Customer Retention Strategies
for eCommerce Businesses
It is often said that it can be more difficult to keep existing customers than to find new ones. This is not necessarily so, although there is an element of truth in there. Customer retention, as well as customer loyalty, is sometimes overlooked in the desire to find new customers and grow a business. The existing customers need to be nurtured – in fact, expected to be in many ways – yet many business owners make the mistake of believing once a customer, always a customer.
In the article that follows we will look at customer retention and why it is important. We will also discuss a number of strategies that are proven to work in the drive to keep customers loyal. Let’s begin with a quick definition of customer retention before we discuss its importance.
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Table of Contents
What is Customer Retention?
Customer retention is a term that can be applied to any campaign or strategy that aims to convert one-time or irregular customers into those that are loyal to the brand. This can involve various aspects of customer service, marketing, and communications. This is an area that often takes second billing to lead generation and conversions, but as we will see it is of equal if not greater importance.
A brand is only as strong as its customer base. If you have many loyal customers, they will enhance the value and standing of your brand. That’s the basics; now let’s get into the real stuff and talk about why customer retention is vital, and the benefits of a successful customer retention strategy.
The Importance of Customer Retention
A strong customer retention rate is indicative of a business providing great customer relationships. To build customer loyalty breeds trust and trust helps an online business grow. This is why businesses that monitor customer retention tend to be quick on the uptake where problems are seen. For example, if customers are returning for one product but not for another, that latter product needs to be investigated.
What would constitute good customer retention rates, and how is it calculated? The answer will be different per market sector, but it’s obvious to state that 100% is unlikely, although the nearer to that figure is better. Across the board, the average retention rate is around 30%, with 50% being considered very good.
Calculating Your Customer Retention Rate (CRR)
Measuring customer retention should be a crucial part of any business strategy. To find out your CRR you need to pick the beginning and end of a particular trading period. Let’s say one month. Take the number of customers you have at the beginning of the month. Now go to the end of the month and find the total number of customers you have. Subtract from that figure the number of new customers across the month. That figure is your retained customers and can be expressed as a percentage of the opening number. The customer retention formula is simple. Let’s look at an example:
An eCommerce store has 100 customers at the beginning of July.
At the end of July, it has 140 customers.
Of those 140 customers, 80 are new.
So, the number of customers who have been retained is 60.
The CRR for this business is 60/100 – 60%.
Now any business returning such a CRR is doing quite well but will still want to know why they have effectively 40 customers lost in that month. This is why monitoring the CRR is essential. If that were your business, you could now set about surveying the lost customers to see if there is a common factor influencing them. We’ll talk more about this when we get to the Strategy section in the second half of the article.
Now we know how to calculate the CRR, we need to look at the benefits of good customer retention.
Benefits of Good Customer Retention
As we have already seen there is a link between CRR and levels of customer service. Customer loyalty adds to the trust that other customers give to your eCommerce business. In addition to this, there are further benefits to putting time and effort into customer retention programs. Let’s consider the most important of these.
Less Costly Than Customer Acquisition
Customer retention matters. It does not require as much expenditure as acquisition. eCommerce researchers Econsultancy found that more than 80% of online businesses agree with this. However, most businesses will put more money aside for gaining new customers and conversion. That’s understandable as every business seeks growth.
However, to grow at the most effective rate means keeping existing customers on board. There can be no growth without customer retention. It is worth taking the time to analyze your customer acquisition cost and compare it to the cost of customer retention strategies we talk about further on. There should be a balance between the two to arrive at the optimum success for each resulting in the most efficient growth rate.
More Likely to Spend
Research has proven that a loyal customer is 23% more likely to spend at your store than a customer passing through. This may not sound like a great deal, but when you consider this figure alongside the reduced cost of retaining customers over gaining new ones, it becomes a more valuable number.
Greater Profit
Over the entire eCommerce market, it has been shown that on average, loyal and repeat customers make up 65% of a store’s income. That alone shows the importance of retaining customers. It has also been shown that increasing your CRR by a small amount raises your profit level by a greater one. An example given is that a 5% increase in the CRR can lead to at least 25% greater profits, and often more depending upon the market. This is because of the lower cost involved in retaining customers.
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Become Brand Ambassadors
Research by Yotpo, a reputable provider of marketing solutions, indicates that 60% of loyal customers talk about brands they are impressed with among friends, colleagues, and family. This engenders social trust, which is important in getting a brand its deserved status. Loyal customers who pass on positive experiences effectively become your Brand Ambassadors by sharing their satisfaction on social media and by word of mouth.
