How to Use a Retention Strategy in eCommerce

The Definition of Customer Retention

 

I will start with the Wikipedia definition of customer retention. According to them customer retention is: the activity an organization undertakes in order to reduce customer defections. This is very broad and very vague, let me elaborate.

 

Customer retention is anything a business does to keep more of its existing customers. You work hard to get each customer you acquire and you should work equally hard to make sure that customer shops with you again (is retained). A customer retention strategy is the process by which you will get your customers to buy from you more, and more often!

 

A Total Customer Retention Strategy

 

A customer retention strategy is similar to the marketing strategy you already have in place. Just like with your marketing strategy you want to highlight metrics that you can set goals on, and outline tactics to help you get there.

 

An article published in the Harvard Business Review found that a 5% increase in customer retention could lead to a 95% increase in profitability. So let’s take a look at one of the most important retention metrics, and a few tactics to help you improve it.

 

How to Evaluate Customer Retention

 

One of the most important metrics to track with a customer retention strategy is your repeat customer rate.

 

Customers who have made more than one purchase / Total customers = Repeat Customer Rate

 

Repeat customer rate shows you the percentage of your customer base that are repeat purchasers. The best ecommerce stores can see anywhere from 40% -60% of their sales from repeat customers. This is because these customers have a high customer lifetime value.

 

Here at Sweet Tooth we see an average repeat customer rate of somewhere between 20% – 40% (pre-loyalty program) depending on industry. Your retention strategy should aim to increase your repeat customer rate by 5% a year.

 

Now that you have a metric to track against we can take a look at two popular tools to help increase it.

 

Customer Retention Tactics

 

Retention Emails

 

Retention emails are an easy way to boost customer engagement, especially if you are already using email marketing campaigns. The best way to use email marketing to boost retention is to send emails to “lost” customers.

 

A lost customer would be anyone who hasn’t purchased with you in a while. A while being anything past what is average between purchases for your store. You can send these customers an email saying that you haven’t seen them in a while and offer them an incentive to return. This incentive could be a coupon, discount, or my personal favorite points.

 

Loyalty Programs

 

Loyalty programs are another amazing way to increase customer retention. When a customer earns points as part of a loyalty program they are given an incentive to return to your store. If you have points at one store it becomes much harder to choose a competitor.

 

Points become a strong motivator of a repeat purchase which drives up your repeat customer rate. Once a customer sees value in your points, you can also use them to incent other profitable behaviours like referrals and social shares.

 

A loyalty program is the strongest tool in a retention strategists tool-belt and can be effective at boosting many marketing and retention metrics.

 

How to Get Started

 

Just like with everything else in life you won’t see results with a retention strategy overnight. You have to dedicate time and effort to your strategy and make improvements where necessary. It isn’t a quick fix, but you can see amazing financial returns if you stay committed to a total retention strategy.

 

You can learn more tips, tools, and tactics in our ebook on crafting a retention strategy!

 

About the Author: Alex McEachern is a Loyalty Marketing Specialist at Sweet Tooth, a loyalty app for ecommerce store owners.

Alex McEachern


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