The best customer retention strategies for e-commerce companies

Running an e-commerce business is a bit like hosting a party. You want plenty of new faces coming through the door, but if no one sticks around, you’re just left with an empty dance floor and a lot of wasted punch. The secret to a lively, thriving event? Getting your guests to stay for another song, or in the case of e-commerce, convincing your customers to come back for another purchase.

It’s tempting to focus on drawing in new buyers, but if your customers are leaving as fast as they arrive, your growth won’t last long. Retaining customers is what keeps your party (and your revenue) swinging well into the night. Think of your loyal customers as your best party promoters, excitedly spreading the word and inviting others to join the fun.

So why is customer retention such a big deal for e-commerce? It's simple: happy, returning customers mean more frequent purchases, stronger brand loyalty and higher profits. Ready to keep the party going? Let’s dive into the best strategies for making sure your customers stay and bring their friends.

What is customer retention?

While customer acquisition is the ability to acquire new customers, customer retention is the ability to hold onto them and encourage them to make further purchases. The customer retention rate is the percentage of customers who continue to buy from your brand after their initial purchase.

Customer retention is the opposite of customer churn, which refers to the volume of customers who move away from your brand and never buy from you again.

To measure customer retention rate figures you need to decide what time period you are going to allocate as the longest a customer can go without buying before they're considered to have "churned."

This will vary depending on your niche. If you sell high-end jewelry, for example, individual sales may happen every year on special occasions. On the other hand, if you're a pet food supplier, you might be expecting repeat sales every month.

Once you've allocated a time period, you can use this formula to calculate your customer retention rate:

(Total number of customers at the end of the period - new customers acquired during the period)/total number of customers at the start of the period

While this might sound complicated, it's really not, as long as you're using your customer relationship management (CRM) or marketing data platforms to carefully log your customer numbers.

If you had 350 customers at the end of six months and 50 of those were new, then your first figure is 300. If you had 400 customers at the start of the period, then your calculation is 300/400, giving you a customer retention figure of 0.75 or 75%. For those who love fractions, this means that your retention efforts helped you keep three-quarters of your customers over six months. Go you!

How is customer retention used in e-commerce companies?

Why is customer retention important for e-commerce companies? Partly because customer acquisition costs can be high. Marketing to new customers is more expensive than re-engaging current customers. New buyers don't know anything about your brand, the customer experience you provide, or even what your products are like. There are more existing customers who are likely to buy from you than totally unknown people, but only if you target them correctly.

E-commerce businesses can use their customer retention figures to:

• Identify causes of churn and address those
• Focus on particular areas that drive retention such as outstanding customer support
• Increase customer lifetime value — more on that later
• Boost their gross margin and drive profits up

Customer retention rates and related metrics can be used to figure out why customers are churning as well as just how many. It's easier to figure this out when you have strategies in place to gather data from multiple sources and visualize it for your teams.

Critical metrics for customer retention

There are so many marketing metrics you can look at to both understand and change customer retention figures. We've already looked at identifying the difference between customer acquisition cost and marketing costs for boosting customer lifetime rates instead. Here are some more metrics marketers should keep to hand.

Repeat purchase rate

A customer who is making repeat purchases is, automatically, a customer you have retained. That's a win. However, to understand how often this is happening, you need to carefully log all of a customer's past purchases and ensure that any new ones are also added to their customer profile or account. Thankfully, most modern data stacks allow you to do this automatically.

Storing purchase data also allows you to utilize cross-selling techniques. If you can see that customers who frequently repurchase often buy similar items, you can try offering those same items to customers of similar demographics. Cohort analysis — grouping similar types of customers together — is one method for this. Encourage customers to try something new and record every time they do.

Customer lifetime value (CLV)

CLV is how valuable a customer is to your e-commerce company over the time they spend as your customer. Marketers should note that the value extends beyond the money they spend as referrals, social interactions and even word of mouth can all be very valuable to your organization.

Improving customer retention rates organically improves your customer value by ensuring consumers stick around for longer and buy more stuff.

Customer retention rate (or churn rate)

You've seen above how to calculate your customer retention rate. Churn rate is the opposite figure. So, in the example above, the churn rate was 25%. Even though the hypothetical e-commerce firm gained 50 customers, it lost 100 out of 400 over a period of 6 months.

