Customer segmentation has significant benefits for marketers, but it has limitations as well – specifically that it rarely correlates with KPIs like lifetime value. This is why it’s so important to cohort your customers in addition to your marketing efforts. While segmentation can tell you what behaviors customers have in common, cohorts will unite customers by useful characteristics – including LTV itself. This makes LTV cohorting a reliable analytical technique that marketers can use to understand and engage with their chosen market.
Unfortunately, managing LTV cohorts isn’t always scalable. What happens when a marketing department has ten distinct LTV cohorts, each with its own marketing strategy? In these cases, it’s crucial to adopt best practices for cohort management that are flexible based on the size of your business.
Start with the basics of Cohorting
The first step of LTV cohorting is to evaluate your metrics. Make sure that you are using ideal key performance indicators (KPIs) that reflect your brand and use customer relationship management (CRM) software to arrange them as cohorts. In addition to LTV, marketers often monitor retention rate, average order value, and repeat customer rate. Marketers should correlate each of these metrics to figure out which cohorts are the most valuable to target.
Here are a few common metrics to monitor by industry:
- Subscriptions and user loyalty KPIs are useful for software-as-a-service and online marketing brands
- Version engagement and user loyalty are important for app marketers
- Retailers will find it useful to watch how cohorts interact with product launches
- All marketers can use cohorts when measuring the stickiness of ad campaigns, particularly when those cohorts are segmented by campaign delivery platform
Cohorting for the Small Business or Startup
For small businesses, agile companies, and brands with lean or single-person marketing teams, choosing cohorts is a key marketing technique that can deeply impact your return on investment. When you have a limited amount of time or resources to allocate, cohorting helps you focus marketing hours on effective branding and campaign strategies. This is especially important for startups where marketers also serve as communications and PR specialists or are limited to CRM resources from Google’s analytics tools correlated with face-to-face interactions.
Small businesses and startups should focus marketing efforts on their highest-value customers. Identify any cohorts that represent your top 10% of customers that would benefit from custom campaigns and high-touch marketing. Other valuable cohorts outside of this 10% figure can be the focus of automated campaigns. Amazon used this strategy for its popular Prime program by focusing on valuable customers to develop a loyal user base.
Other businesses that are focused on reaching specific KPIs outside of sales should focus on customer cohorts with the lowest acquisition costs. To stay agile, these businesses should periodically reevaluate their cohorts and make sure they’re avoiding any vanity metrics.
Finally, marketers at this scale should avoid long-term cohorts that don’t apply to fast-paced environments. For example, brands can compare user groups based on monthly sign-ups over broad demographic segments such as baby boomers or millennials.
Cohorting for Mid-Scale Businesses
As a business grows, its marketing team should grow along with it. This allows brands to assign specific team members to create more precise cohorts, developing marketing strategies, and finding new opportunities to expand. These cohorts can move beyond short-term customer acquisition cohorts to consider broader experiential or generation cohorts. Ideally, these marketing teams should be able to focus on five or six primary cohorts at this stage.
At this scale, teams should attempt to find a wider range of insights that can inform your new cohorts and customer segments. Depending on your industry, this might include:
- Subscription patterns
- Seasonal spending
- Success of specific channels and platforms
- Correlation between retention spending and LTV within each cohort
- How marketing funnels contribute to LTV
For example, let’s say your data reveals that most customers who sign up for basic subscription packages have comparable LTVs and retention rates to millennial cohorts. This might lead your marketing team to conclude that they have established similar service needs for a low-income cohort and can target marketing campaigns accordingly.
Cohorting for Large Teams and Big Business
At the largest scale, marketing teams should be managing ten or more primary cohorts and seeking insights on additional secondary cohorts. Ticketmaster accomplished this by integrating analytics tools into its B2B products, allowing its marketers to better define each user type. Large marketing teams should also start thinking about distinguishing cohorts based on international markets and having specific team members focus on data organization.
At this size, cohorts can start to show significant overlap by targeting multiple customers at once. Some cohorts might even be virtually identical, but use different approaches for calculating LTV based on more comprehensive data sets.
Finally, large marketing teams shouldn’t let their scale limit the scope of their campaigns. Managing a large team creates the perfect opportunity to innovate with new strategies like publicizing LTV scores. But whether your brand operates on a large-scale or is just getting started, prioritizing cohorts is an ideal strategy that can help your business grow and thrive.