Ecommerce companies that don’t invest in customer retention marketing are in real trouble. The way you make customers feel during their first interaction with your brand and after their first order is critical for how likely it is to see them buy again from your store. 

Excellent customer experiences and high retention rates go hand in hand. Also, if you generate most of your revenue from returning customers, you’ll have enough money to finance your customer acquisition efforts. So, you should never put “versus” between acquisition and retention. Both are important and sustain your business when you apply a strategy that suits your business model.

Let’s see what customer retention is, why it is so important, the must-have elements of a retention strategy, and some retention strategy examples of different approaches to retention.

What is Customer Retention?

Customer retention represents your company’s ability to retain customers over a specific period and includes all the actions your company takes to transform new customers into repeat customers and keep existing customers loyal and happy.

Companies use Customer Retention Rate (CRR) to measure how successful their retention strategies are. The formula for calculating Customer Retention Rate is:

CRR = (E – N) / S x 100

E = the number of customers at the end of the defined period

N = the number of customers acquired during the defined period

S = the number of customers at the start of the defined period

Here’s an example of a customer retention rate for an online store that started in 2021 with 43,000 customers and ended the same year with 44,500 customers, while the number of newly acquired customers was 17,000. By applying the CRR formula, we find that the store had a 63.95% retention rate in 2021.

How often are you measuring your customer retention? What would be your retention rate for the last 12 months? Go ahead and calculate it. Then, if your want to compare your results with similar online stores, you can take a look at the data in our Real-time Customer Lifetime Value (CLV) Benchmark Report

You can analyze your Last Year’s Retention Rate vs. Lifetime Retention Rate and compare the results from different angles: country, industry, company size, and shop age. 

> You have free un-gated access to the Real-time Customer Lifetime Value (CLV) Benchmark Report. Dig in for valuable customer retention statistics!

Why is Customer Retention Marketing Important?

The balance between acquisition and retention marketing efforts is defined by the business model you have and the products you sell. It varies depending on how much customers spend per purchase and how often they usually buy from your store.

Customer retention strategies help you maintain sustainable sources of growth by keeping your existing customers loyal and happy. The acquisition strategies help you find more customers like your top customers and convert more to increase your market share. The two strategies are interconnected. Market research shows that 88% of companies that focus on retention also achieve their acquisition goals.

If you thought that the only way to gain market share is by acquiring new customers, it seems that businesses that invest in retention strategies for 1-3 years are 200% more likely to increase their market share compared to those that spend more on acquisition efforts. When your existing customers are happy, they stick with your brand and are more likely to recommend your products and services to other customers.

customer retention marketing

Once you win customers’ trust, they’ll keep on coming back. Research shows that you have a 60 to 70% chance of obtaining a new purchase from existing customers, while the probability of selling to a potential customer is 5% to 20%.

Another reason it’s important to invest in customer retention marketing activities is the rising costs of acquiring new customers compared to retaining existing ones. It’s 5-25x cheaper to keep existing customers than to acquire a new one.

Customer retention is also an important factor for your chances of increasing profit margins. A 5% increase in customer retention can bring a 25-95% increase in profit for your store. Wouldn’t that be great?

Imagine how much profit you could generate by increasing the customer retention rate by 5%. Better yet, use our Customer Retention Rate Calculator and find the impact of investing more in retention marketing.

> Try the Customer Retention Rate Calculator 

Example of results brought by increasing the customer retention rate

The example above shows the potential revenue of a fashion eCommerce store by increasing the customer retention rate by 50 – 70%. High retention rates mean more revenue generated by recurring customers, the type of customers that is critical for sustainable growth.

We’ve seen how valuable retention is in one of our clients, a shoe eCommerce store that wanted to validate who its ideal customer was and how valuable they were to their business. The qualitative data showed us that a top customer equals in revenue as much as 398 newly acquired customers. It also allowed the client to focus on the right target audience and attract more customers like their top existing customers. 

