With every click and conversion steadily increasing in cost, especially in an industry as crowded as eCommerce, store owners can’t afford to neglect improving their customer retention strategy to re-engage past customers.

Your marketing dollars have already taken care of the hardest part with these individuals – converting them to make the first purchase – and it would be wise to increase the value of existing customers rather than constantly spending money to chase after new ones.

Acquiring new customers and re-engaging existing ones isn't a one or the other decision. Instead, decide how much of your efforts you will designate towards each. By improving your customer retention strategy, you can cut acquisition costs and boost your store’s profitability.

What is Customer Retention?

Customer retention is the ability of a company to increase the number of returning customers and the profitability of each.

Customer retention allows you to build a customer relationship, boost brand loyalty, and maximize revenue for each customer at a fraction of the cost.

You may have a different approach to customer acquisition and retention depending on the stage of your business.

For those who have not yet made a sale, it’s imperative to focus on growing a customer base, making acquisitions a priority.

Once you reach ten sales per day, customer retention should take precedence over acquisitions.

Essential Metrics for Customer Retention

Four metrics can help calculate the success of your customer retention strategy: repeat customer rate, purchase frequency, average order value, and customer value.

Repeat customer rate

Your repeat customer rate is the foundation of customer retention. It calculates how many customers are willing to make a second purchase and is an excellent way to gauge the strength of your current customer retention strategy.

To calculate your repeat customer rate, divide the number of customers who purchased more than once within a given timeframe by the number of unique customers within the same timeframe. It’s important to note that the number of unique customers is different from the number of orders. It refers to how many unduplicated individuals purchased from your store.

For example, using one year as the timeframe, if you had 4,000 unique customers and 2,600 of those were returning customers, your repeat customer rate would be 65%.

Purchase frequency

Your store’s purchase frequency measures how often customers return to buy from your store, which is important to know since returning customers will likely make up most of your store’s revenue.

To calculate your purchase frequency, use the same timeframe as the repeat customer rate and divide the total number of your store’s orders by the number of unique customers.

For instance, continuing with the timeframe of one year, if you had 5,600 orders and 4,000 unique customers, your purchase frequency would be 1.4.

Average order value

Average order value refers to the average amount of money a customer will spend on each transaction in your store.

Calculating the average order value requires using the same timeframe as the previous metrics to divide the annual revenue by the number of orders processed by the store.

Let’s say your annual revenue was $140,000, and you processed 5,600 orders. In this case, the average order value would be $25.

Customer value

Lastly, customer value helps you understand how much each customer is worth to your store, and increasing the customer value is the goal of retention marketing.

Multiply your purchase frequency by the average order value to yield your customer value.

Using the figures above as an example, multiply 1.4 by the $25 average order value resulting in an average customer value of $35.

Strategies to Increase E-Commerce Customer Retention

If you calculate your store’s customer retention metrics and are unsatisfied with the current figures, here are some easy ways to improve your strategy:

   1. Use customer accounts

Giving your customers the option to create an account can make repurchasing from your store a smoother process by implementing pre-filled sections or saved shipping and payment options.

In the case of new customers, an account can be a big commitment, so encouraging them to create an account after their first purchase may prove most effective.

   2. Improve customer support

It won’t matter how great your product or service is if the customer support is not up to par.

Support systems will help you better communicate with your customers, and having chatbots or live chat options can help your customer complete a purchase should they have a question or concern that makes them second guess.

   3. Start a customer loyalty program

Creating a loyalty program can motivate your customers to purchase more frequently and make larger purchases to earn a reward.

Creating this program is a win-win for you and the customer: you benefit from their repeat business, and they gain more value each time they shop.

   4. Fire up email marketing

Sending emails after purchase to your customers helps nurture the customer relationship. In any case, you should only send emails that are of value to the customer, such as a discount or promotion.

Consider sending them a ‘thank you’ email after purchase to make your brand personable, or if your product needs replacing after some time, use emails to remind your customer that it is time to replace it.

   5. Offer a discount or credit

Generally, loosely handing out discounts is something to be wary of. However, offering a discount or store credit after first-time shoppers finalize their purchase could be the motivation they need to return.

Also, it can be effective in bringing in dormant customers who have not purchased in a while.

The cost of offering a discount or credit to an existing customer may seem like a loss, but it will cost you far less than chasing after new customers.

As an eCommerce store owner, it’s wise to take full advantage of the relationships you already have and nurture them, as these relationships could be key players in boosting your store’s revenues.

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