What is Customer retention?
This essential guide to customer retention strategies includes metrics, KPIs, strategies and tools, plus everything you need to know about customer retention for eCommerce.
What is Customer Retention?
One of the biggest mistakes eCommerce entrepreneurs can make is to invest all their time and energy into finding new customers. After all, it's commonly said that your best customer is the one whose business you've already earned. But what does this really mean?
You've probably heard the term brand loyalty before. Building brand loyalty means taking steps to keep customers engaged and buying from you, often without considering the other options on the market.
In the big picture, the ability to foster brand loyalty among their customers is something all business owners strive for, but when you isolate the concept, you might find brand loyalty difficult to measure. How do you figure out if you're successfully building loyalty in your business and the products you sell?
The answer lies in a measure metric: customer retention.
What is Customer Retention for eCommerce?
When it comes to your eCommerce store, customer retention is a simple concept. How many purchases does the average customer make over the length of their relationship with your brand?
The goal of running an eCommerce business is getting people to purchase the products and services you're selling, but if you're only focusing on primary sales, you may not be as successful as you want to be. Customer retention is a measure of how successful you are at capturing secondary sales — customers who buy once and then come back and buy again.
Why Is Customer Retention Important?
The ability to go back to the well with your customers multiple times instead of constantly relying on new faces in the sales funnel can add significant revenue and reduce your ad spend. Here are a few reasons why customer retention is one of the most important things to focus on when you're running an online store.
Repeat business increases the lifetime value of a single buyer
Customer lifetime value (CLV) is a core metric for eCommerce businesses to keep track of. Retaining customers means engaging previous buyers so they'll purchase again, and these repeat customers have a higher CLV than those who only purchase once.
This doesn't just mean that these customers will make a purchase more than once, however. In fact, studies have shown that loyal customers spend an average of 67% after around two years buying from a brand than they did in their first six months.
Put simply, the trend with loyal customers is that the longer they stay committed to your brand, the more they'll spend with each purchase.
Loyal customers will review your products and recommend them to their peers more often
If someone is repeatedly buying from your brand, it's not an accident. It means they really like what you're selling. It's the difference between finding one thing they like from your online store — something that feels like "getting lucky" — and feeling like your brand is one they can trust to find what they're looking.
These loyal customers will be the ones who not only leave reviews but leave the best reviews. They'll also advocate for your brand to their family, friends, and colleagues — and 92% of consumers trust word-of-mouth recommendations more than any other type of marketing.
Customer retention is more profitable than new customer acquisition
You may have heard an often repeated business maxim that it costs more to find new customers than to nurture existing customers. But how much is this really the case?
The answer is that it may be true to a significant degree. According to Forbes, it can cost as much as five times more to acquire a new customer than to re-engage a previous buyer. If you're operating under the fine margins that eCommerce businesses sometimes need to, this can make a huge difference.
Loyal customers make your marketing dollars go farther
Most businesses run marketing campaigns but not all marketing is created equal. This is because customers who have previously purchased from your store are much more likely to purchase again — about 65% compared to the 13% chance that a prospect will be converted into a buyer.
This tells us that it will be easier to market to to past customers than to prospective ones. But all else isn't equal when it comes to marketing budgets, because you have different channels available to reach different audiences.
For example, text and email campaigns have a higher ROI on average than cold PPC on Google, Facebook, or Instagram. Unless you buy a list — which is both expensive and usually in violation of marketing compliance rules — you'll only be able to access these higher impact campaigns if you're targeting audience members you already have a relationship with.
Repeat customers will be more forgiving of occasional negative experiences
As much as you try to reduce negative interactions between your brand and your customers, no business is perfect. Sometimes things go wrong — maybe it took too long to issue a refund after a return or a customer was upset you didn't have the item they wanted in their size.
If the person these little negative things happen with has never purchased from you before, they may choose to take their business elsewhere. If they're a loyal repeat customer, however, they're more likely to fall back on the equity you've already built with them and forgive the occasional mishap.
Customer Retention Strategies
Later on in this guide, we go into some detail about specific ways to engage customers to increase the chances that they'll buy from your brand again after their first purchase. The main idea, however, is to use proven strategies to rethink the customer relationship.
Many business owners look at the sales funnel as the ideal customer relationship timeline. They collect leads, nurture them into prospects, and get them to convert. At that point, the relationship is over because the conversion was the ultimate goal.
With the understanding that a loyal customer is worth an average of ten times the value of their first purchase, though, you should be thinking about this differently: Instead of the customer journey ending when the purchase is made, this should effectively be viewed as the first step in a long, profitable relationship.
Depending on the strength of your brand, there are times when customer acquisition is an important goal, but often, customer retention should be your overall focus.