A full-fledged customer retention plan is critical for every business, especially the e-commerce brands that derive up to 80% of their revenue from their top 20% loyal buyers.
Retaining your best customers is not only a smart strategy for long-term sustained revenue but also for saving immense costs associated with acquiring new customers – which can be up to 5x higher than just retaining them!
This blog will tell you about the fundamental retention marketing metrics and go-to strategies for your e-commerce brand.
Let’s get going!
What is Retention Marketing Anyway?
Simply put, retention marketing is the business strategy that nurtures and engages customers to come back and buy more. For any given D2C or e-commerce brand, retention marketing has 3 goals;
- Increase customer repeat purchase rate and bring old customers back into the buying cycle.
- Decrease customer churn rates and keep existing customers in the buying cycle.
- Drive purchase frequency and get customers to enter the buying cycle more often.
Moreover, retention marketing offers inherent benefits to e-commerce businesses as far as the growth metrics are concerned.
A bolstered customer retention strategy can;
- Boost your profits by 25-95%
- You are 65% more likely to convert an existing customer than a newly acquired one.
- You save 5x the costs of acquiring new customers.
- Retention marketing boosts your average order value for existing customers – which can be up to 3x more than new acquisitions.
Let’s now look at some crucial e-commerce retention metrics and associated strategies to make the most out of your campaigns!
1. Customer Churn Rate (CCR)
Before you can formulate a strong e-commerce customer retention plan, you need to know how fast you are losing newly acquired customers. Customer Churn Rate or CCR is the metric that will give you an overview of this situation.
CCR is basically the rate at which you lose customers in a given time period. You may ask, ‘why should I know about the customers that are gone?’ We’d probably say that this metric can tell you how much effort you need to retain your customers and whether your retention plans are working or not.
Basically, CCR should be as low as possible.
CCR can be calculated by = [(Number of customers at the beginning of the month) – (Number of customers at the end of the month)] / (Number of customers at the beginning of the month).
By determining how many customers you lost and dividing it by how many customers you had, you’re able to see what percentage of shoppers choose not to come back every month.
Usually, customers that do not choose to come back either had 1) A bad experience or 2) Did not see the value proposition with your brand. Fix it by analyzing all the customer touchpoints, value incentives, and discounts on your products/services.
2. Average Order Value (AOV)
Average Order Value or AOV is crucial because it allows you to see how much your customers are worth. The more each customer spends in a single shopping session, the less you need to spend to get new customers to buy from you.
Knowing the average order value helps inform businesses on their marketing and pricing strategies. By increasing their AOV, businesses can directly impact their revenue growth.
AOV can be calculated by the formula = (Total Revenue in a given time period) / (Total number of orders).
Besides, you can consider these metrics in parallel with AOV for better situational awareness.
- Lifetime Revenue Per Visitor: This is the total expected revenue from each of your customers, i.e., avg amount they’ll order over time.
- Cost Per Conversion: This is the cost incurred to get each customer to convert. It is subtracted from the Average Order Value to display the actual profit per order.
Calculate AOV for each customer segment separately. This metric helps select merchandise, visibility of products, and presentation of those products to the target segment.
The most significant benefit of AOV per segment is that it provides a high-level view of your marketing and advertising budget. Start using smart cohort analysis to crack this goal with an AI-powered marketing automation tool like Wigzo.
3. Gross Margin
Kaching! Now we are finally talking about the part where YOU make money 🙂
Gross margin is basically the money you make on every product sale. The higher the margin, the better will be your net profit (Yay!). To calculate gross margin;
Gross Margin = [Total Revenue] – COGS (Cost of Goods Sold)
This takes us to the next part…
4. Cost of Goods Sold (COGS)
Cost of Goods Sold or COGS is how much it costs you to produce or acquire the products you sell. Accurate COGS data helps e-commerce brands price their products strategically and understand their top-line profitability. Accurate COGS data helps businesses price their products strategically and understand their top-line profitability.
The cost of goods sold includes the direct material and labor expenses that produce the items you sell.
You can calculate COGS by the formula = Starting Inventory + Purchases made during that period – Ending Inventory
One must note that COGS does not factor in the marketing costs, overhead expenses, and cost of unsold items.
5. Repeat Purchase Ratio (RPR)
Repeat Purchase Ratio or RPR is a direct indication metric for your customer retention efforts. RPR basically tells us about the percentage of customers who have made more than one purchase from your brand.
The higher the RPR, the better your overall growth will be. Why? Because repeat customers spend up to 33% more than new acquisitions. Moreover, an average repeat customer is likely to spend 67% more in their 30-36 month relationship with a brand compared to a 0-6 months old relationship.
Fundamentally, your RPR shows you how your overall retention strategy is playing out. You can calculate RPR by the simple formula;
RPR = (Number of customers who bought more than once from you in a given time period) / total number of customers in that time period).
Deploy a thoughtful Customer Loyalty Program. A close analysis of your cohorts’ purchase patterns can reveal insights into making an impactful loyalty program. E.g., your key demographic might be working mothers in tier-1 cities. You can offer them a 10% lifetime discount if they keep buying from your online store.
That’s it for today!
Shape your customer retention efforts around the key metrics highlighted above. You can even use a powerful marketing automation tool like Wigzo to make customer retention a breeze.
Stay tuned for more content on e-commerce marketing automation and growth success 🙂