Ecommerce brands are addicted to paid marketing.
I have seen brands with even 60% revenue coming from Facebook alone in their google analytics.
That’s a highly unstable business model.
I have nothing against paid marketing channels, but I am against heavy reliance on them. You need a healthy mix of customer acquisition and customer retention strategies to increase profits,
Growth via paid acquisitions becomes challenging and costly as you scale. They are good to start but can become very costly once you have exhausted your core niche audience.
Acquiring a new customer costs 5 times as much as retaining an existing one. The cost of paid ads continues to grow as more and more brands are competing for ad space. Paid marketing leads to unsustainable growth.
With Amazon monopolizing the low-end market, it becomes a race to the bottom to see who can offer the biggest discounts. Most lower-end markets tend to commoditize in long run, leaving you very little margin for profits.
Customer retention is a requisite since heavy competition continues to increase in every industry. Platforms like BigCommerce, Shopify continue to make it easier and more accessible for anyone to start their own ecommerce store.
In a long run, only working on acquiring customers will slow down the efficiency of your business. However, retaining them increases the customer’s lifetime value, profits, and overall stability of the business.
To read more about the negative effects of paid marketing on startups.
Benefits Of Working On Customer Retention
More than avoiding the pitfalls of the acquisition mindset, working on retention brings more benefits.
Increasing customer retention by just 5% led to an increase in profits of 25% – 95%.Famous Study By Bain Consulting published in HBR back in 1990
Tangible benefits and their impact on important KPIs.
- Easier to sell again
- Spend more with each purchase
- Likely to shop again and again
- Low Cost To Serve
- Word Of Mouth
|Easier To Sell Again||Higher Conversion Rate|
|Spend More With Each Purchase||Higher Average Order Value (AOV)|
|Likely to shop with you again and again (Loyalty)||Higher Lifetime Value (LTV)|
|Low Cost To Serve||Less Operational Costs|
|Word Of Mouth||Reduced Customer Acquisition Cost (CAC)|
Intangible benefits of working retention –
- More profits
- Happy Customers
- Higher employee satisfaction
- Future proof your business.
- Spend at key times
- Steady Income
- Easy to cross sell new products or categories.
A repeat customer is easier to sell to
Repeat customers are easier to sell to. When you’ve set customer expectations and built up trust, customers feel more confident in your brand and take less work to sell to. Plus they tend to spend more on each purchase.
“A repeat customer has a 60 to 70% chance of converting.”
Paul Farris (Marketing Metrics)
Repeat customers are 9 times more likely to convert than a first-time shopper.
Repeat customers spend more on each purchase
The number of previous purchases and how long they’ve been a customer directly impacts how much a repeat customer spends.
Repeat purchasers spend 67% more than new customers and thus, have the potential to generate larger transactions. Loyal customers also increase the cross-selling purchase rate.
A repeat customer is more likely to shop with you again and again
And the best part probability increases over each time.
For brands, one-time customers are expensive, since acquisition costs can’t be spread over time.
Cost to serve
Repeat customers have lower operational costs.
In ecommerce, returns and customer support lead to higher operational costs and eats from your margin.
Low friction in customer experience means a less costly relationship for both your customers and your company.
Repeat customers share your store more
Repeat customers give free word-of-mouth referrals. There’s no better marketing strategy than happy customers, who will recommend your products or services to family, friends, work colleagues, or share it on social media.
Loyal customers frequently refer new customers to your business, providing another rich source of profits.
Customers refer more people to a brand when they have made more purchases with that store.
Repeat customers spend more at important times. Running a Christmas special or Black Friday deal? Your repeat customers tend to spend more during these kinds of promotions.
Repeat customers bring a steady income. With a stable customer base you can rely on consistent revenue without having to worry so much about customer churn, or any discounts your competitors may be running.
Loyal customers will buy other products from you. They can help you with feedback, recommendation, and trials for new products.
Employees are happier to serve loyal customers. Good customer retention strategies result in low employee turnover, especially in customer-facing roles.
Customer Retention Metrics
For ecommerce brands, you should monitor the following metrics –
- Retention Rate
- How many customers stay with you during a particular time period.
- Churn Rate
- How many customers leave with you during a particular time period.
- Repeat Purchase Rate
- How many customer purchased again during a particular time period. More easy and actionable.
- Purchase Frequency
- How many time customer buys from you during a time frame.
- Time Between Purchases
- Duration between multiple purchases. Related to purchase frequency.
- Average Order Value
- Average transaction value
- Customer Life Time Value
- Total time value during a time frame of customer.