Learning that should prompt marketing professionals to consider what those customers have in common and how to prevent similar customers from leaving in the future. Customer behavior analysis techniques can help here.

Net promoter score (NPS)

NPS means how many of your customers would recommend your products or online store to another person. You can ask this in a customer survey or a simple pop up at the end of the checkout process.

You could even utilize an automated email service to gather this info a few days after expected delivery. Just make sure you have consent to send email marketing materials to the relevant customers.

Top customer retention strategies

Knowing how to increase customer retention rates means honing your marketing strategy to include existing customers as well as new customers. There are so many ways you can make your online store and its connected channels appealing for buyers at all stages in their journey.

Personalized experiences for new and existing customers

Personalization is no longer a "nice to have." It's expected by customers of all demographics. If you're not sending your customers personalized recommendations and calling them by their name in communications, you can bet your competitors are.

Customer loyalty programs and rewards

When you reward loyalty, you're likely to get more of it. Repeat customers come back over and over because they're loyal to your brand. An effective customer loyalty program should reward sales but you can also include other factors such as:

• Referrals
• Social media engagement
• Competition entries
• Reviews
• Voting on new product ideas
• Taking part in surveys

Make sure you set your customer expectations properly as to what they can expect from their loyalty points. Discounts, free products, or sneak peeks at upcoming goods can all be great incentives.

Customer service

Customer satisfaction is one of the driving factors of whether a consumer will shop with you again or not. Providing exceptional customer service is easy and incredibly effective.

Make sure you're offering customer support to all customers, both new and existing. Returning customers are just as likely to need assistance from time to time so try and ensure there are easy-to-use channels, from chatbots to a phone line.

Email marketing materials should always include a way to contact your organization, particularly as this allows them to ask questions that could lead to a sale.

Consider different ways to gather customer feedback as you can use this to improve your customer service and encourage a good customer retention rate.

Subscription models

You can ensure customers stick around for longer by providing pay-monthly subscriptions that add value in some way. These could be:

• Monthly deliveries of goods or samples to try
• Shipping discounts for regular buyers
• Large discounts, e.g., pay $10 a month to get 10% off a range of goods
• Premium membership schemes that allow access to pre-launch products or even special events

A subscriber is guaranteed income every month, plus it keeps your brand top of mind.

P.S. While subscriptions are an excellent way to engage customers in a long-term brand relationship, make sure you're offering other customers offers, discounts, or email newsletters to increase customer engagement across the board.

Post-purchase engagement

Customer engagement is always a vital part of drawing in excited consumers who want to buy your products or services. However, to avoid a "one-and-done" sales model, you need to continue to engage with those customers after they've purchased from you.

Re-targeting campaigns

Retaining customers is easier when you're careful to retarget those who have bought from you before.

You can increase your brand loyalty organically by showing customers that you're the kind of business that never forgets about its faithful customer base.

Omnichannel approach

As an online business, you know that your customers come to you from multiple channels. Create a presence that extends across these channels and, if possible, more. Utilize your website, blog, social channels and you can create online communities that help boost your brand recognition and trust.

Leveraging data and AI in customer retention

We can't stress enough how important the right data is for understanding your customers and increasing customer retention rates.

Ideally, your e-commerce business should have access to plenty of first-party data such as time spent on your website, clickthrough rates, bounce rates, average order value and a whole array of personal preferences.

Make sure you provide your customers with the option to share data if they want to. Encourage them to set up accounts and choose their preferences. Over 80% of customers are happy to share more detailed personal information if it ensures they get a more personalized experience.

More personalized experiences increase loyalty and help you improve customer retention rates and your overall customer retention strategy.

AI-powered tools can help you both gather and organize customer data. Businesses in the e-commerce sphere have immense volumes of data to handle so leveraging AI for this "big data" just makes sense. Business intelligence (BI) tools, data visualization platforms and dashboards that bring everything together quickly are essential for fueling the decisions needed to help keep more customers.

Improving customer retention is one of the big steps toward growing your e-commerce firm. You're getting people through the door to your party and then keeping them there with fantastic engagement techniques.

Make sure your marketing data stack has the power to keep you updated with churn rates, retention rate figures and the right customer data to help you keep your customer base happy for longer.