The Key to Ecommerce Growth: Customer Retention

See why customer retention is crucial to ecommerce growth and how to develop an effective retention strategy for your brand.

Ask a group of ecommerce VP’s which marketing metrics are most important to track, and you’re sure to hear mentions of gross margin, conversion rate, and average order value. Oddly enough though, you’re less likely to hear one of the most critical metrics mentioned: customer retention rate. 

Why is that?

Marketing teams tend to measure success in terms of sales revenue. That’s as it should be. You’re in business to turn a profit. When you focus on total sales, though, you value your new customers just as much as repeat customers. That picture of customer value entirely misses one huge point: Customer acquisition costs far outweigh customer retention costs. 

Every dollar you invest in getting one new customer to place an order could contribute to delivering ten or more repeat sales – if that same dollar was invested in tactics aimed at improving customer retention and loyalty. 

Like Amazon CEO Jeff Bezos observed, customers tend to be loyal “right up until the second somebody offers them a better service.” Your job is to give them plenty of reasons to stay with you.

Right now, customer retention is more important than ever. In this Insight, we’ll take a closer look at the value of repeat customers and list tactics you can use to reduce customer churn.

The True Value of Customer Retention

Your customer retention rate measures how many existing customers are still with you at the end of a certain period. You can choose the time gap or gaps that best suit your products or services. Some ecommerce sites find monthly tracking is best. Others need longer or shorter measurement periods.

Results vary from study to study, but all point to the same general conclusion: getting an order from a current customer is easier and less expensive than attracting and converting someone new. Not only that, but your consumer experience is central to improving those numbers.

Have you seen stats like these?

  • The probability you’ll sell to a current customer is double that of selling to a new prospect
  • 89% of consumers began doing business with a competitor following a poor customer experience
  • 68% of shoppers say they’ve switched brands because they’re upset with the treatment they’ve received
  • 78% of customers have bailed on an intended transaction because of poor user experience

Given that our own experience confirms this data —both as shoppers and ecommerce managers— why is it that companies tend to focus on new customer development rather than current customer activation?

Good question.

High customer churn with low customer retention means customers are going out your back door quicker than they’re coming in the front door.

That puts pressure on your lead generation and sales team to keep filling the funnel. No wonder they sometimes feel as if the entire success of the company is on their shoulders.

To further complicate the problem, today’s consumers have more choices than ever before. If you let them down, they’ll move on and won’t come back.

So what can you do to prevent customer churn?

customer retention equation

The Path to Improving Customer Retention

The funnel paradigm for sales is helpful, but it fails to portray the importance of customer retention leading to repeat sales. Any top-notch salesperson will tell you that real job starts after the first order is placed. The sales path is more accurately described as a circle leading from hearing about you, to listening to and believing you, to placing an order – then on to helping get the word out to others and purchasing again, and again.

Any top-notch salesperson will tell you the real job starts after the first order is placed. The sales path is more accurately described as a circle leading from hearing about you to listening to and believing you, to placing an order – then on to helping get the word out to others and purchasing again and again.

customer retention chart

When your relationship with your customer base is operating as it should, most of your business will come from those who’ve already purchased from you. That allows your steady inflow of new customers to grow your business, rather than help maintain it.

If customer retention is the key to ecommerce growth, then we need to know one more thing: what is the key to customer retention? The answer is an engaging customer experience. Don’t allow the simplicity of that statement to fool you. Engaged customers are happy, active customers. How do you keep them engaged? If you look deeply at your own experience as a customer, you’ll find that answer.

Here are some thought-starters:

  • Identify your highest-converting customers. They are your target audience.
  • Tailor your user experience to your target audience. Know what they want and help them get it.
  • Talk to your customer service team. Actively seek feedback from them on the customer experience and you can do to improve it.
  • First impressions can make a huge difference. Follow up immediately with new customers. Treat them like family.
  • Stay in touch. Invite them back. Give them plenty of reason to return.
  • Keep learning about your audience. Make knowing your customers and anticipating their needs your number one job.
  • Collect data from analytics, heatmaps, and user testing. Either choose and use advanced tools yourself, or engage a conversion optimization partner to help.
  • Make sure you have clear and constantly updated information about why customers visit your ecommerce site, what they hope to accomplish there, what they’re searching for, and the barriers they find to ordering from you.
  • Employ a strategic testing roadmap to help hone your user experience. Never stop testing and improving your methods.
  • Let the insights about your target audience overflow into your email strategy. Use post-purchase campaigns to communicate with your customers.
  • Make liberal use of transactional emails. Open rates are greatest there.
  • Prune and segment your email list constantly. Don’t blast emails to an unengaged audience, focus them.
  • Develop a loyalty program. Make sure your customers know you appreciate their business. Reward them for repeat orders.

Once your user experience is optimized to your target audience, you’ll have more engaged clients, your customer retention rate will rise, and sales will show the results.

Now is the Time to Focus on Improving Customer Retention

Take a close look at your current sales and marketing strategy. How much of your budget and marketing activities are specifically devoted to current customers? How much do you know about your most loyal customers? How often are you calculating customer retention, and what are you doing to cultivate better retention?

The process begins with awareness.

Once you’re convinced that the way you treat current customers will govern growth and you’ve found the holes in your present approach to customer experience optimization, the next steps will become evident.

We’ve found the best answers to the retention challenge are best described by the Golden Rule: “Do unto others as you would have them do unto you.” Give your customers the same world-class attention you want to receive when you order something online. That starts by looking at your business from the buyers’ perspective.

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About the Author

David Hoos

David Hoos is the former Director of Marketing at The Good, conversion rate experts who deliver more revenues, customers, and leads. David and the team at The Good have made a practice of advising brands on how to see online revenue double through their conversion rate optimization services.