Why customer retention is so important for your eCommerce store

You want to bring new customers to your eCommerce store. That’s obvious. And quite a bit of your efforts probably go toward that goal, whether you’re focusing on advertising, adding lead magnets to grow your email list, or even standing out on the street handing out free samples.

And you should keep up the flow of new customers; growth is vital to building a successful business. But, many store owners make the mistake of concentrating too much time and energy on acquisition while neglecting retention efforts for existing customers. Sure, exposing your brand to a new audience is great, but creating a loyal customer base will bring in higher returns and a more consistent network of brand followers.

Plus, if you do it right, those loyal customers will handle some of the work of bringing in new customers for you.

Here are some of the most important reasons that customer retention can help you build a stronger, more profitable brand—and some strategies and techniques to help you turn one-time customers into lifelong brand advocates.

Why customer retention is important

1. It’s easier to sell to returning customers

According to Marketing Metrics, the chance of making a sale with a new consumer is between five and 20 percent, while the odds of selling to a customer who has already made a purchase from you is between 60 to 70 percent.

Via: Groove.

And researchers at the Harvard Business Review found that companies who boosted retention rates by a mere five percent experienced profit growth between 25 to 95 percent.  

In other words: It’s noticeably easier to convince existing customers to buy your products.

RJMetrics found that 32 percent of people purchase from a company for a second time within a year, but once a customer does decide to return for another purchase, the chance of attracting them back in the future increases exponentially.

2. You’ll boost customer lifetime value

Customer lifetime value (LTV) is a metric for how much a single customer is worth to your business for their entire lifetime. (Meaning their lifetime as a customer with your business not, say, from when they’re born until you’re chasing them down on their deathbed at age 93 to get them to buy just one more WordPress template.)

For example, if a single customer continues to purchase from your shop for the next five years, the LTV is the amount of money you can expect them to spend in that time. The longer a customer stays with you, the more money you’ll make.

An increase in customer LTV is directly linked with an increase in revenue—the more money a customer spends, the more money you make. Simple, right? But, relying on new customers who only make a single purchase and never return brings down your overall customer LTV. Not only does LTV affect revenue, but it also demonstrates if customers are responding well to your business. A higher LTV signifies that people enjoy your products and want to continue making purchases from you.

You can calculate customer LTV regularly to assess the overall state of your business.

3. Returning customers cost less and spend more

At some point (even if it was during that one episode of The Office where Michael Scott asks Ryan to quiz him about what he’s been learning at business school), you’ve probably heard that it’s more expensive to bring on new customers than keep your current ones—and it’s true.

Via: Netflix.

On average, it costs five times more to acquire a new customer (not 10, RYAN) than to retain an existing one. Once you’ve spent the money to attract a customer, you want to keep them around as long as possible to reduce acquisition costs and increase revenue.

Once you’ve convinced a customer to return for a second purchase, research suggests that this customer will spend more money on your products in the future, in large part thanks to the credibility you’ve established with them. Inc. magazine reports that returning customers spend, on average, 67 percent more than first timers.

Think about your favorite local coffee shop. Not Starbucks. The little one that does latte art, has a bulletin board, and sometimes people bring in dogs. You’ve been there before and you like their coffee and their atmosphere, so you keep going back—and you’re more likely to try a new drink or special because you already trust the quality of their products. This works the same way in eCommerce. Your loyal customers believe in your brand and are therefore willing to try new products or make larger, more expensive purchases.

4. Returning customers help stabilize your revenue

Loyal customers give a business a sense of security because if you have a large return customer base, you’ll have a more accurate idea of how much money you’ll bring in by the end of the month. When you rely on constantly attracting new customers, your profits may fluctuate greatly and could suffer if you are not able to attract as many customers as you need in one given time period. With existing customers, you have a more stable source of income and lower acquisition costs.

5. Loyal customers can become brand advocates who bring in new customers

The most successful companies have all used their platforms to create a brand identity that consumers trust. This is the reason many people choose to purchase brand name items over generic substitutes. They trust the company’s name. When you build up your customer base and focus on retaining satisfied customers, you are establishing credibility with your target market. Once your customers trust your company and enjoy the quality of your products, they will turn to you in the future—and potentially become advocates.

A report from Motista found that consumers who formed an emotional connection with a brand have a 305 percent higher LTV. These loyal customers also tend to buy from a company for a longer period of time (on average, 5.1 years over 3.4 years) and advocate the business at a rate of 71 percent versus 45 percent.

Yes, if your returning customers are continually satisfied, they will likely let others know about their positive experience, exposing your brand to new potential customers. With this kind of word-of-mouth marketing, you’re both growing your customer base and fostering connections with existing customers. In fact, word-of-mouth marketing is one of the most reliable types of advertising as people are more confident in recommendations from friends and family over traditional marketing strategies. Ninety-two percent of people across the globe named this as their most trusted form of advertising.

