5 Ways to Improve Customer Retention for Ecommerce

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Customer retention is crucial when growing a business. The more a customer makes repeat purchases, the less money you have to spend marketing to them—while increasing your sales in the process. This is why effective businesses find opportunities for customer engagement. Here’s how to improve your ecommerce business's customer retention.

What is customer retention?

Your customer retention rate measures how often customers return to your business within a specific timeframe—i.e., repeat customers over a given period. Customer retention is sometimes referred to as brand loyalty or repeat business.

Businesses generally try to maximize retention. Higher retention rates indicate a loyal customer base and higher customer satisfaction. The higher your retention rate, the more often customers return after their initial purchase, and the further you can forecast your finances and make better business decisions.

Customer retention is crucial for online retailers. Today’s shoppers have so many options. Ecommerce creates more competition and makes it easier for niche or new markets to become crowded quickly.

Customer retention rate is not to be confused with customer lifetime value (CLV), which measures the total income you can expect to make from a typical customer as long as they remain a client. The opposite of customer retention is customer churn, which measures how often customers leave your business.

How to measure customer retention rate in ecommerce

You need three different variables to calculate retention rate: total customers at the start of the designated time period (S), the total number at the end (E), and the number of new customers between these two dates (N).

To measure customer retention, subtract the number of customers acquired from the number of customers at the end date. Divide the result by the number of customers you started with, then multiply by 100. Here’s the formula:

[(E − N) ÷ S] × 100 = customer retention rate

For instance, if you start the quarter with 10,000 customers, add 2,000 new customers along the way, and finish the quarter with 10,200, your formula for the quarterly retention rate would look like this:

(10,000 − 2,000) / 10,200 = 0.7843 × 100 = 78.43%

In this example, your retention rate is about 78%, meaning approximately four out of five customers made repeat purchases within this quarter.

5 ways to improve your ecommerce site’s customer retention

  1. Launch a customer referral program
  2. Take advantage of email marketing
  3. Start a customer loyalty program
  4. Create an SMS marketing campaign
  5. Iterate on your marketing strategy
    Designing and implementing a customer retention strategy requires a firm grasp of how customers interact with your business processes, and improvement tactics will vary from company to company. Here are five strategies for retaining customers:

      1. Launch a customer referral program

      A customer referral program works by rewarding existing customers for bringing in new customers. A well-incentivized customer referral program helps turn existing customers into strong ambassadors. Every customer belongs to a community—usually many communities. A referral program can help you tap into these networks, opening doors to sustainable growth with minimal effort.

      2. Take advantage of email marketing

      If you have customer email addresses, why not leverage them to increase purchase frequency? Discount codes and other promotional offers are as old as email itself but remain a relevant means of retention marketing when approached intentionally.

      We’ve all received marketing emails in our inboxes, whether the content was relevant or not. Identifying ways to stand out among all the other emails your customers receive is essential—and the competition for inbox attention can be intense.

      3. Start a customer loyalty program

      A customer loyalty program is an established, cost-effective customer retention strategy used by all kinds of businesses, from grocery stores to dental clinics. Loyalty programs reward returning customers; the more they buy or engage with the brand, the more rewards they earn.

      Loyalty programs can help customers feel a connection to a brand while reaping exclusive benefits. Common perks include discounts, redeemable reward points, and access to merchandise or special events. The specifics vary from business to business.

      4. Create an SMS marketing campaign

      What would you say if you could communicate with your customers via text message? SMS marketing campaigns are increasingly common, especially those that allow customers to opt-in.

      Texting a customer can be a compelling way to deliver a coupon or a discount code. After all, text messaging is how friends and family communicate, making it precious real estate for brands.

      5. Iterate on your marketing strategy

      Whether it’s tweaking your social media plans to stay in line with trends or giving your visual identity a rebrand, your marketing channels are a crucial way to signal to your existing customers that you are still relevant to them, or to prospective customers that you’re newly relevant to them.

      Customer retention ecommerce FAQ

      Why is a customer retention strategy important in ecommerce?

      High customer retention—i.e., repeat business—indicates a high level of trust between your company and its customers. Giving existing customers a reason to come back is more profitable than new customer acquisition, because acquisition costs are typically high. Companies with strong retention rates are generally more profitable. They have a higher average order value (AOV)—repeat customers spend more on average than new customers—and are typically on better terms with their clientele and brand ambassadors.

      What's a good retention rate in ecommerce?

      Good customer retention rates vary depending on the industry. According to Metrilo, the average customer retention rate for ecommerce brands is 28%. You're doing something right if your ecommerce business has a higher retention rate. If it’s lower, try implementing some of the following ecommerce customer retention strategies:

      • Launch a customer referral program
      • Take advantage of email marketing
      • Start a customer loyalty program
      • Create an SMS marketing campaign
      • Iterate on your marketing strategy
      • Collect customer feedback

      What is a KPI for customer retention?

      Key performance indicators (KPI) for a customer retention strategy vary from company to company, particularly in the length of operation (new businesses versus established businesses). These KPIs are set by company leadership and weighed against other customer retention metrics, like the industry’s average retention rate and the company’s current retention rate. From there, leaders can set whichever goals they think are reasonable.