The most confusing part is choosing the right time frame for most metrics. It depends on product lifecycle, niche purchase frequency, price point, etc.
Mobile phones have 18 months buying cycle compared to 1-2 months for cosmetics.
Mobile accessories depending on quality and price might last from 6 months to 5 years.
So choose a timeframe wisely but 6 months is a good starting point for most. Anything more than 12 months is very tough to work and see improvement on.
Once you’ve settled on a period of time you’ll need three bits of info:
- The number of existing customers at the start of the chosen period
- The total number of customers at the end of the chosen period
- The number of new customers added in the chosen period
Rather than calculating the number of customers who stay loyal to your business, you’re calculating the number that leaves.
Repeat Purchase Rate
The number of customers who bought more than one vs the total number of customers.
Typically, any repeat purchase rate in the 20-40 percent range is viewed as being successful. But you know your business better than anyone else, so measure accordingly.
How often do customers (first time or otherwise) return to make a purchase?
To calculate purchase frequency, just divide the number of orders by the number of unique customers over a specific period of time.
Average repeat frequency = Number of orders in the last 365 days / Number of unique customers.
Time Between Purchases
Time Between Purchases = 365 / Purchase Frequency
Average Order Value
Average Order Value = Total revenue / Numbers of orders taken
CLV (Customer Lifetime Value)
Customer Lifetime value = Average Order Value X Purchase Frequency
*** Most enterprises monitor this on lifetime, which might include 2-3 years or more. Strongly advise against this for small businesses as most businesses can’t invest for 3-4 years payoff. You want investment in customer to recover in 6 months – 1-year max. Anything top of that is a cherry on the cake but not something as part of the strategy.
Using CLV, you can better understand the different personas among your customers; the first step to effective targeting or personalization.– Daniar Rusnak
Finding your Customer Lifetime Value will make you think, not just about the sale, but about the full customer journey: when, where, why, for how much, and how often do your customers make a purchase. Answering these questions will bring valuable insights, and help you spot issues you may not have noticed before.
Customer Retention Strategy Framework
The framework is helpful to come up with your own customer retention strategies. Also helps to see how strategies fit together with each other.
Customer Retention Strategy Framework Starts With –
- Customer Journey Mapping
- Customer Journey Analytics
- Customer Journey Orchestration
As per Customer Retention Leading Expert, Joey Coleman recommended customer journeys stages
- Stage of customer looking in the market to see the options available.
- Once the customer have taken the trial or bought the product.
- Once they have affirmed the decision once more after their initial purchase or trial taken.
- Once they have started using the product.
- Once they really see the value of the product.
- They are comfortable with the product and now using it to solve their problems. Also they start seeing themselves as the part of the community.
- Now they have taken the adoption of the product. They are actively using and can be considered loyal
- Now they are actively advocating the product to other people.
You can read more in the book Never Lose A Customer Again.
Once we do journey mapping, you have broad stages customer goes through to get to the advocacy stage.
Now we need to set up journey orchestration to get customers to the funnel.
The goal of journey analytics is to get a clear picture of customer movement along the complete customer journey.
Journey analytics combines quantitative and qualitative data to analyze customer behaviors and motivations across touchpoints and overtime to optimize customer interactions and predict future behavior.
For ecommerce customer retention strategies, we should focus more on segmentation than a funnel. Start with –
- Define key KPIs and metrics around measuring retention and loyalty.
- Customer Data Platform (CDP) to capture data touchpoint information across multiple touch points.
- Finding key audience segments to work using RFM model, Cohorts and Triggers by analysis on CDP.
Customer Data Platforms are great for capturing customer data across multiple touchpoints and then segment them for usage.
Most marketing automation platforms like ActiveCampaign, Klaviyo, Marketo provide customer data platform capabilities. You can also use dedicated CDP platforms like Segment.
Journey orchestration is creating an experience for customers to reach the advocacy stage. To assist and help customers along the way to maximize their retention and experience.
In short, Journey Orchestration is customer retention strategies to deploy to improve retention. The framework helps with choosing the right strategy to work on.
To orchestrate a perfect experience, there are multiple channels –
- Product Communication
- Managing complete communication strategy on available channels like Email, SMS, push etc along the journey. Connect to the audience via Email, SMS, Push across each segments.
- Product Enhancements
- Launching multiple programs like loyalty, referral, subscription to help customer along the journey. Developing features along each segments like cross selling, loyalty, referral etc.
- Product Optimisation
- Personalize, optimise, A/B test UX experience along the journey. Make better and unique experience on Website, App or Omni channel platform.