Four strategies for customer retention

Okay, so you’re on board with the idea customer retention should be a focus for your store. But how do you actually go about keeping customers in the fold and getting them to buy again (and again and again)?

Here are some of the best ways to turn your one-time customers into repeat buyers to increase their LTV and your revenue.

1. Loyalty programs

One of the most effective ways to get customers to keep coming back is to incentivize them to do so. And a well-structured loyalty program doesn’t just encourage a customer to return—it can also drive them to keep spending more to hit various milestones and rewards.

And here’s the thing: your customers already want loyalty programs. One study found two-thirds of customers who had a good experience say they’d want to sign up for a loyalty program.

Here are some of the types of loyalty programs you can explore:

  • A points program, where customers earn points for every dollar they spend that they can eventually cash in for products.
  • An invite-only VIP club, where customers get exclusive products, discounts, pre-sales, and other benefits.
  • A tier program, where customers who spend more can get into higher “tiers” that come with progressively better rewards. The best example of this are airline frequent flier programs.
  • A paid loyalty program, if you have something really good to offer, like Amazon Prime.
  • A subscription program, where customers who really like your products can get the newest ones—and perhaps some exclusives—delivered automatically at a set interval.

Sephora has a tiered VIP program that gives returning customer lots of benefits; the benefits increase based on the customer’s annual spend. Notice how the free tier is good enough to hook curious first-time customers—but the perks are way better on the paid tiers.

Field Notes offers a subscription-based loyalty program. Customers who sign up (and pay the $97 annual cost) get quarterly shipments, exclusive products, and significant savings over buying the brand’s limited edition products a la carte.

2. Replenishment reminders

If you sell products that people regularly need to re-order, such as consumable goods, you can create replenishment reminder emails to entice customers to purchase and offer a helpful reminder that they might be running low on this product.

Replenishment reminders have among the highest open rates of any marketing emails; 53.6 percent in one study and between 50 and 60 percent in another. They also have an outstanding click-through rate of 40 to 50 percent.

Why? They hit the marketing sweet spot where they’re not just selling, but also providing a valuable service to a customer. It’s hard for most of us to remember when we’re two weeks away from running out of dog food or contact lenses or printer ink, so it’s actually helpful to get an email to remind us—and an email that makes it extremely easy to click and buy.

Here’s a replenishment email for a product that it’s hard to imagine anyone would put on their calendar: Slug poison. But a timely reminder for slug poison can go a long way to getting repeat slug poison customers.

Via: Adestra.

3. Personalized cross-sells

One of the easiest ways to get a customer to turn into a repeat customer is to sell them a product that complements their initial purchase. You can use personalized cross-sell emails to recommend products to the customer that go with what they purchased.

You can also use segmentation to send that customer, and other customers who bought the same thing, product recommendations they might like based on their initial purchase.

With personalized cross-sells, you’re not just marketing to a potential repeat buyer—you’re marketing highly-targeted and relevant products to one. And you can stand out by doing so; one study found fewer than two out of five eCommerce retailers offer up personalized recommendations after a sale.

Here’s Best Buy’s personalized cross-sell email follow-up after a camera purchase. They recommend all of the accessories a person could want or need, including memory cards, bags, batteries, and more.

4. Following up a purchase with an exclusive discount

Convince your first-time customer to return for a second purchase by sending an email with an exclusive discount. You can send that email at any point, of course, but some companies (like GoDaddy here) start it in the thank you email for the initial purchase.

Key takeaways

It’s important to attract new buyers to your eCommerce store, but make sure not to neglect your current customer base.

  • It’s easier to sell to them. The odds of selling to someone who’s bought from you before are much higher than the odds of selling to someone who hasn’t.
  • You’ll boost your customer lifetime value. Your customer LTV isn’t just good for revenue, it’s also a sign of your store’s health and effectiveness.
  • Returning customers cost less to acquire and spend more. It costs a lot to acquire a new customer. By bringing back a returning customer, you save that expense—plus they spend, on average, 67 percent more than new customers.
  • Returning customers help stabilize your revenue. It’s easier to predict your store’s revenue (and your income) when you can count on a certain number of returning customers every month or quarter.
  • Loyal customers can become brand advocates. Once you cultivate loyal customers, they can go on to promote your brand for you through ultra-powerful word-of-mouth marketing.

And there are some key strategies you can use to turn one-time customers into repeat and loyal customers.

  • A variety of different types of loyalty programs can incentivize people to keep on coming back to your eCommerce store to spend more money.
  • Replenishment reminders can bring back customers who bought something consumable or disposable from you.
  • Personalized cross-sells recommend targeted products and accessories based on what the customer purchased.
  • And following up a purchase with a discount can motivate a customer to quickly come back to your store and buy again.