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Customer Retention 101: Back to Basics for Ecommerce Brands
The year 2020 was a lot of things—unpredictable, wild, fluctuating, and chaotic. The coronavirus pandemic induced a lot of behavior shifts in every part of life, and maybe one of the strongest reverberations felt was in our shopping habits.
From stockpiling toilet paper and out-elbowing people for the last can of beans on the shelf to calmly scrolling ecommerce brands from the comfort of home, shopping just looks different now. And while Route has its nose in all things ecommerce, it’s not just our gut telling us that change is afoot.
In the second quarter of 2020, as the US swung into its first COVID-19 case spike, consumer ecommerce spending was up nearly 32% over the previous quarter. While shoppers shelled out $211.5 billion online that quarter, it became evident that shifting to online shopping wasn’t that tough to do. In fact, it was seemingly being embraced en masse.
For ecommerce merchants, this is a veritable heyday for spending online. But as the pandemic ebbs and some normalcy returns, there’s one massive question on everyone’s mind: How do ecommerce sellers retain all these new customers?
Customer retention is a notoriously tricky arena, especially when it comes to ecommerce throughout the pandemic. Let’s explore why it’s so important, how online brands can keep customer churn low, and what the future holds for sellers vying to outlast the competition.
Who Cares About Customer Retention?
In a nutshell, customer retention is how many customers a company hangs onto over a certain span of time. This means that people are becoming repeat purchasers, staying subscribed to your services, and beyond. If a customer keeps putting money in your pocket, that’s great news.
Some everyday examples of good customer retention are:
- An online cosmetic store sees the same shoppers purchasing their same color and brand of makeup when they run out several times a year.
- A crafter selling handmade birthday cards has one customer who places a large order year after year for all their birthday needs!
- An ecommerce marketplace sees massive retention rates for its two-day shipping membership and suddenly takes over the world.
The gist of customer retention is getting the same customers to keep coming back instead of fleeing for the competition. And in the dawn of increased ecommerce spending and more stores opening their digital doors every day, brands that can keep retention high are the ones that’ll stick around for the long haul.
But who really cares about all this? Why does customer retention even matter?! There are a few reasons you, dearest seller, should give a darn.
- Customer retention is critical for growth.
An ecommerce merchant might have the greatest ads of all time. They might get thousands of new, first-time customers every month. Maybe their new subscription rate is off the walls. Or maybe they have more free trial users than they can shake a stick at.
All of that sounds dreamy, but the truth is, none of that matters if retention is low. An ecommerce brand could have every person one earth shop once, but it’ll still be a flash in the pan if retention rates are nil. Instead of bragging about outstanding acquisition numbers, ecommerce merchants should look toward retention as their key to scaling and longevity.
The average retention rate for ecommerce stores is around 30%. While that may fluctuate depending on your specific vertical or the age of your store, using it as a guiding metric could help you determine if your retention rate is thriving or needs a helping hand.
- Retaining customers costs less than finding new ones.
Have you checked out your CAC lately? That is, your customer acquisition cost. If you’ve been keeping track of certain KPIs since starting your store, you should have a good understanding of how much it costs to actually earn a shopper’s hard-earned bucks.
A quick and dirty equation would be to add up all the money you put toward marketing, e.g., Facebook ads, direct mail, SMS services, the billboard on Main St.—you get the idea. Then divide that by how many new customers you acquired over a set span of time. If you spent $6,000 on paid ads in September and earned two new customers, then your CAC is $3,000 a head. Yowch.
Compare that number with your customer lifetime value (CLV), or the amount of money your most valuable customers have been spending (and cost zero dollars to acquire again). Customers with high CLV will almost always spend more than it cost to acquire them, and losing them would mean having to dish out more money to try and find another repeat customer to fill their spot.
Most studies point to the same results: It costs six to seven times more to acquire a customer versus retain a customer. For those keeping track at home, focusing solely on acquisition isn’t a cost-effective way to run your store. Ultimately, it’s costly, and if 2020 taught ecommerce merchants anything, it should be that brands should be looking to conserve costs whenever possible.
- High retention rates are a sign of good overall brand health.
High retention rates are obviously an indicator of repeat business and probably high CLV. However, it’s an indicator of your brand’s overall health, too, and isn’t just a coupl’a good-lookin’ KPIs.
