Attracting new customers is important, but retaining existing ones is crucial to ensuring long-term success. Customer retention for ecommerce not only improves profit margins by reducing acquisition costs, but it also fosters stronger, longer-lasting relationships with consumers.
This article explores how e-commerce businesses can leverage effective retention strategies to identify and address the causes of churn, increase customer lifetime value, and ultimately drive growth.
How to use customer retention for eCommerce?
Marketing to new customers is more expensive than re-engaging current customers. New buyers don’t know anything about your brand, the experience you offer, or even what your products are like. Existing customers are more likely to buy from you compared to complete strangers, but only if you target them in the right way.
eCommerce sites that use customer retention can use their customer retention numbers to:
- Identify the causes of turnover and address them.
- Focus on particular areas that drive retention, such as excellent customer service.
- Increase customer lifetime value (more on this later).
- Improve your gross margin and increase profits.
Customer retention rates and related metrics can be used to identify why customers are leaving, as well as how many are doing so. This is easier to uncover when you have strategies in place to collect data from multiple sources and visualize it for your teams.
How to measure retention in e-commerce
Retention is typically measured by the customer retention rate, which is the percentage of people who make repeat purchases from an e-commerce store.
Platforms like WooCommerce and Shopify have plugins that automatically show your customer retention rate.
However, if you need to calculate it yourself, the formula is as follows:
[(AB)/C] x 100
Where:
- A = the total number of clients you finished with.
- B = the number of new customers you acquired.
- C = the total number of clients you started with.
Subtract the number of customers you gained during the period from the number you ended the period with. Divide that result by the total number of customers you started with, then multiply by 100 to get your retention percentage.
For example, an online clothing store wants to calculate its retention rate for the first quarter of the year.
- In January, they had 100 clients ( C ).
- At the end of March, they had 110 clients ( A ).
- Between January and March, they gained 30 new clients ( B ).
[(110-30)/100] x 100 = 80%
Between January and March, this clothing store maintained an 80% retention rate. Not bad.
Critical metrics for customer retention
There are many marketing metrics you can analyze to understand and change customer retention numbers. Here are a few more metrics marketers should keep on hand.
Repeat purchase rate
A customer who makes repeat purchases is automatically a customer you’ve retained. That’s a win. However, to understand how often this happens, you need to carefully record all of a customer’s past purchases and make sure that any new purchases are also added to their customer profile or account. Fortunately, most modern tools do this automatically.
Storing purchase data also allows you to use cross-selling techniques. If you can see that customers who buy frequently tend to purchase similar items, you can try offering those same items to customers with similar demographic profiles. Cohort analysis, grouping customers with similar characteristics, is one method of doing this. Also, encourage customers to try something new and record each time they do so.
Customer Lifetime Value (CLV)
Customer lifetime value is a metric that measures how much value a customer brings to your eCommerce business over the time they remain a customer. Marketers should keep in mind that this value extends beyond the money they spend, as referrals, social media interactions, and even word of mouth can be very valuable to your organization.
Improving customer retention rates organically improves customer value, ensuring that consumers stay longer and buy more.
Customer retention rate (or churn rate)
We have already seen how to calculate the customer retention rate. The churn rate is the opposite figure. So, in the example above, the churn rate was 25%. Although the e-commerce company gained 50 customers, it lost 100 out of a total of 400 in a six-month period.
Learning this should prompt marketers to consider what those customers have in common and how to prevent similar customers from leaving in the future. Customer behavior analysis techniques can help here.
Net Promoter Score (NPS)
The Net Promoter Score indicates how many of your customers would recommend your products or online store to someone else. You can ask this in a customer survey or via a pop-up at the end of the checkout process.
You could even use an automated email service to collect this information a few days after the expected delivery. Just make sure you have the necessary consent to send email marketing materials to the relevant customers.
Customer retention strategies for eCommerce
Personalized experiences for new and existing customers
Personalization is no longer a “luxury.” Customers of all demographics expect it. If you’re not sending personalized recommendations to your customers or calling them by name in communications, you can bet your competitors are.
Loyalty and rewards programs
When you reward loyalty, you’re more likely to receive more of it. Repeat customers come back again and again because they’re loyal to your brand. An effective loyalty program should reward sales, but you can also include other factors, such as:
- References.
- Interaction on social networks.
- Participation in competitions.
- Reviews.
- Voting on new product ideas.
- Participation in surveys.
Make sure you set clear expectations for customers about what they can get with their loyalty points. Discounts, free products, or sneak peeks of new products can be great incentives.
Customer service
Customer satisfaction is one of the determining factors of whether or not a consumer will buy from you again. Providing exceptional customer service is easy and incredibly effective.
Make sure you offer support to all customers, both new and returning. Returning customers may also need assistance, so try to ensure there are easy-to-use channels, from chatbots to a phone line.
Email marketing materials should always include a way to contact your organization, especially since this allows them to ask questions that could lead to a sale.
Consider different ways to collect customer feedback, as you can use it to improve your customer service and encourage a good retention rate.
Subscription models
You can ensure that customers stay longer by offering monthly subscriptions that add value in some way. These could be:
- Monthly deliveries of products or samples for testing.
- Shipping discounts for frequent buyers.
- Great discounts, for example, pay $10 a month to get 10% off a range of products.
- Premium membership schemes that allow access to products before they are released or even special events.
A subscriber guarantees monthly income, in addition to keeping your brand present in the customer’s mind.
While subscriptions are a great way to engage customers in a long-term relationship with your brand, be sure to offer other customers deals, discounts, or newsletters to increase overall engagement.
Post-purchase commitment
Customer engagement is always a vital part of attracting excited consumers who want to buy your products or services. However, to avoid a “one-and-done” sales model, you need to continue engaging with those customers after they’ve purchased from you.
Retargeting campaigns
Retaining customers is easier when you take care to retarget those who have already purchased from you.
You can increase brand loyalty organically by showing customers that you are the kind of business that never forgets its loyal base.
Omnichannel approach
As an online business, you know that your customers come to you from multiple channels. Create a presence that extends across these channels and, if possible, more. Use your website, blog, and social media, and consider creating online communities that help increase brand awareness and trust.
Improving customer retention is one of the big steps to growing your ecommerce. You’re getting people into your party and then keeping them there with exceptional engagement techniques.
