Customer Retention Marketing: Strategies, Examples, Tips
- Customer Retention Rate is calculated as (customers at end - new customers) / customers at start x 100.
- Harvard Business Review reports that acquiring a new customer costs five to 25 times more than retaining an existing one.
- Research by Frederick Reichheld of Bain & Company, cited by HBR, shows that a 5% increase in retention increases profits by 25% to 95%.
- Retention and acquisition are not opposites: revenue from returning customers funds acquisition, and RFM analysis shows which customers acquisition should look for.
- Retention rate and repeat purchase rate are different metrics: one counts customers kept over a period, the other counts customers who ordered again.
Customer retention marketing is everything you do to make first-time buyers order again and to keep existing customers loyal. eCommerce companies that do not invest in it are in real trouble. The way you make customers feel during their first interaction with your brand and after their first order decides how likely they are to buy from your store again.
Excellent customer experiences and high retention rates go hand in hand. And if you generate most of your revenue from returning customers, you have the money to finance your customer acquisition. So never put "versus" between acquisition and retention. Both 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, which channels retention marketing uses, and the must-have elements of a retention strategy, with examples of what different approaches to retention produce.
What is customer retention?
Customer retention represents your company's ability to retain customers over a specific period. Companies use Customer Retention Rate (CRR) to measure how successful their retention strategies are.
CRR = (E - N) / S x 100
E = the number of customers at the end of the period
N = the number of customers acquired during the period
S = the number of customers at the start of the period
Worked example. An online store starts a year with 43,000 customers and ends it with 44,500. During the year it acquired 17,000 new customers. Its retention rate is (44,500 - 17,000) / 43,000 x 100 = 63.95%.
How often are you measuring your customer retention? What would your retention rate be for the last 12 months? Calculate it. Then, to compare your results with similar online stores, look at the data in our free, ungated Real-time Customer Lifetime Value (CLV) Benchmark Report. You can compare Last Year's Retention Rate with Lifetime Retention Rate from different angles: country, industry, company size, and shop age.
Why is customer retention marketing important?
The balance between acquisition and retention marketing depends on your business model and the products you sell. It varies with how much customers spend per purchase and how often they buy from your store.
Customer retention strategies give you sustainable sources of growth by keeping existing customers loyal and happy. Acquisition strategies help you find more customers like your top customers and increase your market share. The two are connected. When your existing customers are happy, they stay with your brand and are more likely to recommend your products to other people.
Once you win customers' trust, they keep coming back. The authors of Marketing Metrics put the probability of selling to an existing customer at 60 to 70%, compared with 5 to 20% for a new prospect.
Cost is the second reason. According to Harvard Business Review (2014), acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. The same article cites research by Frederick Reichheld of Bain & Company: increasing customer retention rates by 5% increases profits by 25% to 95%.
Imagine how much profit a 5% increase in your retention rate could generate. Better yet, use our Customer Retention Rate Calculator to estimate the impact of investing more in retention marketing.
Example: a top customer worth 398 new customers
We saw how valuable retention is with one of our clients, a shoe eCommerce store that wanted to validate who its ideal customer was and how valuable those customers were to the business. The data showed that a top customer brought in as much revenue as 398 newly acquired customers. It also let the client focus on the right target audience and attract more customers like its top existing customers.
Example: a fashion brand that ignored retention
Not all eCommerce businesses understand the importance of retention. We have seen stores that believed heavy investment in acquiring new customers would be enough to grow.
In 2015, one fashion brand that chose not to prioritize retention had annual revenue of $11 million, 90 employees, and a presence in 11 countries. Its headline number looked healthy. The metrics that showed how serious the situation was did not:
| Metric | Value in 2015 | What it signaled |
|---|---|---|
| YoY revenue | 105% | Growth, bought with acquisition spend |
| YoY CLV | -20% | Each customer was worth less every year |
| NPS | <40 | Too few promoters, many detractors |
| CLV/CAC | <1.5 | Customers barely paid back what they cost to win |
| Retention rate | <20% | Most buyers never came back |
How bad can it be to focus on acquisition anyway? By 2019, revenue had fallen twentyfold, the brand was active in only one country, and it had let 80 employees go. All the signs were there in 2015, but management did not understand the importance of retention.