This publicity and promotion effectively cost you nothing: a customer has spent money with you and now encourages others to do the same. The importance of these Brand Ambassadors cannot be overstated, and this is just one more reason why customer retention is vital in building a brand.
We know the benefits of a good CRR are, now we need to look at how you should be monitoring and analyzing your CRR using certain metrics.
The Customer Retention Metrics
Customer retention is about more than just how many customers remain loyal. It’s also about why they do so, what their value is, and how to capitalize on their loyalty. The four following metrics are vital to the accurate analysis of your CRR. Let’s have a look at each one, and what it means.
Repeat Customer Rate
As we have seen an eCommerce store has two types of customers: new customers, and repeat or retained customers. Surely your CRR is the same as a repeat customer rate? Not quite, but it is in a similar vein.
The repeat customer rate is the percentage of customers who have previously done business at your store out of the total number of paying customers. Using our example from earlier in which the eCommerce store ended the month with 140 customers – of whom 60 are repeat customers – the Repeat Customer Rate (RCR) is 60/140 x 100, or just under 43%.
What is classed as a good RCR? Again, this will depend upon the market. If your eCommerce store sells goods that need replacing regularly – food and beverage, for example – an acceptable RCR will be very different from that for a store selling luxury goods. Research by eCommerce giants Shopify shows that a good overall RCR – that is across all markets – is around 27%, with anything above 40% being very good indeed.
Furthermore, and back to Yotpo, research shows that in total only 15% of customers at eCommerce stores are repeat customers. However, the same survey concluded that 15% are likely to spend three times more than a first-time customer at a store they have visited before.
So, you know the number of existing customers who are loyal to your brand, now we need to look at how often they shop with you – the purchase frequency.
Purchase Frequency
Purchase frequency is, quite simply, the number of times a returning customer completes a transaction at your eCommerce store in a given time. It is important in determining the return on investment (ROI). Remember that we explained how customer retention is less expensive and more cost-effective than acquiring a new one? The same concept applies to purchase frequency.
Why is purchase frequency important, and what does this metric tell us? Obviously, a customer who shops with you once a week is of greater value than one who comes back every few months (although we have to factor in the average order value, which we come to next). You can easily determine the purchase frequency of individual customers by gathering their previous order data.
However, there are some factors to consider when using this metric. First, as with the above, it is influenced by the type of market you operate in. An eCommerce store dealing in high-end jewelry, for example, is going to be very low on repeat customers and, as a result, will show a poor purchase frequency rate. A shop selling groceries, on the other hand, will show the reverse – customers returning regularly.
For this reason, it is not possible to give an indication of what your typical purchase frequency should be. Indeed, for many products, the purchase frequency will be fairly static. However, what you can do is use this metric to look at products that are selling well against those that are not, and also to reach the next metric, the all-important average order value.
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Average Order Value
The average order value (AOV) is a metric that can be calculated per customer, and across the board. It is a simple calculation: take the total value of a customer’s orders over a given period and divide it by the number of orders they have placed. This can also be done to determine your overall AOV.
Why do you want to know your AOV? It’s one factor that you can manipulate. Influences on AOV include the type of product you sell, your marketing strategy, your pricing strategy, and your customer base. As with the above metrics, there is no standard or good AOV, as it will be entirely determined by these factors and will differ by market sector.
Naturally, it follows that the higher your AOV the greater your revenue. This is a metric that needs to be viewed in context. By that, we mean alongside the purchase frequency described above, as the two go hand in hand. A relatively low AOV can return excellent value if your product is one that invites a high purchase frequency, while a high AOV will usually apply to low-frequency luxury goods.
Before we move on to discuss some customer retention strategies, let’s talk about the final important metric which is Customer Value.
Customer Lifetime Value
In many ways, customer lifetime value (CLV) is the most important of the four metrics related to customer retention. We need to go back to the beginning where we talked about the cost of retaining a customer against the higher cost of customers acquired. There are many costs involved – your marketing costs, for example – in customer acquisition. The idea behind CLV is that you can determine the length of time it will take to recoup the initial investment needed to acquire a customer. Let’s look at an example.
There are two stages here. The first involves determining the customer’s value in terms of what they spend. The second involves calculating the lifetime value of that customer.
To calculate an individual customer’s value, you take their average order value and multiply that by their order frequency across a given period.
Our customer spends an average of $80 and shops with us an average of once a month. Therefore, the customer value is $80 x 12 for the year. So, that’s a customer value of $960.
Now, to make use of this and arrive at the result we want – the length of time it will take to recoup your outlay for this customer – we need to assume the average customer lifespan. This figure is the average number of years a customer shops at your eCommerce store. For younger businesses, this is not a figure easily arrived at, so let’s approach it a different way.
