By now, every ecommerce store owner understands that retaining a customer is much cheaper than recruiting new ones. With increasing customer acquisition costs, the importance of retention is ever increasing.
If you're investing lots of money to acquire new customers, it's only rational that you should ensure the relationship does not end at the first purchase. This guide will let you in on everything you need to know about customer retention, why it's essential, and how to boost your customer retention rates.
What is customer retention?
Customer retention refers to the process of getting existing customers to make another purchase or keep purchasing from your ecommerce store. It's also the collection of all business activities and strategies directed towards increasing the number of repeat customers and making more off of each existing customer.
As the saying goes, attracting new customers without paying attention to the existing ones is like pouring water into a leaky bucket. No matter how much water you pour, it'll still take forever for the bucket to get filled up. Customer retention programs can help you plug your leaky bucket, so it'll take less effort to fill.
Of course, customer retention isn't about using tricks or traps to lock in customers. It's about paying attention to ecommerce trends and adapting your site experience so customers feel delighted every time they shop with you.
When to focus on customer retention
It goes without saying that you can only think about retaining the customers you already have. So deciding on when to focus on customer retention and how much resources to devote depends on the current state of your business. Here's a general summary of business lifecycles and a highlight of how much resources should be dedicated to customer retention at each stage:
Just starting: Businesses at this stage have no customers, and all business resources would naturally be dedicated to customer acquisition. The online shopping experience is crucial to get right at this stage. Your primary focus should be to grow your customer base, and you can start thinking about introducing a retention program as your business grows.
Gaining traction: Businesses in this stage already have a few customers and record 1-5 sales per week. However, the sales are sporadic, and most of your resources should be dedicated towards acquisition. Still, you can start introducing customer retention strategies like retention email campaigns.
Growth: At this stage, you're already recording multiple sales per day. You'll need to start channeling more resources towards customer retention; a 30:70 retention to acquisition ratio should be just fine. Aside from a retention email campaign, you may consider tactics like loyalty rewards or a referral program. These would serve to expand your customer base further while helping you retain the existing ones.
Established: Established ecommerce stores typically record dozens of sales per day. You're almost a household name in your niche at this stage, and getting new buyers may be more difficult and expensive than it used to be. You should be dedicating at least half of your advertising resources to customer retention if you want to keep growing.
Well-established: Your store is already a success by any standard at this stage. You've also milked most of your customer acquisition channels to a reasonable extent, so getting new customers will never be as easy as it used to be. Thankfully, you have a large customer base, and dedicating more resources towards customer retention can deliver amazing results.
The current stage of your store isn't the only determinant of when to focus on customer retention.
It's vital to note that the current stage of your store isn't the only determinant of when to focus on customer retention. What you sell also has a huge role to play. If you sell high-value items or items with a high purchase frequency, you'll benefit the most from a solid customer retention strategy. Ultimately, ignoring one for the other won't give you the growth you want. Your aim should be to strike a balance between the two while deriving maximum benefits for your business.
Key customer retention metrics
Understanding the important customer retention metrics is vital to improving your customer retention rate. Below are the key customer retention metrics and how to calculate them:
Repeat customer rate
Repeat customer rate measures the percentage of customers that have made more than one purchase from your store within a given timeframe. These metrics provide valuable insights into the effectiveness of your customer retention strategies. If you have a high repeat purchase rate, it implies most of your customers are coming back, and your retention efforts are proving effective.
If you're seeing a low repeat customer rate, you'll also likely see a higher than average customer acquisition cost. So what can you do when you've got a low repeat customer rate?
- Run customer feedback to understand why customers aren't coming back
- Improve the product or price point as needed
- Provide incentives to re-purchase (ex: subscriptions)
- Introduce referral marketing programs to drive lower-cost customer acquisition
How to calculate repeat customer rate
Repeat purchase rate = Number of customers that bought more than once / Total number of unique customers
Purchase frequency is an indicator of how often your customers are making a repeat purchase within a specific timeframe. Although your product category influences this metric, having a high purchase frequency bodes well for your store's revenue.
Not seeing high purchase frequency? Here are some tactics you might want to try:
- Set up 'Subscribe & Save' incentives that deliver products on a shorter interval than what customers are currently repurchasing
- Adjust your price point to reflect longer repurchase periods
- Survey customers on what would motivate them to purchase from you more often
How to calculate purchase frequency
Purchase frequency = Total number of orders / Total number of unique customers
Average order value (AOV)
Your average order value represents the worth of each customer's purchase. It's essentially the amount of money a customer spends each time they buy from your store. Your store will earn more if you can get your customers to spend more on each purchase.
Here are some easy tactics to help drive up AOV:
- Introduce cross-sells and upsells at various points in the buyer journey
- Provide personalized emails and offers to customers based on their browsing or buying behavior
- Use bundles to sell complete sets (possibly at a discount)
How to calculate average order value
Average order value = Total revenue / Number of orders
Note: You should use the same timeframe when calculating repeat purchase rate, purchase frequency, and average order value.
Customer lifetime value (CLV)
The ultimate aim of your customer retention tactics is to increase your store's CLV. And you can achieve this by increasing either your purchase frequency or average order value, or both.
CLV estimates how much each customer is worth to your business. It provides insight into how much a customer is expected to spend throughout their period of buying from your store. Knowing your store's CLV can shape important marketing decisions, especially your acquisition costs.
