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eCommerce Customer Retention

Maintaining current customers is more cost-effective and profitablе than acquiring new ones.

This means focusing too much on Acquisition without considering Rеtеntion or Rеvеnuе can result in a leaky bucket scеnario when customers are acquirеd but lost rapidly without contributing mеaningfully to long-term success.

65% of the average company’s revenue comes from existing customers

The real challenge lies in transforming more first-time buyers into valuable customers.

What is the Customer Retention Rate?

The retention rate measures the percentage of individuals consistently making repeat purchases from your online store.

Did you know businesses have a 60-70% chance of selling to an existing user vs. a 5-20% chance of selling to a new user?

Calculating your customer retention rate is straightforward with a simple formula that involves three critical components;

  1. Number of customers at the beginning of a time period
  2. Number of customers at the end of the same time period
  3. New customers acquired during the given period

If a store acquires 100 new customers in January, gains 50 new customers over time, and has 80 customers at the end of January, the customer retention rate would be 30%.

How?

To calculate the retention rate for a specific period, subtract the number of new customers acquired by the total number of customers at the end of the period, divide it by the original number of new customers, and multiply by 100 to get a percentage.

Customer Retention Calculation

Number of customers at the start of January [S]: 100
Number of new customers acquired in January [N]: 50
Number of customers at the end of January [E]: 80

CRR for January = ( 80 – 50 / 100 ) × 100 = 30%

Suppose the highest retention rate was at 30% in January. However, over the six months, the retention rate gradually declined, meaning that initial customer satisfaction was high but reduced over time, possibly due to the product’s originality wearing off.

To address this, companies analyze the reasons for the drop-off and implement strategies to enhance long-term retention, such as introducing loyalty programs, personalized marketing, or launching new products.

And to achieve long-term success, maintaining the satisfaction of current customers is super important.

High retention rates indicate that your product/sеrvicе rеmains rеlеvant & valuable to your customers ovеr timе, еnsuring long-term business viability.

Why is Customer Retention Rate an Important Metric?

Customer retention rate is vital because it is directly tied to a business’s financial health and long-term success.

  • Acquiring new customers is almost more expensive than retaining existing ones-significant marketing and advertising costs and resources. A high retention rate means a business can spend less on Acquisition and more on nurturing existing relationships.
  • Repeat customers spend more over time. As they grow more comfortable and trusting of a brand, they will likely make larger purchases or buy more frequently. This increased spending boosts overall profitability.
  • Retained customers contribute to a higher CLV, the total revenue a business can expect from a single customer throughout their relationship. A higher CLV is a strong indicator of a company’s long-term viability.
  • Happy and loyal brand customers are likely to recommend their business to others. This word-of-mouth marketing is free and highly effective, as recommendations from friends or family members carry significant weight.
  • A high customer retention rate can be a significant differentiator. It indicates that a business has a loyal customer base and provides a product or service that meets or exceeds customer expectations.
  • Loyal customers of the brand are more likely to provide valuable feedback. They can offer insights into what the business is doing well and where it can improve, which is invaluable for continuous improvement.

What is the Average CRR for the E-Commerce Industry?

The average customer retention rate can vary significantly based on industry, market, customer experiences, and specific business models. As per general benchmarks, they indicate that the average customer retention rate for eCommerce typically falls within the range of 30% – 40%.

According to Sprinklr (2023), the average CRR in e-commerce is around 38%, meaning 3 out of 10 customers stay loyal to a brand for over a year.

According to Yotpo (2022), the average CRR is typically around 15% to 30%, depending on the factors.

Drip (2023) says the average CRR is between 16% to 30 %. [ And this also depends on the factors mentioned ]

Various factors come into play when evaluating benchmarks for Customer Retention Rate (CRR) in e-commerce. But the higher the Customer Retention Rate (CRR), the better it is for your company.

Along with that, it’s super important to examine more metrics and key performance indicators (KPIs) to ensure you’re on the right track.

Metrics such as average order value, lifetime value, churn rate, repeat purchase rate, and loyalty rate are essential considerations.

Ways to Improve Online Customer Retention for E-commerce

Improving online customer retention for E-Commerce involves a combination of strategies that enhance customer experience, build loyalty, and encourage repeat purchases.