We are looking for a figure that tells us how long it will take to recoup the money spent on acquiring a customer. This is the Customer Acquisition Cost (CAC). Quite simply, it is – also over a given period – the amount of expenditure put into your marketing campaign, divided by the number of customers that were acquired during that campaign.
Say you spent $5000 on a marketing campaign that gained you 100 customers. The CAC in this instance is $50. In this example, we can see that the cost of acquiring our $960 per year customer is recouped at their first purchase, but this is simply an example to show the maths. Your marketing costs may be much higher, your customer base smaller, and any of the metrics involved will be unique to your business.
However, we can see the relevance of CLV to your business: if it is going to take 10 years to recoup the cost of one customer, that’s not a good scene.
So, we’ve covered the metrics, and we know what we’re looking for. Ideally, you want to optimize all of the metrics we’ve talked about to get the best performance and revenue from your eCommerce store. There are many strategies you can put in place, so let’s have a look at those that are tried and tested.
Ways to Increase Customer Retention
A good customer retention rate is the key to growing your business. Gaining new customers is all very well, but engendering customer loyalty is something you need to get right if you are to put your brand where you want it to be.
You want new customers who just did their first purchase in your online store to return and shop again. If they are satisfied with your service and offer, they will come back again. Therefore, you want to empower customers’ trust and meet their expectations.
Here are some of the best strategies you can incorporate to improve and encourage customer retention.
Listen to Your Customers
Many of the strategies we are going to cover are based on simple common sense. However, it’s all too easy to overlook the obvious and concentrate on more complicated and expensive options. Listening to your customers – what they want and need, what they think you can do to improve your service, what added features they’d like to see – is vital research. Use surveys and questionnaires to collect customer feedback. You want to know what your customer expectations are.
By monitoring your customer behavior on your website, you can identify when and where each customer churn. It will help to improve customer experience, and a good customer experience will impact their purchase decision. Hence improve customer retention.
The goal of a customer loyalty program is to build a stronger relationship and to increase customer retention. Different customer segments require different loyalty programs. One-size fit all approach is not a recommended solution.
For instance, good customer retention examples could be every time a customer makes a purchase in-store or on your website, you can give them a certain number of points depending on the size of their purchase. These points are translated into some type of reward. It’s just a small piece of an extended customer retention strategy.
Use your social media pages, and perhaps offer an incentive such as a discount or entry into a prize drawer. Whatever you do, take on board every comment from every customer – no matter how big, small, negative, or positive it may be. Today’s consumer wants to feel that they are cared about. Giving them the opportunity to participate helps achieve this and gains you plenty of useful information.
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Offer Something Extra
Don’t stop merely selling a product. A successful eCommerce store will always offer the customer something more. What do we mean? You need a good customer loyalty program tailored to their needs. Let’s say you sell a product that needs assembly. Make a video of one being assembled and send this as part of the sales package to the customer. Perhaps you sell something that comes from a far-flung place? Tell the customer the story, how it came about.
Educate your customers in the ways they can use the product that may not be obvious. By offering a little more service above the norm, the consumer enjoys a better experience at your store. If your rivals are not, for example, supplying an assembly video and you are, that’s one extra attraction.
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Share Brand Values
Consumers like to be a part of something. Make sure your brand has core values that are clearly advertised. An example: you might sell a product that comes from a country where many of the population are impoverished. You can use that on two levels: in selling that product you are helping those people find work.
Next, sign up as a partner to a relevant charity and donate a small percentage of your sales to that charity – making sure the customer knows they are contributing to a worthy cause. Such a strategy gives your brand more kudos and stature in the eyes of the customer: do they buy from you and see 5% go to the cause, or from the guy next door at the same price with no charitable contribution? Most will opt for you as they are doing some good while buying what they want.
If your product doesn’t fit that bill, you could play a part in local community issues. Sponsor a local team or education program, for example. Any commitment to something beyond your actual businesses enhances the value of the brand. You only need to look at how major brands use this technique to enhance brand loyalty to see its success.
Keep Brand Momentum High
So, you have new products coming, and you’re pretty excited about them. You want your customers to be excited about them too! This is another of the common-sense elements in customer retention. Tell your customers, but not the whole story. Give them a hint that you have a new product they’ll be interested in, run a preview video with glimpses of it. Let a little information out here and there, and build the anticipation. Then when your launch date comes around, your customers will be ready to purchase.
This is a classic strategy for keeping customers on board who have perhaps tired of the standard product and want to upgrade or move on. Look at the fervor created when a new Apple product is to be launched. Of course, you’re not on that scale, but that doesn’t stop you from using the same tactic to build brand momentum.
