Repeat purchase rate is no longer enough as a standalone metric.
What is repeat purchase rate?
Repeat purchase rate is exactly that. The rate in which your customers make a second, third or even fourth purchase from you.
It’s a useful metric to understand how loyal your customers are.
The aim is to have as many customers as possible returning to purchase from you.
Repeat purchase rate can also be referred to as, re-order rate, customer retention score, or repeat customer rate.
Repeat customers are loyal customers and so it’s important to spend time nurturing them.
How to calculate it?
To find the repeat customer rate there are 3 steps.
Step 1: Find the total number of customers who have purchased something from your store.
Using any method: find the number of customers who have placed an order with your store.
Be sure to only include the unique purchases. You do not want to skew your results by increasing the total number of orders simply due to including people who have purchased more than once.
Let’s suppose you have 300 customers.
Step 2: locate the number of customers who made a repeat order.
If you use Shopify to host your store, this can easily be done by looking at the sales per customer report and counting the number of customers who have made more than 1 order.
Suppose you have 30 of those customers.
Now simply divide the number of repeat customers (30) by the total number of customers (300).
30/300 the result should give you a decibel number between 0 and 1. In this instance, we get 0.1
Times this number by 100 to get a percentage.
Here ours is 10%.
10% repeat purchase rate
Why it’s not enough
It’s not enough to know that your repeat purchase rate is X, if you don’t have anything to benchmark it against.
That’s why we’re proposing you consider your potential repeat purchase rate (PRPR)
If your potential repeat purchase rate is 42%
But your repeat purchase rate is 10%, then clearly there are things you need to work on.
Metrics are only useful if you can do something actionable with the information.
Suppose you’re the manager of a small-time football league. They tell you they’ve scored 100 goals this season.
Without context, that figure doesn’t mean anything.
Suppose your team has scored 100 goals this season, but their closest opponent has scored 1000 goals, and the top team has scored 4000 goals. Suddenly that number doesn’t bring about the same excitement.
Again suppose your team scored 100 goals this season, but they attempted 1000 goals. This gives them a 10% potential goal score rate.
Adding context to your metrics is key to making them actionable and worthwhile.
What to do with the information
It’s also important to consider the type of things you sell.
Some businesses don’t lend them themselves to having a high repeat purchase rate. If some of your items are ‘buy once’ types, then it’s important not to include these in your calculations as it will skew your results.
However, stores that have larger amounts of products or products that can be purchased over and over, will have a higher potential purchase rate and therefore should be striving towards a higher repeat purchase rate.