happened to them?
  17. 17. Churn is losing customers through cancellations.
  18. 18. SUBSCRIBERS AND CANCELLATIONS (CHURN) Jan Feb Mar Jan 10 8 6 Feb 10 8 Mar 14 Total 10 18 28 Jan Feb Mar Jan 0 2 2 Feb 0 2 Mar 0 Total 0 2 4 Subscriptions Cancellations Total New Subscriptions 34 Total Cancellations 6
  19. 19. SEGMENT YOUR COHORTS TO BETTER UNDERSTAND CHURN In our example, we’ll call video views “engagement”. You could also get fancy and add other vectors like logins and video views etc. but lets keep it simple. Did the number of videos viewed have something to do with churn? Jan Feb Mar Jan 10 8 6 Feb 10 8 Mar 14 Total 10 18 28 There are 6 subscribers in March that signed up in the Jan cohort.
  20. 20. SEGMENT YOUR COHORTS TO BETTER UNDERSTAND CHURN Zero 1x 2-5x 6-10x < 10x 0 0 0 2 4 Videos Viewed Date Range: March Cohort: January Of the people that were still subscribed in March from the Jan cohort (6 people): NONE of the users viewed < 6 videos. ⅔ viewed >10
  21. 21. SEGMENT YOUR COHORTS TO BETTER UNDERSTAND CHURN What’s the activity of users that churned? There are 4 subscribers in March that were not still subscribed from the Jan cohort. Jan Feb Mar Jan 0 2 2 Feb 0 2 Mar 0 Total 0 2 4
  22. 22. SEGMENT YOUR COHORTS TO BETTER UNDERSTAND CHURN Zero 1x 2-5x 6-10x < 10x 1 3 0 0 0 Videos Viewed Date Range: March Cohort: January Of the people that were not subscribed in March from the Jan cohort (4 people): None of the users that churned viewed more than one video!
  23. 23. If a user does not view at least 6 videos, they have a high likelihood to churn. Watch that number! FIGURE OUT A WAY TO GET THEM ENGAGED!
  24. 24. You can use cohorting for lots of things!
  25. 25. COHORTING ATTRIBUTION You an use cohorts in your attribution model to see the effectiveness over time (and LTV) from your advertising channels. Not accounting for specific attribution models, for a fixed date range: Visits Conversions Revenue Facebook 5000 500 $50 Adwords 5302 530 $52 Bing 5829 574 $57 Total 16,111 1604 $159
  26. 26. COHORTING EMAIL If you send an email today, you’ll get half of your clicks from that email today, but an equal number over the next 30 days. Use a cohort to find out revenue by send date (rather than revenue per day). Sent Opens Clicks Revenue 11/1 5000 500 50 $50 11/2 5302 530 53 $52 11/3 5829 574 52 $57 Total 16,111 1604 155 $159 The total sent is fixed, but the rest of the data “bakes” over time.
  27. 27. Defining Your Cohorts
  28. 28. DEFINING YOUR COHORTS How you define your cohorts depends on your type of business. You can define your cohorts any number of ways: • First Time Purchasers • Trial Start Month • Subscription Start Month • Subscription Cancellation Month • Cancelled Users
  29. 29. Use cohorts to get “True LTV”
  30. 30. CALCULATING “TRUE” LTV There are lots of formulas you can use to calculate LTV. Or you can see your REAL LTV by cohort. Jan Feb Mar Jan $100 $80 $60 $240 Feb $100 $80 $180 Mar $140 $140 Total $100 $180 $280 2013 2014 2015 Total 2013 $50k $20k $10k $80k 2014 $75k $60k $135k 2015 $100k $100k Total $50k $95k $170k
  31. 31. LEARN MORE NOW Discover how Kissmetrics can help you optimize your marketing
  32. 32. THANKS!
  33. 33. RYAN KOONCE CEO, SaaS Management Group @saasmgmt ryan@saasmgmt.com THUE MADSEN Marketing Operations Manager, Kissmetrics @ThueLMadsen tmadsen@kissmetrics.com Questions?

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