With a low retention rate and many detractors, the company soon could not support its acquisition spending. People who bought once never came back, and bad experiences damaged the brand's reputation. The store closed shortly after the 2019 results and remains a clear example of what happens when management ignores retention marketing.
Spot the customers who are drifting away before your retention rate shows it.
See RFM segments in Nexus →Which channels does retention marketing use?
Acquisition marketing speaks to strangers. Retention marketing speaks to people who already gave you their money and their data, so it can be far more specific. The table shows what each channel is for and how to tell whether it works.
| Channel | Retention job | How to read it |
|---|---|---|
| Onboarding and lifecycle email | Build trust after the first order and earn the second one | Repeat purchase rate of new customers; time to second order |
| On-site personalization | Show recommendations based on past purchases and preferences | Purchase frequency and average order value of returning visitors |
| Loyalty and VIP programs | Keep the most valuable customers close and make them feel special | Retention rate and CLV of members compared with non-members |
| Remarketing to existing customers | Cross-sell, upsell, and win back customers using custom audiences | Return on spend by customer segment, not blended |
| Feedback surveys (NPS, CSAT) | Find the experiences that push customers away | Score by segment and by journey stage; share of detractors followed up |
| Customer support | Fix bad experiences before they become churn | Response time; retention of customers who contacted support |
For the full list of tactics, see 13 customer retention strategies for eCommerce. If retention is already dropping, start with how to solve common retention problems.
Customer retention strategies
1. Track customer retention metrics
You cannot improve what you do not measure. Watch the metrics that show how effective your retention marketing is:
- Customer Retention Rate. The share of customers you kept over a given period.
- Repeat Customer Rate. The percentage of customers who return for another purchase. Many companies confuse it with retention rate, but the two measure different things.
- Purchase Frequency. How often customers buy from your store in a given timeframe. It varies with consumption patterns and product assortment. The more days between transactions, the smaller the chance of another order from an existing customer.
- Average Order Value. How much a customer spends per order. Trust drives it: a new customer may be able to afford a large order but not yet trust you enough to place one. Do not judge a customer's value after one purchase. Build trust first, and average order value follows.
- Customer Lifetime Value. A high CLV means you have many loyal, high-value customers, your most reliable source of sustainable growth. Customers with a lower CLV still matter: their positive experiences attract new customers who can become your future top customers.
2. Identify your ideal customer profile
Focusing on right-fit customers is essential for higher retention. If you want customers who stay with your brand for longer, attract more customers like your existing top customers. Again, there should be no "versus" between acquisition and retention.
You may think you know your ideal customer, but if you have trouble retaining customers, validate your ICP. One way is RFM analysis. Score customers on recency, frequency, and monetary value, and your top customers are the ones with the highest RFM scores. Nexus by Omniconvert does this automatically and groups customers into six segments: Soulmates, Loyal, New, Promising, About-to-Dump, and Breakups.
Once you know who your ideal customers are, dig deeper with Jobs To Be Done interviews with some of the people in your top segment. Their answers improve your retention marketing, your product assortment, and your customer acquisition.
3. Deliver good experiences throughout the customer journey
Your ability to meet customers' expectations directly affects retention. Every interaction with your brand changes customers' trust and satisfaction. To stay connected to what they feel and to predict what they will do next, ask for feedback. Their answers show what to improve at each stage of the journey.
If customers are unhappy and you do nothing about it, you get high churn and negative word of mouth. As we saw earlier, acquiring new customers is expensive, and you cannot afford to lose loyal customers to poor experiences.
What you need is a customer satisfaction survey and a follow-up flow that gives each customer the right treatment based on their feedback and their value. Omniconvert Explore runs on-site surveys you can use for this. Your support team keeps satisfaction high even after a bad experience, and your sales and marketing teams learn from what customers say about your brand, from online shopping to using your products.
4. Build and constantly optimize your loyalty program
Loyalty programs keep your most valuable customers close even when competitors start aggressive discount campaigns to win market share. Do not be intimidated by those tactics. People want more than discounts, quality products, and good service. They look for memorable experiences and brands that make them feel special.
