For any ecommerce store owner, growing your revenue relies largely on two drivers: acquiring customers and retaining them. Successful strategies for customer acquisition and customer retention will fuel the growth engine for your business. Learn how to balance, measure, and prioritize customer acquisition and retention.
What is customer retention?
Customer retention is a company’s ability to generate continued sales from existing customers. Another way to think of it is turning your first-time buyers into loyal customers. When a customer makes a repeat purchase, you’ve successfully retained that customer for the time being. The goal of customer retention is to increase customer lifetime value (LTV) and minimize your churn rate—the rate at which customers stop returning to your business to make purchases.
Subscription-based businesses have automated repurchase behavior built in. For these businesses, customer retention is about keeping customers happy enough to prevent them from canceling. For non-subscription businesses, customer retention strategies must also consider how to drive customers back for repeat purchases.
5 customer retention strategies
A good customer retention strategy lays the foundation for a long-lasting relationship with shoppers, ensuring that they return for future purchases.
- Customer accounts
- Discounts for repurchases or referrals
- New and seasonal product drops
- Responsive, proactive customer service
- Automated marketing campaigns
1. Customer accounts
By creating a login portal where your customer base can view previous orders or manage subscriptions, you can make the reordering process seamless, recommend relevant products, and save customer payment information for future purchases.
2. Discounts for repurchases or referrals
Offering promo codes for a customer’s second order can help you generate repeat purchases. This type of consumer incentive can take the form of a single discount or a more robust customer loyalty program. Similarly, referral programs that give product discounts to referrers both incentivize customers to refer new leads and use the discount to become repeat customers themselves.
3. New and seasonal product drops
Customers love variety, and they tend to respond to urgency. Releasing new products—especially when they are seasonal or in limited supply—can encourage customers to make additional purchases when they may not have otherwise.
4. Responsive, proactive customer service
Customers stick with brands they trust, and nothing fosters trust like a stellar customer experience. The best brands actively ask for feedback and quickly address customer concerns. Allow customers to submit reviews, and have your team personally reach out to people who report having a negative shopping experience.
5. Automated marketing campaigns
Once you understand your repeat customers’ behavior, you can create automated email or SMS campaigns to mirror it. For example, if you sell supplements in 30-day packages, you can schedule emails to prompt customers to reorder when they’re nearing the end of that 30-day window. To streamline the process, you can use Shopify Email to create and manage email campaigns.
What is customer acquisition?
Customer acquisition is the process of attracting new customers to purchase from your store. It is a key component of nearly every marketing strategy. Customer acquisition strategies focus on reaching new customers and nurturing them toward purchase via the customer acquisition funnel; this process involves building awareness and interest, supporting prospective customers as they consider making a purchase, and, finally, converting them into paying customers.
4 customer acquisition strategies
The best customer acquisition strategies are the ones that meet your potential customers where they are. This can look different for every business, but some of the best strategies include:
- Paid digital marketing
- Content marketing and social media marketing
- Partnerships and collaborations
1. Paid digital marketing
Digital marketing involves paying for advertisements on platforms like Facebook, Instagram, Google, and TikTok. By narrowing your target audience, you can ensure that your ads are displayed for the demographics most likely to make a purchase from your store.
2. Content marketing and social media marketing
Content marketing is the creation or curation of content that appeals to potential and existing customers, often via your company’s blog and bolstered by search engine optimization (SEO). A good social media marketing strategy involves posting organic content on social media platforms such as TikTok and Instagram to build brand awareness and acquire customers.
3. Partnerships and collaborations
Partnering with a brand that has a similar audience to yours can both grow awareness and build trust. You can also use influencer marketing to promote your product offerings—even micro-influencers can be effective ambassadors for your brand.
Brands can acquire new customers by hosting or sponsoring events. For example, an electrolyte drink brand could sponsor a marathon, or an online clothing company could host a pop-up with live music and food.
Cost and ROI of customer acquisition and retention
The cost and return on investment (ROI) of customer acquisition and customer retention are measured differently.
Your customer acquisition cost (CAC) is your total marketing spend divided by the number of new customers generated. By comparing your customer acquisition cost to customer lifetime value (LTV), you can get a sense of the average ROI for your marketing spend. Calculate LTV by taking the average number of times a customer orders multiplied by the average gross margin of an order. If your CAC is smaller than your LTV, you likely have a profitable customer acquisition strategy; ideally, your LTV will be three times your CAC.
For customer retention, you typically measure ROI by looking at the incremental success that a new initiative has on LTV. For example, say your brand has an LTV of $200 per customer. If you launch a loyalty program, and after a year you find your LTV has grown to $250 per customer and you had 2,000 sales, your return on that loyalty program would be $100,000 ($50 x 2,000). Calculating the cost part of ROI can differ from brand to brand, but it typically includes administrative costs, any associated costs for advertising the program, and the margin cost of the program’s discounts.
Should you focus on acquisition or retention?
First, consider your business model and LTV. If your business is primarily subscription-based or has regular repeat orders (such as a grocery delivery service), you may benefit from focusing on retention, as you have the potential to sustain consistent revenue from your customers. On the other hand, if you primarily sell products that customers buy infrequently (dishware or furniture, for instance), you’ll need to constantly acquire new customers.
If you open an ecommerce store, build out your customer acquisition channel to bring in customers. Then develop a strategy to encourage repeat purchases. From there, you can consider new ways to diversify your customer acquisition, then diversify retention, and so on. By building successful acquisition and retention strategies on top of each other over time, you can build a powerful financial growth engine.
Customer retention vs. acquisition FAQ
Why is customer retention important for a business?
Strong customer retention can be one of a business’s most profitable growth strategies. Existing customers (assuming they’re satisfied with their purchases) are typically far more likely to purchase again than someone new. Additionally, since customer retention involves ensuring customer happiness, it can have positive secondary benefits such as expanded word of mouth and increased engagement with your brand on social media.
What are the benefits of a customer acquisition strategy?
A strong customer acquisition strategy ensures that a steady stream of new customers discover your store. This helps you grow your revenue over time, and it allows you to make predictions for future growth. As you hone your customer acquisition strategy over time, you can incorporate insights from the performance of past campaigns, ensuring that your marketing spend is as efficient as possible.
Is customer retention or acquisition more cost-effective for a business?
This will always depend on the business, but customer retention strategies can be highly cost-effective. Existing customers are familiar with your brand, and they’ve likely opted in to hearing from you via email or SMS. This makes reaching them with new messages inexpensive—you don’t have to invest in as much lead generation. Customer acquisition strategies are necessary, but more expensive to execute.