February 16, 2023
In case you haven’t seen it plastered all over our website already, we do cohort-based forecasting that makes the lives of finance teams and CFOs that much better. But what is cohort-based forecasting and why do we, at Ramp, use this model?
First things first, what is a cohort?
A cohort is a group of users or customers, who share common characteristics. These characteristics that bond them can be anything such as, the date they became users of your mobile game, where they live, their purchase behaviour, or basically anything that we are able to use as an identifier of sorts.
How do we use this information to forecast?
Cohort-based forecasting is a method used to predict future trends in customer behaviour based on historical data. Unlike traditional forecasting methods, which rely solely on aggregated data, cohort-based forecasting breaks down customer data into smaller groups with similar characteristics and looks at each group individually. This enables us to identify patterns in their behaviour that are unique to each cohort and, in turn, helps us build more accurate predictions about future behaviour from a bottom up perspective.
Think of it like coaching a football team
Disclaimer: I’m from England, so football = soccer. Yes, I said what I said.
Admittedly these are two completely different things on paper but I’m a big football fan and there are a few surprising similarities between football and forecasting that might help explain.
Focus on past data
One of the key overlaps is the focus on past data and how it’s used to inform future decisions. Much like a football coach would look at the historic performance of their players in order to determine upcoming game plans, cohort-based forecasting looks at user behaviour from previous periods to help businesses make strategic decisions about future business.
By doing this, both coaches and businesses are able to identify strengths, potential risks or weaknesses, aptly structure a way forward and hopefully win.
Continuous adaptation and adjustment
Another similarity is how, in both cohort-based forecasting and football, there’s a focus on continuous adaptation and adjustment. Forecasts are constantly adjusted based on new results and data, which allows companies to stay on top of changes in the market and to quickly respond to shifts in user behaviour.
This kind of agility is common for football coaches too. Strategies and game plans change depending on weather conditions, who the opponent is or other unexpected developments, often happening during the matches themselves.
The ability to spot these opportunities for adjustment before it’s too late, and execute a revised plan, means resources are allocated more efficiently and the risk of missing the target is significantly reduced.
Scenarios and set pieces
Free kicks and corners are planned quite clinically. Teams will often spend significant time practising and perfecting their set pieces as they can be the difference between winning and losing a game. Coaches won’t know the exact plan of attack from their opponents, and so defensive and offensive plans will require scenario-based plays which give them options on how to execute or defend against set pieces.
Using cohort-based forecasting, you are also able to create “what-if” situations and structure business strategy according to the predicted results - just as teams plan for various scenarios and perfect their set pieces to gain an advantage. Businesses can use scenario creation and be prepared for various outcomes, making them better equipped to achieve a winning result.
A common goal
So, while cohort-based forecasting and coaching a football team may seem vastly different at first glance, there are actually several surprising similarities between these two strategies. By focusing on the importance of analysing past performance, using past data to inform future decisions, and continuously adapting and adjusting strategies, both businesses and sports teams can achieve their goals and succeed in their respective fields.
Ramp’s approach to forecasting is like having the best football team in the game, always adapting to market changes and executing revised plans for success. We’re like Manchester United, but for forecasting.
Contact us for a demo of our prediction platform, or if you want to debate who the best football team is. Either way, we’re keen to chat!