Engage With Your Customers
Your customers are loyal to you, so make sure you give them some of your precious time! This is where social media comes into its own. Some ideas – run a competition on your Facebook page, the subject can be anything but try and keep it relevant, for a gift card or other prize. Start conversations with your customers – again, try and keep it relevant but casual – and get comments rolling in. This sort of engagement gives the customer further reassurance they are important to you and is helpful in building social trust.
Personalization is Key
If there is one factor that will increase customer satisfaction and encourage customers to shop with you rather than a rival, it’s personalized treatment. In your communications with the customer ensure you use their name. On social media, do the same. Make notes of what certain customers buy from you and let them know you ‘remember’ them. A simple comment of ‘Of course, you like our XYZ, you’re going to love the new product’ gives them the feeling you know them.
You can also use personalization to create a greater bond between the brand and the customer. By giving the customer the option of opening an account before shopping with you, you instantly have basic personal information that you can use. In case you think that accounts are off-putting, almost 80% of customers are willing to share information if they believe it will improve the customer experience (research by Salesforce).
Make the Customer Journey Memorable
Closely linked with the above is this point – making the customer journey one the customer remembers. How do you do this? If you want to get technical here, we’re talking about what is known in the business as reciprocity. The concept is simple: if someone is nice to you, you tend to be nice back. People, by their very nature, respond well if they are treated well.
But there’s a way you can use reciprocity to encourage brand loyalty beyond just great customer service. Order a product online these days and you get it in a bland box, and that’s it. The thing is, we expect that, and we’re happy with it. More often, however, eCommerce businesses are recognizing the value of the unexpected.
A consumer opens the box and finds a surprise candy as well as the product. Or a hand-written note of thanks for shopping with that retailer. It’s a small gesture, but it’s a noticeable and memorable one and – more importantly – a surprise. That little gesture will add to the consumer experience, and you may be surprised how much impact this retention strategy has on customer retention figures.
Exceptional Customer Support
Back to the common-sense strategies, and it should not need saying that exceptional customer support is a must. Whatever market sector your eCommerce business operates in will likely be a hotly contested one. Competition is rife across eCommerce, so you need to be the best. If you promise a customer you will get back on an inquiry, do it, and do it when you said. If you see a customer undecided, then jump in and offer your help. We’ll leave this one here, but put simply, every single action during the consumer journey counts, so ensure you and your support team are on the ball.
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Fast Delivery and Easy Returns
A quick and simple one: offer quick delivery, and make sure you have a returns system that is easy to use. Some areas of commerce will see more returns – fashion has a high return rate, for example – so ensure your logistics are in place. Your customers will buy elsewhere if they can get the same product quicker. We recommend partnering with a logistics company if you want this area to operate efficiently.
Quality Counts
If you promise a quality product, it needs to be a quality product. Consumers will pay more for an item that they can recognize the quality of rather than a cheap alternative. As this is about customer retention, nothing puts a consumer off like receiving a product that is not of the quality they were assured. Work with your suppliers to ensure quality standards are kept at the right level.
Start a Subscription Service
One way of keeping customers on board is to run a subscription service. They usually work like this: customers pay a monthly fee and get products on a regular basis. They can cancel at any time or choose to miss a month or two. This will only work for certain types of products, but there have been great success stories with subscription services.
Don’t Give Up on a Customer
Many consumers get close to the checkout and then abandon their cart for a variety of reasons. Often, it’s because they are unsure they want the product. You should follow up on abandoned carts with an email or message, as very often an inquiry from the retailer as to why the customer chose not to complete inspires them to go back. Motivate customers by offering help and advice, and perhaps a discount to get them to buy, so they can assess the quality of the product.
Reward Loyalty
Our final suggestion is one that we’ve touched on before: if your customers are loyal, you should acknowledge that. Take the example of a high street coffee chain that gives customers a loyalty card. Every time they buy a coffee, the card gets stamped, and after so many, they hand the card in for a free coffee. This is a sure-fire way of encouraging customer loyalty and increasing customer retention.
Conclusion
It’s not only about how to attract customers but also how to retain current customers. The above is by no means a comprehensive list of customer retention strategies, but we hope it gives you some ideas and inspiration that will help you improve your retention rates. You will create your customer retention program to fit your business. Begin by gathering the data, looking at your existing customers’ retention rate and other metrics, and you will soon start to build a picture of the best way to begin improvements. You have many options such as forming a dedicated customer retention team or improving your existing customer success team. Good luck growing that brand!
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