When you first launch an e-commerce store, the goal is to find new customers fast. Key metrics like brand awareness, website traffic, and conversions are king. However, as your e-commerce site grows and matures, it’s time to shift to a different metric: customer retention. 

Existing customers are the secret sauce fueling every successful company. Consider some of these statistics: 

• Increasing customer retention rates by 5% will increase profits by 25% to 95%; 
• Acquiring a new customer can cost anywhere from five to 25 times more than keeping an existing one; 
• Repeat customers spend 33% more than first-time customers.

Businesses that are able to increase customer retention are able to gain a significant competitive advantage. But, it’s not always easy to keep customers coming back for more. There are many elements that make up a good customer experience. 

Fortunately, that also means there are many strategies your e-commerce business can use to improve customer retention rates. In this guide, we’ll dive deep into the importance of customer retention, how to create a five-star customer experience, and ways to hone your customer retention strategy to benefit your brand and sustain long-term growth. 

What is Customer Retention?

Customer retention is the business practice of engaging existing customers to continue buying from your business. As a business indicator, it measures the number of repeat customers your company is able to maintain. 

Customer retention aims to prevent a customer from abandoning your store for a competitor. There are many reasons why customers defect, from pricing to customer service to brand loyalty. It’s unrealistic to expect every customer to buy exclusively from your store. However, a low customer retention rate can be a red flag. 

Why is Customer Retention Important?

Customer loyalty has a significant impact on a company’s profitability. Analysis by Bain & Co found that most e-commerce stores won't break even on one-time shoppers. Unfortunately, businesses are still twice as likely to focus on customer acquisition than on retention.

Every store needs new customers when they first launch, but how well you are able to keep those customers is the real measure of success. The importance of customer retention can best be quantified in your average order value, lower costs, and profitability. 

[Read more: Most of Your Profit Comes From Existing Customers. Are They Loyal Enough to Stay?]  

Lower Costs

It costs five times as much to attract a new customer than to keep an existing one. For many e-commerce merchants, customer acquisition costs are simply too high to be worth the spend. Bain estimates that the average online apparel store would only recoup its customer acquisition costs after a shopper buys from the site four times.

Customer retention costs are significantly lower. For example, email is one of the most commonly used tools to retain customers; it’s also one of the least expensive marketing channels. In general, it’s much easier to sell to a customer that’s already familiar with your unique value proposition and has completed the customer journey at least once.

Improved Average Order Value

Average order value (AOV) is the average amount a customer spends each time they place an order on your Shopify store. Research from Gallup shows that existing customers are 23% more likely to spend with you. Not only that, but Bain’s data indicates repeat purchasers spend more and generate larger transactions. 

Increased Profits

As you may guess, lower costs and higher AOV means increased profit for your Shopify store. More specifically: increasing customer retention by 5% can increase profits anywhere from 25% to 95%. Loyal customers are often willing to try new products, upgrade their purchases, and respond to other types of upsell or cross-sell opportunities you present. It’s these customers that create long-term growth for your company. 

Stronger Loyalty

Finally, existing customers play a role in bringing in new business for your brand — with no marketing budget necessary from your company. 

“Word of mouth is the single most effective and economical way online retailers grow their sites. And loyalty, it turns out, can be a key lever for referrals,” wrote Bain. “On average, an apparel shopper referred three people each to an online retailer's site after their first purchase there.” 

Word-of-mouth marketing is shown to be an incredibly powerful driver of growth for businesses. Online subscription retailer Rent the Runway leveraged WOM to reach unicorn status by 2019; the brand estimates that 90% of Rent the Runway customers “come from good old-fashioned word-of-mouth.” E-commerce sites can activate existing customers to bring in new shoppers at a fraction of the price of traditional advertising.

Customer Retention Metrics You Should Be Tracking

Customer retention is an important metric to track, but in reality, customer loyalty is multifaceted. Breaking out customer retention into different indicators can help your business hone in on what’s working and help you get on the right track.

Often, online merchants wonder: what’s a good customer retention rate? Research from Metrilo benchmarks the average repeat purchase rate for e-commerce brands at 28.2%. However, there’s a lot of variation among e-commerce verticals; for instance, retention for pet products peaks at an average of 31%, while loyalty for cosmetics is just under 26%. 

A recent study by McKinsey notes that since the pandemic, customer loyalty is in flux. Today, roughly 50% of consumers report that they will “switch products, brands, or retailers when faced with shortages.” 

As a result, rather than focus on a single average retention rate, consider breaking out your customer loyalty into other key indicators such as customer lifetime value, purchase frequency, and customer satisfaction, among others. These metrics can help you understand where your business can make a change to drive profit and capture the benefits associated with customer retention.

Repeat Customer Rate

Your repeat customer rate measures the percentage of your existing customers who have purchased from you at least twice. To calculate your repeat customer rate, divide the number of customers who purchased two times or more by the number of unique customers over a certain time period. 

Number of repeat customers / Number of unique customers = Repeat Customer Rate

A high repeat customer rate is great. It means that customers are willing to make multiple purchases from you, and indicates there’s an opportunity to nurture more frequent or more expensive purchases, thereby increasing total revenue for your business. 