If your brand’s customer retention is above average, that means that people want to keep coming back to buy from your store. Whether it’s your products, customer experience, website interface, slick design, pricing model, or any other factor, it’s clicking for customers and they want more of it.
How to Heal High Churn and Low Retention
For the future (and bottom line) of your ecommerce store, implementing strategies for retaining more customers is better done sooner than later. Increasing your retention rate is endlessly valuable when it comes to upping overall customer lifetime value, spending less on acquisition, and boosting the impact of upsells and cross-sells.
However, it can be tough to figure out where to even begin to nudge the numbers in the right direction. Here are a few of our favorite customer retention strategies:
Automate manual tasks and messaging
One of the most tedious ecommerce tasks is managing customer communications. There’s no faster way to drive away a potential repeat customer than to go silent, but that might not be totally your fault.
Especially as your store grows and you creep into being an established ecommerce brand, your inbox is going to start overflowing. If you’re just one person—or even if you have a modest team—it can be impossible to open, read, and respond to every single message. Expect your inbox to be even more stuffed, though, if you don’t have critical automation in play.
Automating thank you emails, purchase updates, promotions, and more can cause a customer to feel forgotten about or ostracized. They trusted you with their own money and information, the least they expect is some sort of acknowledgment along the way. In fact, one of the biggest drivers of customer churn is the feeling of indifference on behalf of the store.
Nearly 70% of customers cite indifference as a reason to leave your store (and head right to your competitor). Implementing some automated emails that show acknowledgment, support, and appreciation toward you customers along their journey will help assuage any harsh feelings all while boosting retention.
Marketing automation platforms are popular tools in every marketer’s toolbox these days, and a few more popular and user-friendly options include Mailchimp and Klaviyo. Of course, it always helps to do your research and understand an automation platform that’s fit for your store’s size, budget, and industry. A little research and a small monthly budget toward automation could have you reaping massive retention benefits.
Hone your retention marketing
While you might be used to deploying loads of ads to folks who haven’t discovered your brand yet, it might be time to pump the brakes on that tactic. Instead, redirect your attention to an entirely different beast—retention marketing.
The greatest difference between the two realms is that retention marketing doesn’t have to do the legwork of introducing your brand. If someone has shopped with your store before, they know all your store, mission, and values. Instead, use these marketing dollars to promote targeted cross-sells or special discounts for existing customers.
Or use this time to announce important store shifts, like rebranding, events, or other big news. Also, simply placing your hottest products or logo in front of existing customers could be enough to keep renting real estate in their thoughts. Not only could this drive them back through your checkout, but it will also keep your store top of mind when it comes to recommending your goods to their friends or family.
Provide standout customer experiences
Lastly, our all-time favorite strategy for earning and retaining customers is simply treating them how they want to be treated—like a person. After becoming so intimately acquainted with ecommerce this past year-and-a-half, today’s consumers expect better experiences that are way more than transactional.
People are making buying decisions based on more than price or convenience. The customer experience and genuine brand engagement tops the list for reasons to crack open the ol’ wallet. However, this means ecommerce merchants need to consider how they engage with customers along every step of their journey, from discovery to delivery (to return shopping trip).
Route is revolutionizing how ecommerce brands control customer engagement instead of leaving it in the hands of third-party carriers, impersonal chatbots, or whatever else tries to throw a wrench in your customer relationship. With solutions like these, Route empowers any ecommerce merchant to curate enjoyable experiences:
- Intuitive, always-learning product discovery
- Real-time visual tracking
- Shipping protection
- Simple, self-serve issue resolution
When customers don’t have to worry about their package getting to them, reach out with questions, or sit in support purgatory if a problem happens, they remember. They remember the standout experience with your brand, driving them back to your warm ecommerce embrace again and again. This is an opportunity to turn your post-purchase experience into a well-oiled retention machine.
Ecommerce Brands Can’t Afford Not to Invest in Customer Retention
You probably picked up loads of new customers throughout the pandemic, and the ecommerce surge has no end in sight. If you’re still stonecold focused on acquiring more ecommerce newcomers, consider pulling the retention lever instead.
Retaining customers, strengthening brand loyalty, and decreasing churn is more money in your pocket. Investing in low-hanging retention platforms and tactics leads to sustainable scaling for your store and happy customers each and every time.
Ready to see how simple strategies can drive retention through the roof? Try Route for Merchants and see retention skyrocket.