This blog – written by Steve Smith, CEO of Conversific – covers the importance of customer retention and covers some vital loyalty metrics you need to focus on.
Understanding customer acquisition and customer retention is an essential part of thriving in an increasingly competitive ecommerce space.
In this article, you’ll learn the difference between customer acquisition and customer retention, some powerful techniques to use post-purchase and some crucial customer loyalty metrics that will help you save time and money.
Let’s get started.
Fact: Every business needs customers to even call themselves a business.
However, there’s a massive difference between getting a customer and keeping them. Getting a customer means you’re officially in business. Someone gave you their hard earned dollars in exchange for your products or services. But keeping a customer means that your business can continue being a business.
There’s overwhelming evidence that shows the massive costs of customer acquisition. In fact, customer acquisition can cost up to seven times more than selling to existing customers. Plus, the probability of selling to an existing customer hovers around 60 to 70%, as opposed to a measly 5 to 20% possibility of selling to a new customer. With these intimidating numbers, how can you come up with some cost-effective customer acquisition strategies?
In addition to various ecommerce analytics tools that help you gain valuable insights into your customer journeys, you need to properly calculate your customer acquisition cost.
This helps you determine whether your efforts are profitable. Here’s a simple calculation of Customer Acquisition Cost or CAC:
Take all of the marketing expenses used to acquire new customers (ads, campaigns, etc) and divide that by the number of customers acquired during the time of those expenses.
Although there are ways to go about acquiring customers cost-effectively, it’s safe to say that retention should still be a priority. The single best way to keep customers happy and willing to buy is to provide them with an outstanding ecommerce experience. Here are four ways to do that:
1. Personalise post-purchase transactions
There are few things worse than signing up to an email list to then receive offers that are irrelevant to you.
Unfortunately, many businesses do this without realising that they’re squandering the chance to build long-term relationships with customers. Once you’ve converted a customer, use tailored thank you pages and confirmation emails to enhance their post-purchase experience.
2. Adapt to on-site behaviour
Your customers’ behaviours will change over time and you’ve got to be nimble enough to adapt to them. Faster adaptation to their shopping habits will help you provide new experiences and maintain excitement around your products.
3. Design memorable unboxing experiences
We’ve all been guilty of binge-watching unboxing videos on YouTube for products that we’re not even intending to buy. But why is it so satisfying?
It’s because unboxing is an extension of the post-purchase experience. Great brands know how to continue this experience with fun, sleek and extraordinary packaging. But these experiences are few and far between. The majority of brands neglect the opportunity to make lifelong customers because their product arrives in a boring brown or white package. Think of custom packaging as an investment towards retaining customers rather than a nice-to-have.
4. Stage in-person events
In a time when online shopping dominates and thousands of retail storefronts are shutting down, there is still a need for a “physical storefront” shopping experience.
Pop-up stores are have become a popular choice for brands to connect with their audience in real-life. We are human beings after all and there’s nothing that will leave a positive impression more than face-to-face interactions.
So what are the most important metrics?
This metric helps you understand your customers’ spending habits and can help you to identify opportunities to upsell and make tailored offers.
To find out your AOV, divide the sum of generated revenue by the total number of orders.
To check the AOV of your entire site, head over to Conversions » eCommerce » Overview. You’ll see the metric Avg. Order Value.
This metric measures how often the average shopper makes a purchase. It’s another important revenue metric because the higher your purchase frequency rate the higher your revenue will be. To calculate purchase frequency, divide the total number of orders made in a year by the number of unique customers you’ve had in the same time period.
Note: This metric focuses on unique customers! Be sure to ensure that you’re tracking unique sales to get the most accurate data.
PPO shows you how much profit you’re making on each purchase. The higher the profitability per order, the higher your overall profits. To calculate PPO, start out by figuring out your profit margin. Once you get that, multiply it by your total revenue and then divide it by the number of orders.
Repeat purchase probability forecasts the likelihood of a customer making another purchase. If a customer is less likely to make another purchase, this means that there’s a good chance they’ll churn. This gives you the intel to find ways to keep customers from shopping elsewhere. To calculate repeat purchase probability, take the number of customers that have purchased X amount of times in a period of 365 days, and divide that by the total number of customers in that same period.