Want to grow CLV? Try these tactics:
- Introduce a customer loyalty program
- Provide subscribe & save options
- Introduce a paid discount program (like Amazon Prime or a Costco membership)
- Use personalization to present offers unique to your audience
How to calculate CLV
Customer lifetime value = Purchase frequency x Average order value
Proven ways to boost customer retention
Now that you understand the importance of customer retention and the important retention metrics to keep an eye on, below are a few practical ways to increase your store's customer retention rate:
Improve your customer support
If you're serious about offering the best customer experience, you'll need to pay more attention to pre-and post-sale customer support. For starters, your customer support desk should be available across all channels - SMS, email, social media, phone, and live chat. Often, if you can swiftly respond to a customer query or complaint, you'd make more sales and curate more loyal customers without trying too hard. It's no surprise that 84% of businesses working to improve customer service report a revenue increase.
60% of customers reveal that the potential of earning rewards changes their spending behavior.
Start a customer loyalty program
Loyalty programs are a great way to increase your purchase frequency because they stimulate your customers to buy more and earn perks. According to a Bain and Company study, about 60% of customers reveal that the potential of earning rewards changes their spending behavior. Most businesses structure their programs to allow customers to get reward points for spending, referring, or engaging. The customers can later redeem these points for valuable rewards.
Send engaging emails to customers
Email marketing is one of the cheapest and most reliable customer engagement channels out there. If you hope to build a great relationship with your customers, encourage them to join your mailing list and follow up with relevant, value-adding messages.
For example, you could send a customer a 'thank you for your purchase' message a week after making the purchase and include a how-to video or some interesting trivia about the product they ordered. Stores with a cart abandonment problem can also leverage emails to encourage their customers to complete the purchase.
After these initial encounters, you should continue to send regular personalized messages and promotional offers that can turn first-time customers into repeat buyers. Remember, you'll need to show them another purchase will be worth their while if you want them to come back.
Offer a discount or credit to return
Offering discounts is always a tricky subject among retailers, and understandably so. Too often, when you entice customers with mouthwatering discounts, getting them to purchase at the regular price becomes almost impossible.
However, discounts can be a great way to stimulate a second purchase and cultivate a lasting relationship with your customers when you use them appropriately. You can think of 10% off or free shipping as a marketing investment. You'll reap the returns if you can successfully convert the customer into a brand advocate.
Meet your customers where they are online
Headless commerce has been generating a lot of buzz over the last while, and for good reason. It allows you to spin up new, custom shopping experiences in a much more agile way than ever before. Letting customers shop from your social feeds, blog, or even specialized experiences like IoT gives you the chance to drive conversions the second a customer shows interest in what you're doing, driving retention and revenue all at once.
Use personalization to improve marketing campaigns
Marketing personalization entails delivering individualized content to your customers with the help of automation technologies. About 80% of customers say they're more likely to buy from a brand that offers personalized experiences. If you can tailor your marketing campaigns to address your potential customers' individual needs or wants, you're already on your way to making them long-term customers.
About 80% of customers say they're more likely to buy from a brand that offers personalized experiences.
Use a subscription model
Depending on your industry, introducing a subscription model could be an excellent retention marketing strategy. The model guarantees a steady revenue stream and gives you a solid base to innovate around. Customers that subscribe are not likely to cancel their subs as long as they're getting the value they desire.
However, it's vital to understand that not all industries or business structures are suited to the subscription model. Furthermore, there are different types of subscriptions, and you should consult extensively before rolling out one.
Optimize for mobile
Stats from Oberlo reveal that mobile commerce now represents 72.9% of ecommerce sales. With an average year-on-year increase of 29.8% between 2016 and 2021, this figure is expected to increase further in the coming years. As an ecommerce store owner, mobile users should be at the forefront of all your marketing strategies and innovations. The more you make it easier for buyers to purchase through their phones, the more likely you are to convert them into repeat customers.
Boost retention with Limespot
Customer retention marketing cannot be effective without extensive data collection and analysis. When you gather extensive data about your customers, you're able to make informed personalization decisions and deliver content relevant to each customer's needs.
LimeSpot is an advanced AI-powered personalization platform that empowers retailers to deliver real-time personalized experiences across all their marketing and sales platforms. With features such as intelligent product recommendations, email personalization, and audience segmentation, the platform promises to boost your conversion rate and turn casual shoppers into repeat customers.
Below are some of LimeSpot's superior offerings:
LimeSpot can help you capture customer interest through personalized product recommendations as well as email and website content personalization. With LimeSpot's personalization engine, you can:
- Upsell or cross-sell to customers based on their previous orders
- Create a unique online shopping experience for each customer from first touch to last
- Increase return purchases and visits through individualized product recommendations and email content
LimeSpot creates visitor segments based on purchase patterns, geographical location, URLs, referrals or traffic source, browsing history, device, and other relevant parameters. With such a high level of segmentation, delivering personalized experiences to each customer segment has never been easier or more effective.
Personalized Google Shopping ads
LimeSpot can also help you deliver personalized Google Shopping ads to potential customers. You can integrate your store directly with Google Shopping through LimeSpot and enjoy real-time automated catalog optimizations and AI-powered increase in discoverability and performance.
Start leveraging retention strategies to grow your ecommerce business
Many ecommerce store owners overlook the simple fact that their current customer base is their biggest asset. These customers already know a thing or two about your business and are free from the skepticism that comes with buying from a 'stranger' for the first time. If you can devote more resources towards improving their experience, you could be well on your way to meeting your revenue goals. Implementing the customer retention strategies shared in this article would be a great way to start.