Purchase Frequency

Purchase frequency reflects the number of times someone makes a purchase from your e-commerce site over a certain period of time. Understanding how often someone buys from you helps you make decisions around pricing, inventory management, marketing, and discount strategies. The formula for purchase frequency is: 

Number of orders / Number of unique customers = Purchase Frequency

Purchase frequency varies widely depending on what product or service you offer. For instance, an online furniture retailer is likely to have a lower purchase frequency than a clothing retailer. A customer simply doesn’t need to buy a sofa that often. There are ways to incentivize more regular purchase frequency, such as by offering auto-refill options or a subscription service. 

Most online merchants calculate purchase frequency over a year-long timeframe to understand how this metric impacts annual revenue. 

Average Order Value

As previously mentioned, AOV is a measure of the average amount a customer spends each time they place an order on your Shopify store. To calculate the average order value, divide total sales by how many orders were placed over a certain period of time. 

Total Sales / Number of orders = Average order value (AOV)

Average order value tells you how much your current customers spend (on average) each time they make a purchase. Higher AOV is ideal since it indicates customers are buying more expensive products or taking advantage of cross-sell offers to add ancillary items to their purchases. It’s also a good sign that your customer retention is going up since existing customers are more likely to buy more from you than new ones. 

Customer Lifetime Value

Finally, customer lifetime value (CLV) measures the total value a customer brings to a business over the entire period of their relationship. CLV can be a little abstract. How can you quantify the value that someone brings to the table through word-of-mouth, loyalty, purchase frequency, and sales over an open-ended period of time? 

Qualtrics recommends using a series of data points to calculate CLV:

• Average order value 
• Purchase frequency
• Customer value: the purchase frequency multiplied by AOV
• Average customer lifespan: the average time period during which a customer continues buying from you. 

Then, use this formula: 

Customer value x Average customer lifespan  = Customer Lifetime Value

The outcome of this calculation is a dollar value that predicts how much someone will spend at your e-commerce store over their lifetime. 

Why is customer lifetime value important? It helps you optimize your marketing. For instance, you wouldn’t want to spend $50 marketing to a customer whose CLV is only $30 — that would be a bad investment. Calculating your CLV helps you prioritize your marketing and operations to those customer segments driving the best value for your Shopify store. 

How to Calculate Your Shopify Customer Retention Rate

Understanding how many customers you gained or lost during a certain time period is helpful — but not without context. That’s why many merchants prefer to calculate their customer retention rate, also expressed as the attrition rate or churn rate: the rate at which customers stop doing business with a company over a certain time period. 

To calculate your customer retention rate, choose a time period (e.g., one month) and subtract the total number of customers acquired during that time period from your total customer base at the end of the period. Then, divide that number by the number of customers you had at the start of the period and divide by 100.

Shopify reporting tools will actually calculate your customer return rate for you, depending on which plan you have. Nevertheless, it’s helpful to understand what goes into this rate and how you can boost the number of customers making a second or third purchase from your store each quarter.

6 Shopify Customer Retention Strategies

Now that you know why customer retention is crucial, how do you actually achieve it? There are a number of different strategies you can use to increase customer retention, from social media campaigns to launching a loyalty program. Consider some of these solid customer retention strategies to encourage customers to patronize your store again and again. 

Personalize the customer experience

E-commerce merchants benefit from a wealth of data about their customer behaviors. Dive into your Shopify site data to understand what products customers are viewing, the information they download, any upsell opportunities they browse, and even how often they visit a specific product page. This information can help you personalize communications, offers, and discounts. 

“You can personalize your interactions with your customers based on their location, purchase history, product variety, and more. One study found that when companies create a personalized customer experience, they generate nearly four times more revenue than companies that don’t,” wrote the US Chamber of Commerce.

Your website data can drive tailored, personalized email marketing, social media outreach, and even webinars. Consider how you can optimize your website experience to be more personal: for instance, can you show custom upsell and cross-sell offers based on someone’s purchase history? These are all opportunities to drive revenue growth.  

Create a loyalty program

Research from McKinsey found that “three out of four members of top-performing loyalty programs changed their behavior to generate more value for businesses.” Customer loyalty programs are literally designed to foster customer loyalty and repeat business. But, how you set up and incentivize loyalty makes all the difference. 

There are three main goals that your loyalty program might help you accomplish:

• Increased AOV: Make each transaction more profitable.
• Increased purchase frequency: Encourage customers to make a purchase more often.
• Market research: Understand repeat customers’ purchasing habits, ask for feedback and test new products.

Each of these outcomes can help you increase customer retention rates. Selecting one of these goals for your customer loyalty program can help you structure your rewards and incentives. If your e-commerce site is a fairly low-ticket business, such as a pet store, it makes sense to focus on increasing purchase frequency. If your e-commerce site sells high-ticket items, try encouraging higher AOV. 

Loyalty programs can help your e-commerce site accomplish many of the retention benefits outlined in this guide. McKinsey's research into the highest-performing loyalty programs found that:

• 64% of those enrolled are more likely to purchase more frequently;
• 50% of those enrolled are more likely to recommend to others; 
• 35% of those enrolled are more likely to choose the brand over competitors; 
• 31% of those enrolled are more willing to pay a higher price to stay with a brand.

