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Retention Marketing Can Dramatically Improve Your Bottom Line

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Customer Retention Should be Ecommerce Marketing Priority #1: The Why, The How and The Return

Did you know that customers who stick with your brand over time will spend 67% more than new customers?

While this might be hard to believe, your existing customers are the ones who hold the key to your business’ long-term success.

However, if this is the case why are so many brands still focused on customer acquisition?

Surveys have shown that more marketers’ top priorities are still brand awareness and customer acquisition, even with everything we know about the power of customer retention.

So I want you to ask yourself: do I have the right priorities? If you don’t, you’re in the right place.

Customer retention is the key to a sustainable business, and we’ve got a slew of facts, figures, and examples to prove it to you.

What is Customer Retention?

If you Google the term “customer retention,” you’re bound to find a lot of long definitions that use a lot of jargony business terms to describe it.

Simply put, customer retention is maximizing the value of your existing customers.

With a retention marketing strategy, your ultimate goal is to keep more customers shopping at your store for a longer period of time.

This not only makes each customer more profitable, but also focuses your attention on making sure every customer stays engaged, happy, and coming back.

Why Customer Retention Matters

For a long time, retention marketing was considered a new way of thinking.

The idea of shifting your focus from acquisition to retention was considered bold, and very few brands were actively working to move the needle in that direction.

Considering a 5% increase in customer retention can lead to a 95% increase in revenue, this was extremely surprising.

However, customer retention has quickly become the norm as heavy competition continues to increase in every industry.

This is especially true online, where platforms like BigCommerce continue to make it easier and more accessible for anyone to start their own store.

This ecommerce climate makes it impossible for anyone to compete on price.

With Amazon monopolizing the low-cost market, it becomes a race to the bottom to see who can offer the biggest discounts.

This conditions customers to expect ridiculously low prices and encourages them to take their business elsewhere when you can no longer offer a better deal.

Unfortunately, this isn’t the only downside to increased competition.

As brands continue to undercut you on price, the cost of paid ads continues to grow as more and more brands are competing for ad space.

This vicious cycle creates an “illusion of growth” that has you funneling money into channels that are ultimately unsustainable.

At the end of the day, it now costs more to acquire a new customer than to retain an existing one, making it the obvious choice for investing in the future of your business.

How To Measure Customer Retention

So how do you know if you’re actually increasing customer retention?

Being able to track and measure retention metrics allows you to set yourself up for success.

Thankfully, there are a number of incredible metrics that will give you insight into how well you’re incorporating customer retention into your business strategy.

Whichever metrics you choose to use, the key is to measure them regularly.

Checking them once and never looking at them again is one of the biggest mistakes businesses new to the idea of retention marketing make because it only shows you one small part of the picture.

As the ongoing solution to your brand’s sustainable growth, you need to perform regular checks to make sure you’re moving in the right direction.

The following 5 metrics are the best place to start your customer retention mangement by setting your brand’s benchmarks and make measuring each of them a regular part of your marketing plan.

1. Customer churn rate (CCR).

Your customer churn rate shows you how many customers you’ve lost over a specific period of time.

These customers have stopped making purchases, and as a result have indicated that they no longer find value in your brand.

As a result, you want to keep this number as low as possible.

You’ll know your retention strategy is working if it continues to decrease over time.

How to calculate:

customer retention strategies customer chur rate

Since this is a leading indicator of how well you’re customer retention program is doing, you should measure this metric on a month-to-month basis.

You do that by dividing the number of customers you lost in a month by how many customers you started that month with, giving you the percentage of customers who chose not to come back.

2. Repeat purchase rate (RPR).

This metric shows you what percentage of your customers have made more than one purchase at your store.

These shoppers are the most important ones you have because even though they only make up 8% of your customer base, they’re responsible for a 40% of your annual revenue!

How to calculate:

customer retention strategies repeat purchase rate

You only need two pieces of information to calculate your repeat purchase rate: the number of customers who’ve bought from you more than once and your total number of customers.

When you divide the number of customers who bought from you multiple times in the past year by the total number of customers you have, you get an idea of how your customer experience impacts purchase behaviors.

With this information, you can begin to improve it with a strong retention strategy.

3. Purchase frequency (PF).

Although this metric might sound similar to your store’s repeat purchase rate, it actually gives you more of a bird’s eye view of how often customers engage with your store.

While repeat purchase rate only looks at repeat purchases specifically, your purchase frequency looks at how often an average customer makes any kind of purchase at your store.

As your PF goes up, so will your revenue, which means it’s not so much a specific number as the increase that matters.

How to calculate:

customer retention strategies purchase frequency

In order to accurately calculate your store’s purchase frequency, you need to know how many unique customers you had in a given time frame.

Once you have that number, all you need to do is divide the number of orders by your number of unique customers.

Calculating this metric using data from the past year will make sure you have a big enough sample size to track changes in purchase behavior.

4. Average order value (AOV).

Average order value tells you how much the average customer is spending on each purchase.

This makes it easy to see how much each customer is worth and to gauge whether you’ve actually built strong, emotional connections with your existing customer base.

When your average order value goes up, the less you need to spend trying to acquire new customers.

This means less money sunk into ads and more in your pocket.

How to calculate:

customer retention strategies average order value

To calculate your AOV, simply divide the total amount of revenue you’ve made in the past year by the number of orders made at your store.

5. Customer lifetime value (CLV).

This is the creme de la creme of retention metrics.

As we know, customers who love your brand are more likely to spend more with you over time.

That means that your CLV gives you the best idea of how valuable each customer will be to your store over time and in turn how valuable they find your brand.

When you can see the value of each customer relationship, it’s easier to wean yourself off a heavy acquisition strategy and focus on the areas of your experience specifically designed to retain each hard-won valuable customer.

How to calculate:

customer retention strategies customer lifetime value

For many people, calculating CLV can be a bit intimidating because it requires a couple pieces of information.

However, it doesn’t have to be complicated!

Once you know your average customer value and your store’s average lifespan, you simply need to multiply them together to get a better idea of whether your customers are spending more and making purchase more often.

If this value increases over time, you know you’re well on your way to a super successful customer retention strategy!

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