Customer Service and Experience Should be at Top Priority

66% said that a good value product (what customers get for their money) would inspire their loyalty, and 56% said the same about customer service.

Be proactive in addressing issues and resolving complaints to ensure a positive experience throughout the customer journey.

It is said that 72% of customers will switch businesses after one bad experience.

So that’s why train your customer service team to be knowledgeable, empathetic, and proactive in addressing customer needs and concerns.

Offer multiple channels for customer support, including live chat, email, and phone support, and ensure that inquiries are handled promptly and professionally.

Embrace Email Marketing & Automations

Email marketing is a simple but effective tactic for keeping your brand top-of-mind.

61% of users prefer to be contacted by companies through email, which is good news for your business.

Even better news? 99% of email users check their email daily, some as much as 20 times daily!

So, always create targeted email campaigns with personalized content, promotional offers, and product recommendations based on customer behavior and preferences.

Use automation to send timely emails, such as welcome sequences, abandoned cart reminders, and post-purchase follow-ups, to keep your audience engaged and coming back for more.

Introduce a Rewarding Customer Loyalty Program

Who doesn’t love feeling special?

Treat them to exclusive SMS offers and early access to sales, making them feel like VIP members of your community.

By showing appreciation for their loyalty, you’ll create a sense of exclusivity that keeps them returning for more.

But why stop there?
Consider implementing a loyalty program that rewards them for their ongoing support.

64% of retailers say their loyalty/rewards program is the best way to connect with users.

Offer Customers Discounts and Deals

Discounts and deals can be used as an incentive to attract new customers to your store. Promotions such as “20% off your first purchase” or “Buy one, get one free” can entice first-time shoppers to try your products.

Happy customers who get great deals are more likely to share their happy experiences with friends and family, both online and offline. This word-of-mouth marketing can attract new users and increase brand awareness.

Customers are often influenced by price when making purchasing decisions, so offering attractive discounts can give you an edge over competitors.

Leverage User Segmentation and Personalization

When customers feel understood and appreciated, they are more likely to spend time on the website and make purchases-almost 6% more!

By understanding what individual customеrs likе, you can customizе your wеbsitе, еmails, and promotions to match their prеfеrеncеs.

This creates a personalized and enjoyable shopping еxpеriеncе, making customers fееl likе thе brand undеrstands thеm. Giving customers what they likе makes thеm rеturn.

Satisfiеd customers arе not just onе-timе buyеrs; they become repeat customers and advocates for thе brand.

A 5% increase in customеr rеtеntion can bring 25% to 95% morе monеy!

Whеn you collеct information about your customers and group them based on thе sеgmеntation models, you can offеr thеm what they’re more likely to purchase, which can makе thеm satisfiеd and morе likеly to stick with your brand.

Plus, keeping an eye on them helps you adapt quickly to changеs and kееp improving customer interactions.

So, it’s an intelligent move to start segmenting users for a better business boost!

Don’t Leave Out SMS Marketing

Are you aware that SMS marketing stands out as one of the most effective strategies for marketing and communication?

Over half of all surveyed marketers say SMS is one of their top 3 channels for driving revenue.

SMS and Email marketing may seem similar, but they serve different purposes because of the types of messages they deliver. While email allows for longer, more detailed communications, SMS is more personal and direct.

And 78% of consumers prioritize text messaging over other phone activities like social media and emails.

After a customer makes a purchase, focus on building excitement and providing updates about their orders. Follow up with a satisfaction survey via SMS to gather feedback. Use that feedback to personalize recommendations or offer discounts to encourage future purchases.

SMS marketing can help boost loyalty, retain customers, and increase repeat sales when used effectively.

Mastering customer retention in e-commerce is key to sustained success. However, among all these, one question still remains–are you ready to take the necessary steps to not only attract but also retain loyal customers who will champion your brand for years to come?

Rishi Thakker

Rishi Thakker

Rishi Thakker is the founder and CEO of Huptech Web, an eCommerce development and marketing firm that helps companies attract visitors, convert leads, and close customers. His unique writing tips give startups and well-known brands a palpable action plan full of innovation unmatched.

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