How to measure — and improve — customer retention on Shopify
Educational material
27th December 2024
Retaining your customers is one of the biggest factors for long-term success on Shopify. Store owners or marketers like you need to do as much as you can to retain as many customers as possible.
If you don’t know how to measure your customer retention rate, you won’t know if your efforts are working. So, in this guide, we’ll cover everything you need to know about measuring your retention rate in Shopify and how to improve it, including:
Let’s go straight into the practical bits—calculating your customer retention rate in Shopify.
How to calculate your Shopify customer retention rate
Calculating your Shopify customer retention rate is trickier than some other metrics.
To outline the basics, you need to plug your store’s figures into this formula:
(E -N/S) x 100 = Retention Rate, in which:
E (“End Customers”) = The total number of customers who made a purchase in the time period.
N (“New Customers”) = The number of new customers — those who made their first purchase in the same period.
S (“Starting Customers”) = The number of customers who had made a purchase during a comparative period.
This is easier to understand with a descriptive example. Let’s say:
Your store had 500 customers at the start of the previous quarter, it ended the quarter with 525 customers, within which 300 were new customers. Here’s how that would look in the formula:
(525 – 300 / 500) x 100 = 45% CRR (which would be a very good rate)
It’s easy to confuse CRR with Repeat Purchase Rate (RPR), which Shopify includes in the default analytics dashboard (though they call it Repeat Customer Rate):
But there is a subtle difference. RPR calculates the percentage of customers who make more than one purchase, and you usually use it for shorter time periods (like monthly). Whereas CRR measures how well you’re keeping your customers loyal over a longer period.
Finding the CRR figures in your Shopify store
At the time of writing, Shopify doesn’t have a dedicated metric tile in the dashboard or an easy-to-find report for retention rate. Instead, there are two ways of understanding your Shopify store retention rate.
First, use the Customer Cohort Analysis report. This report groups customers based on the date of their first purchase and selects the Retention Rate Chart. This chart gives you the retention rate of first-time customers over time.
According to this help article, you can also display the retention rate for customers in all cohorts for a selected time period. In the image example above, you can see these figures in the “Overall” row.
Alternatively, you can use the Customers Over Time report to find the number of new and returning customers in a period. From there, use the customer figures from the end of the previous period to determine the “Starting Customers” figure and figures from the following period to fill in the rest of the formula.
How to interpret your Shopify customer retention rate
As mentioned, your Shopify customer retention rate gives you a sense of your customer loyalty over a longer period. How might that affect the strategy you take moving forward?
If you have a high retention rate, you’re doing something well. In this case, it would be worth analyzing what’s contributing the most to your retention and do more of it.
If your CRR is on the low end, you need to figure out ways to improve it (which we’ll discuss more further down this guide).
However, it’s not always easy to determine whether your CRR is performing well since Shopify stores have a ton of variation.
A “good” customer retention rate depends on your products and customer behaviors.
We can point to a research report from Decile released in 2023, which gives us benchmark retention rate figures:
Fashion and Apparel: 19% (threshold between 9–26%)
Food and Beverage: 23%(threshold between 10–45%)
Health and Beauty: 21%(threshold between 4–25%)
Home Goods: 12% (threshold between 8–17%)
However, this only covers the four sample industries (for example, you might be in the pet care category). Other sources suggest a good retention rate sits at around 38%.
There’s an issue with CRR benchmarks in the ecommerce industry: they’re only snapshots.
CRR will naturally fluctuate over time (as well as industry benchmarks). They also don’t take smaller (but significant) factors into consideration.
For example, there’s a massive range in niches/market sizes and price positioning in the fashion and apparel industry. Not to mention differences in seasons across the year.
Additionally, if the products you sell are designed to last many years (e.g., home goods), it can be hard to determine if you’ve retained customers without using a multi-year period.
Here’s the key: focus on your own store’s CRR by creating your own benchmark to compare against. It’ll take time to gather enough data, but it’ll be worth it.
Segmenting your Shopify customers by retention rate
Now you know how to find (or manually calculate) your customer retention rate in Shopify and interpret this data. Let’s move on to a practical exercise—segmenting your customers by retention rate.
With the Retention Rate Chart in the Shopify Cohort Analysis, you can determine which “cohort” of customers have stayed with your brand the longest and which has the lowest CRR (at the time of analysis).
These serve as your most basic segments: loyal customers vs non-loyal customers.
Within the Cohort Analysis, you can view comparative data between cohorts. In this case, we’ll want to compare the cohorts with the highest and lowest CRR. After that, you can make comparisons between the cohorts, including:
Total new or returning customers and their total number of orders.
The top product baskets sold to the customers.
The top marketing channels responsible for directing the cohort’s customers to your business.
The top sales channels that processed the cohort’s orders.
The “predicted spend tier” overview for the cohorts.
A ratio of orders containing one-time vs subscription purchases (if your store sells subscriptions).
The top geographic locations of customers in the cohorts.
With this information, you should be able to pinpoint factors that your lowest CRR customers are underperforming on in comparison to your loyal customers.
For example, if your brand’s Instagram were the top channel funneling loyal customers to your store (vs a Facebook page), you’d be better off focusing on Instagram marketing.
How to design a Shopify retention strategy to improve your customer retention rate
Unless you’ve struck gold with the perfect product/market fit, most brands need to proactively come up with a customer retention strategy as early as possible.