Not all eCommerce businesses understand the importance of retention, and we have seen some negative examples of stores that thought investing heavily in acquiring new customers would help them grow.

In 2015, the fashion brand that chose not to prioritize customer retention had annual revenue of $11 million, 90 employees, and was present in 11 countries.

But the company wasn’t paying attention to all of the metrics that would help them evaluate how serious the situation really was:

  • YoY Revenue = 105%
  • YoY CLV: -20%
  • NPS: <40
  • CLV/CAC: <1.5
  • Retention rate: <20%

How bad can it be if they focused on acquisition anyway? By 2019, the revenue had decreased 20 times, they were active in only one country, and had to fire 80 employees. All the signs have been there since 2015, but the management didn’t understand the importance of retention.

With a low retention rate and many detractors, the company was soon unable to support its acquisition efforts. People who bought once never turned back, and the brand’s reputation was affected by the bad experiences customers had with the company.

The fashion store was closed shortly after the disastrous results in 2019 and remained one of the negative examples of what can happen when management ignores the importance of retention marketing.  

Customer Retention Strategies

While the customer retention strategy is unique for your business and will change over time, there are some key elements at the foundation of effective retention marketing.

Track customer retention metrics

You can’t improve something you’re not measuring. Keep an eye on the metrics that show how effective your customer retention marketing strategies are: 

  • Customer Retention Rate
  • Repeat Customer Rate
  • Purchase Frequency
  • Average Order Value
  • Customer Lifetime Value

Many companies mistake Customer Retention Rate for Repeat Purchase Rate, but these two metrics are different. We’re using retention rate to calculate the number of customers retained over a given period, while the repeat purchase rate represents the percentage of customers that return for a new purchase.

Purchase Frequency helps you measure how often customers buy from your store in a given timeframe. The purchase frequency varies from one online store to another depending on factors like consumption patterns or product assortment. You should know that the higher the average days between transactions, the smaller the chances of receiving a new order from an existing customer.

Average Order Value shows you how much a customer spends on average per order. The value of a purchase is influenced by many factors, like customers’ trust in your brand. A new customer might have the purchasing power to place high monetary value orders but doesn’t trust you enough yet to spend that much. One of the tips for better retention strategies is to avoid judging a customer’s value after only one purchase and focus on increasing trust first, and an increase in the average order value will follow.

High Customer Lifetime Value indicates that you have many loyal, high-value customers, and they represent your store’s valuable source of sustainable growth. Not all customers have high CLV, but they are still extremely valuable to your store, and you should keep them loyal and happy. Their positive experience can attract more new customers that can become your future top customers.

Identify your ideal customer profile

Focusing on right-fit customers is essential in achieving higher retention rates. In other words, if your want customers that stick with your brand for longer periods, start by attracting more customers like your existing top customers. There shouldn’t be a versus between acquisition and retention efforts.

You might think that you know all about your ideal customer, but if you’re having problems retaining customers, you should go ahead and validate your ICPs. 

One way to do this is by using RFM analysis. By looking at the recency, frequency, and monetary values, you can identify your top customers by looking at those who have the highest RFM scores.

Once you know who your ideal customers are, you can dig deeper by performing Jobs To Be Done interviews with some of the people in the top customers segment.  Their authentic answers will serve as valuable insight for improving the retention marketing strategy, product assortment, and customer acquisition.

> Read more about how retaining better customers starts with a smarter acquisition.

Nail customer experiences throughout the customer journey

Your ability to offer customer experiences that meet the customers’ expectations directly impacts the retention rates. Every interaction with your brand impacts customers’ trust and satisfaction levels. If you want to stay connected to what they’re feeling and predict future behaviors, you have to ask for customer feedback. Their answers are insights into what you can do to improve CX at different customer journey stages.

If your customers are unhappy and you’re not doing anything about it, you’re going to deal with high customer churn rates and negative word-of-mouth. As we showed earlier, acquiring new customers is expensive, and you don’t afford to lose loyal customers due to poor experiences. 

