With rising digital ad costs and dwindling ad space, stores like yours are fighting tooth and nail for the same customer attention as your competition. But are you beating them out? Ad space is becoming increasingly expensive. Retention marketing, on the other hand, can set your brand up for success.
But what is retention marketing? Well, in short, it is the efforts your store takes to get customers who have bought from you in the past to buy more from you more often.
The key to retention marketing is understanding the metrics. Metrics give you a deeper understanding of your customers and their behaviors, allowing you to build experiences that turn one purchase into multiple purchases.
But what are these metrics? How do you measure them? More importantly, how do you improve them? Answering these questions will equip you with the tools you need to build a retention strategy that has an amazing and lasting impact on your store’s profitability.
In order to do that, we’re going to look at three of the most impactful retention metrics and how other companies have used them to build thriving brand loyalty.
1. Repeat Customer Rate
Your repeat customer rate is the backbone of retention marketing. It measures the percentage of customers willing to make a second purchase from you. Measuring your repeat purchase rate is an excellent way of evaluating how well your retention strategy is actually working. The higher this metric is, the more willing customers are to return to your store!
How to Calculate Repeat Customer Rate?
When it comes to measuring retention metrics, it’s easy to get lost in a sea of complicated calculations. That’s a problem if you’re like me and math isn’t your strongest subject. Thankfully, calculating your repeat customer rate is extremely simple and only requires two pieces of information:
1. Number of Customers With More Than One Purchase
This is fairly straightforward and refers to the number of customers who have made more than one purchase in a specific period of time. I recommend looking at an entire year to see whole picture. You can find this number in Shopify by going to the “Customers” section and clicking the “Repeat Customers” tab.
2. Number of Unique Customers
This is the number of different customers that made purchases from your store in your selected time frame. Note that this is different from number of orders. You can find this number in Shopify by going to the “Customers” section and filtering by all customers who placed an order in the last year.
Once you have those two numbers, all you need to do is divide the number of customers with more than one purchase by the number of unique customers.
When you write out this equation, it looks like this:
# of Customers That Purchased More Than Once / # Unique Customers s
How to Improve Repeat Customer Rate
You work extremely hard and pay good money to attract each customer, so you should be trying equally hard to keep them around. It’s estimated that it costs 7x more to acquire a new customer than it does to retain the ones you already have. That’s because it’s easier to convince someone who has already made the commitment once before!
Here are a couple tips to get those first time shoppers back to help increase your repeat customer rate.
Send a Thank You Note
In a world where everything is instant and done over the internet, sometimes people just want a change of pace. An amazing way to encourage a customer to come back and shop again is with a handwritten thank you note.
When something is handwritten, it shows your customer that you have taken the time to address them personally. This attention to detail will help your customer experience stand out in the midst of online receipts and one-size-fits-all order confirmation emails. These considerations go a long way and can potentially create a loyal customer for life.
Offer a Second Time Buyers’ Discount
You can double down on your retention efforts by including a coupon with that thank you note. Generally, I don't like discounting. When you discount your products, you enter a perpetual “race to the bottom” that conditions customers to expect dropping prices that ultimately result in a loss of revenue for your store. However, when discounts are sent to a first time buyer I actually love it! Sending a discount code for their next purchase with a first time order is a great way to nudge them to come back.
You can even turn that nudge into a push by giving them something more than the standard 10% off. Giving 20%+ is more motivating and according to Market Wired, once a customer comes back for a second purchase they have a 54% chance of doing so again. When you think of that 20% off as an investment in boosting your repeat customer rate, it sounds a lot more reasonable! After all, the repeat customers you create are much more profitable than always chasing new customers.
2. Purchase Frequency
Purchase frequency allows you to measure how often customers are coming back to buy from your store. This is especially important when you consider that repeat customers are responsible for 40% of the average store’s annual revenue. Needless to say, if they’re not purchasing often your revenue will feel it.
How to Calculate Purchase Frequency
Calculating your store’s purchase frequency is similar to calculating repeat purchase rate. Using the same time frame you chose for your repeat purchase rate, divide your store’s total number of orders by the number of unique customers.
When you write out this equation, it looks like this:
# of Orders Placed / # Unique Customers
How to Improve Purchase Frequency?
Even if your store’s purchase frequency is high, there’s always room for improvement. Like any other strategy, retention marketing operates with a “more is more” mentality, and more customers making more purchases translates into more money in your pocket.
Here are a couple of ways you can effectively improve your store’s purchase frequency.
Start a Loyalty Program
Loyalty programs are an effective way to increase purchase frequency because they create a switching cost that makes it difficult for them to choose a competitor in the future. By offering customers points, you motivate them to purchase more often in order to earn valuable rewards. This becomes a profitable exchange for both you and your customers: they get more value each time they shop, and you benefit from their repeat business.
You can quickly establish this switching cost by giving customers welcome points when they create an account. When they see how easy it is to earn rewards, they’ll be excited to come back to your store to do it again. If you’re store is on Shopify, you can easily set up a loyalty program using an app like Sweet Tooth.