We’re not saying that it’s possible for every brand to retain 100% of its customers (let us know if you do!). But there are tactics you can use that, together, form a comprehensive retention strategy to improve your current metrics.
Make good use of your data
The first tactic is making sure you’re using your customer data effectively. Shopify stores collect a ton of zero and first-party data. You only need to look at your customer reports in your analytics dashboard to see that.
The power of your data comes into play when you build customer segments, as mentioned earlier, and for personalization.
Research from Twilio showed that nearly half (49%) of customers say they will likely become repeat buyers after a personalized shopping experience, and 62% said a brand will lose their loyalty if they deliver an ‘unpersonalized’ experience.
With third-party cookies seeing a slow demise, your own data is more valuable than ever—make good use of it.
Gather post-purchase feedback
The next tactic is putting a good amount of effort into gathering post-purchase feedback. Fostering engagement after the first purchase is a significant factor in encouraging repeat business.
Beyond the engagement itself, the content of the feedback can be a catalyst for big improvements in your store.
One of the most common methods of gathering post-purchase feedback is using customer feedback surveys. These surveys can be a valuable, automated tool to gather information from the source, your customers.
But if you want to get a little personal or gather richer data, you can conduct customer interviews and focus groups.
Provide excellent customer service
You want a level of customer service that, even when things go wrong, you can turn into a good customer experience.
Some slightly old but still relevant research from PwC shows that even if customers love a brand, 32% will stop buying after just one bad experience. Many brands could crumble from losses like that.
Therefore, it’s crucial for Shopify store owners to have great customer service in place. One method to help you get there is building a 24/7 live chat bot to service customers’ basic queries—this helps filter the more complex requests to human agents.
The Shopify App Store (at the time of writing) has four AI chatbot apps designed for customer service that were built for Shopify.
Build a loyalty program
We’ll get into more detail on this shortly since a loyalty program is one of the most impactful parts of a customer retention strategy.
However, for the basic overview, a loyalty program helps incentivize customers to engage with and stay loyal to your brand. There are several different types of loyalty programs and there’s almost always a type to suit a Shopify store, no matter what you sell.
As a bonus, loyalty programs also help you collect even more customer behavior data (such as program tier status, reward redemption rates, and more). You can use this data for even more refined segmentation and personalization.
Retention rate isn’t the only important loyalty metric for Shopify stores
Before we discuss loyalty programs in more detail, let’s cover some of the other retention-based metrics that can be just as (if not more) useful as customer retention rates.
Churn Rate
Churn rate isn’t the easiest metric to measure in ecommerce since it’s difficult to determine if a customer has churned or not. In fact, we have a guide on ecommerce churn rate:
On the other hand, AOV is an easy metric to track and measure for Shopify stores. To calculate it manually, the formula is:
AOV = Total Revenue / Total Number of Orders
However, with Shopify stores, you don’t need to calculate this metric manually, as it’s included in your default store Analytics Dashboard. However, it’s worth noting that the default AOV in Shopify is based on revenue rather than profit.
Customer Lifetime Value (CLV)
Like Churn Rate, CLV is usually a tricky metric to calculate for ecommerce stores (churn makes up part of the equation). However, the effort of calculating it is worth it as CLV is a powerful metric to understand and improve.
The higher your customer’s CLV, the more money you’re making per customer, which means more overall revenue. In simple terms, the formula for CLV is:
(Average Order Value x Purchase Frequency) x Average Customer Lifespan
There are multiple parts to this equation, and we cover the details in our guide:
Another important retention metric to keep an eye on is customer satisfaction (CSAT). With Shopify Email or third-party email integration, you can send your customers CSAT surveys if you’re not already doing it as part of a post-purchase email sequence.
The formula you’ll need when you’ve designed a CSAT survey is:
CSAT = (% of Satisfied responses) / (Total responses) x 100
If you have a high CSAT percentage, that means you’re on the right track for good customer retention.
How a loyalty program can improve your Shopify customer retention rate (100-400)
As we mentioned above, loyalty programs are pretty diverse but are generally categorized as one of the following types:
Each type of loyalty program comes with pros and cons, and the type that best suits your brand depends on factors like the products you sell and your target audience’s preferences. However, of the types of programs, a tiered loyalty program is one of the most effective.
For example, Lucy & Yak was a steadily growing brand. However, they still wanted to increase brand engagement and drive better customer retention to strengthen their brand community.
They built a fully-customized tiered loyalty program with LoyaltyLion, with three tiers:
Comfort Lover
Tak Enthusiast
Top Yakker
The top tier, Top Yakker, grants customers early access to new product drops, special invites to events, exclusive points promotions, and more points-per-spend. After implementing this program, Lucy and Yak saw an 80% increase in customer spend and a 78% increase in the number of orders.
Tiered loyalty programs work like this because customers are incentivized to earn more points to get better rewards.
Level up your customer retention with LoyaltyLion
By now you should have a solid understanding of how to calculate your Shopify store’s customer retention rate and some takeaways for how to improve it.
If you want to take your retention strategy to the next level, one of the best approaches is using a loyalty program.
LoyaltyLion is a loyalty program provider built for Shopify and is currently ranked #1 for converting one-time buyers into loyal customers.
Setting up LoyaltyLion with your Shopify store is easy with express setup. Or, if you’re looking for a more bespoke solution, the team at LoyaltyLion can get you a customized, on-brand loyalty program up and running in just 30 days.
If you’re interested in seeing what LoyaltyLion looks like in action, take our 3-minute tour for a sneak peek!
Managing your program