Repeat purchase rate measures how many repeat customers you have. It is the quintessential customer loyalty metric. To calculate this, take the number of customers who bought more than once (in a given time period) and divide it by the total number of customers in that same time period.
By using tools like Conversific, you can view simple charts like the one above. You can clearly see your new customers vs recurring customers and figure out the percentage of repeat customer revenue.
Customer retention rate measures what percentage of customers stay with you over time. It’s another quintessential customer loyalty metric telling you how well you’re keeping your customers. The higher your retention rate, the better you’re doing at keeping customers.
To calculate your customer retention rate, take the total number of customers at the end of a given period, subtract it from the number of acquired customers in the given period and divide it by the number of customers (at the beginning of that given period).
It can be a little tricky because the period of time could be anything you want but to make it easier, use one year as a standard time measure.
“All we ask is trust
Loyalty, loyalty, loyalty”
Music stars Kendrick Lamar and Rihanna sing the above lyrics in the single “Loyalty” and whether they meant it or not, it’s a rallying cry for ecommerce store owners to find out who their most loyal customers are.
The loyal customer rate helps you to find that out so you can give your most loyal customers a VIP treatment in the form of loyalty programs, extra incentives and more.
To measure your loyal customer rate, take the number of customers who’ve purchased more than four times in a year and divide it by the number of unique customers in the same period.
In Conversific, the customer dashboard highlights your most loyal customers and gives you important data such as the number of products ordered and lifetime spend. You can also use this data across your loyalty programs and VIP offers.
As an ecommerce store owner, it’s inevitable that you will lose customers. It’s just part of the journey. What can be done, however, is to understand where customers are falling off, why they’ve stopped making purchases and how to improve your user experience to minimise churn. That’s why knowing the percentage of customers lost over a period of time is important.
The time frame to measure customer churn rate is up to you. However, it’s recommended to measure it on a month-to-month basis to position you in a more proactive stance for your retention strategy. After doing this, take how many customers you lost and divide it by how many customers you had to get the customer churn rate.
This metric helps you determine the efficiency of your marketing campaigns and the effectiveness of your overall content.
To get the new vs returning visitor rate, you divide the number of repeat visitors by the total number of unique visitors to your site in a specific time period.
Under the “ecommerce” tab in your Google Analytics menu, you can set up tracking for this metric by checking the two boxes – “Returning Users” and “New Users” – as shown below.
The percentage highlighted in this image is the New vs returning visitor rate.
This metric helps you identify the ratio of people who’ve purchased from you before and have returned to make a second (third or fourth) purchase. The more returning customers you have, the lower the cost of acquisition. This metric is also a good indicator of your customer experience from beginning to end.
To get the new vs. returning customers rate, divide the number of return customers by the total number of customers and multiply by 100 to convert to a percentage.
This metric helps you understand how long it takes someone to buy from your website and if that behaviour is different across your customer segments. This can help you with remarketing, upsells and identifying other ways to improve your marketing techniques.
To measure time lag, head over to the navigation menu and head to “Multi-Channel Funnels”. Under that drop-down, you’ll find the time lag overview. Be sure to click ecommerce in the top left as indicated in the image below.
After doing so, you’ll be able to see time lag in days as well as the conversions and conversion value at each day.
In the picture below, you can see that more than 30% of the revenue came in just 12 days! Having actionable intel and remarketing is key to success.
This metric measures the depth of each visit to your site. In other words, It helps you to see how many pages your average visitor views before completing a purchase. Knowing this helps you figure out where customers are falling off in the funnel.
To find your path length, head over to Conversions » Multi-Channel Funnels » Path Length.
In this image, you can see path length and how the conversions that occurred (in a number of interactions).
Customer acquisition and retention are not easy things to deal with. With so much competition, diverse customer tastes, and a multitude of other factors, it can feel like you’re always in survival mode. That’s why having solid, actionable data will set you apart from the rest. Trust the data, do the work, and stay open to new ideas. Hope you enjoyed this article!
About the author
Steve Smith, CEO at Conversific
Steve is the CEO and Head of Analytics of the Shopify app Conversific. They found that there’s a direct correlation between trying to understand data and being sad. That’s why the team behind Conversific wants to change the world of ecommerce analytics upside down and make it mainstream to every Shopify store.
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