Send Follow-up Emails
If purchase frequency is the backbone of retention marketing, email marketing is the backbone of retention tools. Emails give you the opportunity to continue building a relationship—and purchase intent—with your customers before and after their initial purchase. It’s critical that each message you send adds value to your customer’s experience. If it doesn’t, you run the risk of losing them.
A great to way to do that is with follow-up emails. A week after a customer’s first purchase, send them an email that once again acknowledges their purchase and thanks them for it. This type of acknowledgement helps customers feel good about their decision to buy from you, and makes your brand more approachable.
You can make this initial email even more impactful by recommending a couple of products that compliment what they bought in that initial purchase. If you really want to take this strategy to the limit, you can even start including customer reviews as well. These endorsements will increase both the value of each recommended product and the customer’s desire to buy.
Once this initial follow-up has been sent, you should make sure to send similarly personalized messages regularly. Beard King does this beautifully, sending personalized marketing emails that offer new products or sales every two to three weeks. Making additional product recommendations, invitations for upcoming sales, and promotions for new products they might enjoy are all great ways to keep the conversation going with first-time buyers and keep you top-of-mind.
Once customers have made that initial purchase, they become way more likely to choose your brand in the future. When customers receive these types of follow-up emails, they are reminded of why they bought from your brand in the first place and begin to imagine how more of your products will fit into their lifestyle. With these thoughts at the front of their mind, it won’t be long before they find themselves back at your store making that second purchase.
3. Increase Average Order Value
Once you understand repeat purchase rate and purchase frequency, it’s time to maximize how much each of those purchases are worth. This metric is known as average order value, and refers to the amount of money a customer spends in your store on each transaction. You can also think of it as “cart amount” or “basket total”.
How to Calculate Average Order Value?
Just like purchase frequency, your average order value should be calculated using the same time frame you set for your repeat purchase rate. From there, all you have to do is divide your yearly revenue by the number of orders your store processed.
When you write out this equation, it looks like this:
Total Revenue Earned / # Orders Placed
How to Improve Average Order Value?
Increasing average order value is simple: the more customers adore you, the more they’ll spend. Combining retention tools like discounts and loyalty programs help build a positive customer experience that builds lasting relationships, but there’s still more you can do to actively target average order value.
According to UPS, 88% of shoppers have admitted to abandoning a shopping cart, with 61% admitting it was because of shipping costs. These stats show that, to most customers, few things are more irritating than paying for shipping. That means that customers will do almost anything to get it—even buy more.
You can use this to your advantage by setting a minimum order amount. This creates a reasonable incentive for customers to spend more on every purchase. In fact, 69% of shoppers have added products to their cart just to qualify for free shipping! Shipping thresholds provide a benefit for both you and the shopper: they get the service they want without you compromising your bottom line. In fact, free shipping thresholds have been known to increase average order value by up to 90%.
This principle can be applied to coupon codes, too. 85% of shoppers look for coupons prior to visiting a retailer, and will often make decisions about where to shop based on how good of a deal they can get.
Target took this motivation seriously over the holidays with their 10 Days of Deals campaign. On the final day of their campaign, customers were given the opportunity to save $50 on every purchase of $100 or more. That’s worth 50% in savings—an irresistible number for any shopper. With that type of savings on the horizon, customers will be driven to spend more in order to receive the biggest discount possible, increasing their basket size with each transaction.
Make Product Recommendations
Personalization is also an effective retention marketing tactic for increasing average order size. Product recommendations are a fantastic way to create a highly personalized experience! In addition to your recommendation emails, you can create on-site recommendations that entice shoppers to spend more while they browse.
Product bundles are the best way to do this. By offering products that cost less when purchased together than purchased separately, customers who wouldn’t normally consider purchasing them see value as opposed to risk. Labelling your bundles as “best-selling” or “favorite” products will take this to the next level as these titles create a sense of inclusivity. Customers will see these bundles as stress and risk-free ways to try new products without making a big commitment.
Starter packs are another great way to appeal to first-time and returning shoppers. When someone has decided to try a new type of product, they don’t necessarily know where to start. Putting together a kit with everything they need to get started establishes trust between your brand and the customer, encouraging them to return for their future purchasing needs.
Offering additional, relevant product suggestions helps the customer trust both the store and its products. This trust is what will prompt them to add more products to their basket every time they shop.
Customer Value: The Big Picture of Retention Marketing
Whether you hope to increase these metrics one at a time or simultaneously, the ultimate goal of retention marketing is to increase customer value. Customer value is the final piece in the retention puzzle because it helps you understand how much each customer is actually worth.
In order to calculate it, you need to already have a handle on your purchase frequency and average order value. By multiplying these two values together, you can truly see the fruits of your labor and understand the power of retention marketing.
Customer Value = Purchase Frequency x Average Order Value
Now is the best time to create a retention marketing strategy and see what each of these metrics can do for your business.
About The Author
Kirsten Burkard is a content marketer and writer at Sweet Tooth, a loyalty and customer retention app for Shopify. When she’s not thinking about loyalty, you can find her with her head stuck in a book, a large bow on her head, and her favourite Disney film playing in the background.