Consider setting up a loyalty program that not only rewards repeat purchases but also recognizes the myriad of other ways a customer can add value to the brand: such as via positive reviews, increasing your Net Promoter Score, participating in forums, referring other customers, and more.

Upsell with the right tools 

Upselling encourages your existing customers to continue to buy and buy some more. With the right Shopify app, you can show customers offers for expensive products related to the ones they originally intended to buy. For example, an e-commerce brand could incentivize someone to upgrade their cart to get special offers, free shipping, or gift packaging without any added costs. 

Upselling is one of the best marketing tactics for achieving both customer satisfaction and increasing revenue. And, apps like Honeycomb make it extremely easy to upsell on your Shopify store. Honeycomb offers a way to create upsell opportunities on the product page, cart page, checkout page, thank you page, and even the blog page. The app’s AI recommendation engine helps you match the right upsell offers with the right products based on a customer’s browsing or purchase history. Share warranties, insurance, discounts, free gifts, free shipping, and more to serve your customers' needs seamlessly. 

And, as you refine your upsell process, Honeycomb offers the tools to get better insights into what works—and how to extend customer lifetime value. Host funnel split tests and A/B tests to see what offers are getting the most traction. Plus, Honeycomb’s suite of analytics enables you to see key metrics, including conversion, Return On Investment (ROI), Average Order Value (AOV), revenue, and more. 

Provide five-star service

Customer service quality is one of the top factors that influence purchasing decisions. “In competitive industries, a company’s ability (or failure) to deliver a product or service in a timely, agreed-upon manner can make or break a customer relationship,” wrote HubSpot.

Customer service is easy to get right, especially in e-commerce. Make it easy for customers to get the answers they need about a product, policy, or service. Add multiple communication channels, such as live chat, phone, and email where a customer can contact your customer support team. Make sure you have clear and transparent delivery and return policies that are convenient for someone who purchases from your online store. 

Share your purpose

In recent years, it’s become important to customers that companies take a stand on issues that matter. There are studies that indicate 63% of customers want to purchase from purpose-driven companies that reflect their values. Millennial and Gen Z customers in particular are likely to consider a company’s stance on environmental and human rights issues as part of their decision to become loyal brand customers. 

What does this look like in practice? In 2018, Dick’s Sporting Goods announced that in the wake of the Parkland school shooting, it would no longer sell assault rifles. Today, research from Harvard Business School found that this move cost the brand money in the short term — but ultimately paid off.  

Your e-commerce store can showcase your brand purpose on the blog and on the About page. In addition, consider adding upsell or cross-sell opportunities on which someone can add a donation to their purchase or pay to offset their shipping carbon impact.  

Don’t forget the post-purchase experience

The post-purchase experience is one of the most important, as well as the most often ignored, parts of the customer journey. This segment starts after the customer has completed a transaction and before they receive the product they ordered. 

The post-purchase experience (PPX) matters: 56% of respondents in one survey said they were disappointed by the past PPX they received from retailers and e-commerce stores. Accenture found that only 17% of customers believe their brands care about the post-purchase experience. A bad or neglected post-purchase experience is one of the biggest contributors to customer churn. 

There are easy best practices to improve someone’s experience after they’ve shopped at your e-commerce store. Post-purchase upsells are one tactic. Post-sale upselling gives shoppers a way to make the most of their orders, maximizing average order value for Shopify merchants in the process. For customers, matching the right relevant or complementary product that will provide genuine value for that person increases trust in and loyalty to your brand. 

Here are a few other strategies for engaging with current customers after the check-out process.  

• Offer real-time package tracking: Don’t make your customers sift through their inboxes to find tracking numbers. Make package tracking simple, transparent, and readily available. 
• Provide free shipping: Fortunately, free shipping may be more affordable than you think. There are many ways to offer free shipping that won’t break the bank.
• Create a clear returns policy: Avoid stress and mistrust by creating clear instructions for how to return a package, how to file a claim if their stuff is incorrect or damaged, or where to contact support for additional help. 

Each of these features can help meet customer expectations, provide a great customer experience, and encourage someone to shop again and again on your e-commerce site. 

Conclusion

It’s worthwhile investing time in understanding what your customers expect from your brand when they frequent your Shopify store. Designing a customer experience that meets these needs results in higher customer retention—which, in turn, results in better business results like higher profit, lower costs, and a better brand reputation. 

Repeat customers are the lifeblood of every successful business. The good news is that there are many metrics that can help you determine what repeat customer behavior is helping you meet your business goals. This information can also show you which strategies to deploy to nurture more repeat customers and generate additional revenue from your loyal customer base. Try launching a loyalty program or any customer retention programs, increasing upsells, and emphasizing customer service to gain an edge in customer retention. 

Conversion Bear is your partner in understanding the best ways to boost customer retention. Through the Honeycomb upsell app, you can test different offers, see how your customers respond, and personalize your communication to make every website visitor feel supported and valued. Learn more about Conversion Bear’s tools and features to help you sell on Shopify.