Create a VIP treatment for your most valuable customers. Do not only sell to them; educate and entertain them too. Base the program on what you know about your ideal customers and on their direct feedback. Experiment with tiers, perks, gamification, and exclusive benefits until you find the formula that works.
Tell customers about the loyalty program from the start, as part of onboarding. Everyone is distracted by thousands of messages a day, so remind members of the program's advantages regularly and make the benefits easy to use.
5. Use customer data to fine-tune marketing automation
Use your top customers to build custom audiences for remarketing campaigns that generate a new purchase, a cross-sell, or an upsell. Do the same for high-potential customers, and adapt the offer and message to each group. Nexus pushes RFM segments directly to Meta Ads, Google Ads, and Klaviyo, so these audiences stay current without manual exports.
Because acquiring customers takes a lot of resources, use customer data to fine-tune onboarding campaigns, build trust, and generate the second purchase. The first impression decides how long the relationship lasts. Prevent buyer's remorse, nurture trust, and do not push another sale while the customer is still deciding whether you were the right choice.
Personalize the website and your email flows. Show relevant recommendations based on past purchases and preferences. Sync automation with real-time data so you never send a sales email to a customer who just placed an order.
Real-time response matters just as much in customer support. Be proactive, or upset customers may leave for good and share their bad experience on social media and with friends and family. The faster your support team acts, the better the chance of fixing a poor experience. Showing that you care builds the trust that keeps customers close in the long run.
Frequently Asked Questions
Customer retention marketing is every marketing action a company takes to turn first-time buyers into repeat customers and to keep existing customers loyal and happy. It uses channels such as onboarding emails, personalized recommendations, loyalty programs, remarketing to existing customers, customer feedback surveys, and fast customer support.
The key to retaining customers is keeping them loyal and happy in the long term. Each interaction with your brand affects customer satisfaction, so measure it, act on negative feedback quickly, reward your most valuable customers, and personalize your messages based on what each customer has bought. Customers have plenty of alternatives if you do not show that you care.
Use the formula CRR = (E - N) / S x 100, where E is the number of customers at the end of the period, N is the number of new customers acquired during the period, and S is the number of customers at the start. A store that starts a year with 43,000 customers, acquires 17,000, and ends with 44,500 has a retention rate of (44,500 - 17,000) / 43,000 x 100 = 63.95%.
Customer retention rate measures how many customers you kept over a given period. Repeat purchase rate measures the percentage of customers who came back to place another order. The two are often confused, but they answer different questions, so track both.
Existing customers already trust you, so they need less persuasion to buy again. Harvard Business Review reports that acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one, and cites research by Frederick Reichheld of Bain & Company showing that a 5% increase in retention rates increases profits by 25% to 95%.
One way is to create a VIP program for your most loyal and high-potential customers. Another is to attract more customers like your existing best customers, which you find with RFM segmentation, and then keep them close with the benefits of your loyalty program. Fixing the experiences that customers complain about in feedback surveys also stops avoidable churn.
Both. The right balance depends on your business model, how much customers spend per order, and how often they buy. Revenue from returning customers funds acquisition, and good acquisition brings in customers who are likely to stay. The mistake is to spend on acquisition while ignoring retention metrics.
It depends on the category. At the beginning of 2022, the Omniconvert Customer Lifetime Value Benchmark Report showed an average retention rate of 37% for beauty and fitness stores, 36% for food and drinks stores, and 34% for pets and animals stores. Compare yourself with stores that have a similar business model and product range, and track your own trend over time.
Customer retention marketing strategies are critical for long-term growth in eCommerce. The fashion brand example shows what happens when a company grows revenue on acquisition alone and ignores the retention signals. Start by calculating your retention rate for the last 12 months, find your top customers with RFM analysis, and build your loyalty program, feedback flows, and automation around them. If you want to learn retention tactics from practitioners, start the eCommerce courses at the CVO Academy.
Know which customers to keep
Nexus by Omniconvert segments your customers with RFM analysis into Soulmates, Loyal, New, Promising, About-to-Dump, and Breakups, and pushes those segments to Klaviyo, Meta Ads, and Google Ads. Reward the customers who drive your growth and reach the ones about to leave before they go.