- Operational Enhancements
- Looking at anything troubling to customer around return policy, shipping, delivery days etc. Also improving the processes for the customer support, response times etc.
Strategies To Boost Customer Retention
It’s best to look at customer retention strategies from the perspective of a framework, to get a complete overview of how things are attached to each other.
Run Post Purchase Value Realisation Sequence
This could mean sending them through a welcome sequence that interests them and actually adds value to the product they just purchased.
The goal is not to repeat purchases but value realization for the product they have just bought.
Customers will buy again only they find value with their existing purchase.
Implementation tip: For users who have just purchased a fitness product, share a quiz that helps them figure out what sort of workout program they would like to follow. Or send a detailed explanation of how to set up and use an electronics product the customer just purchased. Both of these situations would be welcomed by the customer and improvement their engagement significantly.
Product unboxing advice and recommendations.
Post sale delivery communication
Customers say they don’t want to know, but they want to know as much as they can. They want to see their money working especially once they have placed an order.
There is a gap between where the customer stands and where the business thinks they stand.
Communicate for all things related to order –
- Any delay in shipment
- Return refunds
- Order status updates
- Any other policy or product changes
They create trust for future purchases and ease any doubts in customer’s minds. Be as transparent as possible.
Dominos is a great example of telling customers every step of the tracking.
Make 1% feel special
Even if the brand does not realize, repeat customers know they are your loyal customer. They want to be seen. They want to be appreciated for their loyalty.
- Let them know they have been seen.
- Let them know they have been heard – Send them a voice note.
- Let them know they matter – Hand-written note.
Incentivize repeat purchase
This one is no brainer, incentivizing customers to make a second purchase.
Giving the user a coupon or discount code that would apply to their second purchase is a great way to get them coming back.
Using phrases like “loyal customers” helps, and you should also not overwhelm your customer with discounts to the point where they expect them.
Upload Best Audience To Google / Facebook
The goal is to align acquisition along with your retention efforts.
Using RFM segments, find your best and most loyal customers.
Feed those segments back to your paid acquisition to create look alike audience of your best loyal customers.
Remarketing to existing customers
Ideally, 20% of the marketing budget should be allocated to existing customers.
Launch Subscription Program
Offering a discount for bulk or loyalty is another route you can take. Amazon does this by offering a 10-15% discount on products if the purchaser opts for “Subscribe and Save.”
The subscription works well for product niches with a repeat frequency of less than 3 months.
You can launch a monthly subscription box to lock your loyal customer, so they don’t get swayed by a price difference of 10-15% on the same product.
It’s a great moat to build around your brand.
Build an active community
Celebrate the milestones
People love celebrating milestones.
For every repeat purchase, loyalty points earned/spent, 5x repeat purchase it should feel like a milestone. Even small things like reviews can be made into a milestone.
Launch Loyalty Program
Friend Referral Program
Good customer onboarding
Start with welcome series for customer onboarding.
Introduce your mission, the reason for existence, goal to the customer.
Personalise Repeat Abandon Cart
Treat your loyal customers differently even for abandoned cart flows.
Implementation tip: Not only do you know what they were about to purchase when they returned to your website, but you know what they purchased in the past. If they’ve left a review, this can be included in the abandoned cart notification, and you can even recommend other products that are a good fit with the products they already own.
Timed win back campaigns
Flow sequences for VIP customers
Give great customer support
Cross Selling – Bundling Strategy
Launch feedback system around customer journey
Run customer satisfaction surveys and ask for testimonials.
Tell Your Brand History
People want to be associated with the legacy.
Become a trusted voice
People don’t buy from generalists, they buy from specialists. They want to know you know your shit. Content marketing is the best way to showcase your brand expertise.
The most popular types of content include:
- Case studies
- YouTube videos
Go all in email marketing
Email is an extension of product communication strategy.
Email helps you with one on one communication with customers which is tough on any other channel. You can target a complete customer journey across multiple touchpoints.
It’s far better than SMS, Push, WhatsApp, Messenger with the reach and content space to communicate your thoughts.
Nail the Customer Experience
You’ve got to start with the Customer Experience and work back toward the Technology, not the other way around— Steve Jobs
In some cases, customer retention strategies are interlinked with broad brand strategies or marketing strategies.
Customer retention is not hackable. Customer retention can’t be faked.
You can get someone to buy once but building real customer retention takes effort.
What’s your favorite customer retention strategy?
What’s strategy worked for you or didn’t work well?
What strategy do you want to try next?
Drop in the comments.