What you need is a customer satisfaction survey and a follow-up flow that allows you to offer the right treatment depending on the customer’s feedback and value. Your customer support team plays an essential role in keeping satisfaction levels high even after a bad CX, while your sales and marketing teams can learn a lot from what customers are saying about your brand and use their authentic answers to improve experiences from online shopping to using your products or services. 

Build and constantly optimize your customer loyalty program

Loyalty programs help you keep the most valuable customers close despite the aggressive discount campaigns your competitors might start to win more market share. Don’t be intimidated by those tactics because people want more than discounts, high-quality products, and services. They’re looking for memorable experiences and brands that make them feel special.

To increase retention rates, you need to create a VIP treatment for your most valuable customers. Don’t focus solely on selling your products, but educate your customers and keep them entertained. Based on what you know about your ideal customers and their direct feedback, you can create a unique loyalty program. Experiment with tactics like tiers, perks, gamification, and exclusive benefits until you find the winning formula. 

You should let your customers know about your loyalty program from the very beginning as part of your onboarding process. We’re all distracted by the thousands of messages we see during the day, so make sure you are constantly reminding them of the advantages included in the loyalty program and make sure it’s easy to access the benefits you’ve included.

> Do you have high customer churn rates? Find how you can identify the source of your problems and keep churn rates low.

Use customer data to fine-tune marketing automation

You can use your top customers to create custom audiences that you include in your remarketing campaigns to generate a new purchase or for cross-sell or upsell purposes. You can do the same thing for high-potential customers, adapting your offer and messaging to maximize the results of your ad campaigns.

Because acquiring new customers involves a lot of resources, use your customer data to fine-tune the onboarding campaigns, raise customers’ trust and generate a second purchase. The first impression customers have about your brand impacts the duration of your relationship. Prevent buyer’s remorse, nurture trust, and avoid being pushy with another sale while your customer is still figuring out if you’re the right choice.

Another important tactic for keeping retention rates high is personalizing the online experience, and email marketing flows. Show relevant recommendations on your website based on past purchases and preferences. Sync your automation flows with real-time data to avoid unpleasant situations like sending a sales email right after a customer just placed a new order. 

Real-time response is extremely important in how you respond to customer support requests and complaints. You need to keep a proactive approach, or the customers might get really upset, leaving your store for good and sharing their bad experiences on social media, with their friends and family. The quicker your support teams act, the higher the chances of fixing a poor experience. Showing that you really care and you’re committed to keeping them happy helps you nurture trust and keep customers close in the long run.

> See how to mix customer satisfaction surveys with your customer support tool for real-time responses that prevent churn.

Wrap up

Customer retention marketing strategies are critical in maintaining long-term growth for your eCommerce business. We’ve seen some examples of different outcomes generated by different approaches to retention and it’s clear that retention is the only reliable source of healthy growth.

If you’re keen on applying retention best practices to your online store and want to learn new customer retention tactics from professionals, we invite you to start our eCommerce courses at the CVO Academy

Frequently asked questions about customer retention marketing

How do you retain customers in marketing?

The key to retaining customers is keeping customers loyal and happy in the long term. Each interaction with your brand impacts customer satisfaction, so you have to keep customers happy to keep retention levels high. They have plenty of alternatives to choose from if you don’t show you care.

How can you increase customer retention by 5%?

One way you can increase customer retention by 5% is to create VIP programs for your most loyal and high-potential customers. Another way is to attract more customers like your existing best customers and keep them close with the advantages included in the loyalty program.

What is retention strategy in marketing?

Customer retention strategy includes all the actions your company has to take to transform first-time buyers into recurring customers and to keep existing customers satisfied and loyal in the long run.

What are customer retention examples?

According to our real-time benchmark report, at the beginning of 2022, the average retention rate of a store in the beauty and fitness category was 37%, followed by food and drinks stores with 36%, and pets and animals with 34%. Retention rates vary depending on your business model and the types of products and services your store offers.