Customer Retention Metrics and How to Improve Them

May 18, 2021
| by David Miles

Whether you’re a large enterprise or small business, it’s likely you’ve heard about the importance of customer retention. And yet, each month, marketing departments across the world set their focus on lead generation and new customers — sometimes spending thousands to gain a few orders worth a couple of hundred.

According to a study by Digital Index, a business spends on average 80% of their marketing resource on gaining new customers. Because new is always seen as better. But, in contrast to generating those leads, actually retaining customers who’ve already started their journey to Loyal Customer is much cheaper and more beneficial for the bottom line: You are three times more likely to sell to an existing customer than finding a new one. And with the efforts you make to retain customers, you can boost your revenue by up to 95% with just a 5% increase in repeat customers.

Retaining customers is quite the money saver and the money gainer. This is why we wanted to help you find out the important customer retention metrics you might be missing. Customer retention isn’t something that your analytics platform can typically do, but with a few simple sums will help you understand more about your audience.

Customer Churn Rate

How many of your customers order once and never return? The number of single-purchase customers that visit your store is known as the Customer Churn Rate. If this rating is pretty high, your audience isn’t particularly engaged with your brand. A CCR of over 10% shows that customers visit your site, purchase what they need, and end the relationship. If they need something new, they’ll start a new search for the best store, rather than re-visiting yours. Although you benefit from that initial purchase, your competitors are benefiting from the second.

Obviously, if your customers are immediately leaving your site after their purchase, and not signing up for newsletters or marketing, there’s not a lot you can do. There’s no point in creating a customer retention strategy if nobody is around to see it.

That’s where a ‘switching barrier’ comes in. The perfect example of a switching barrier would be Apple vs. Windows: Apple Macs and iPhones work with specific cables, have their own app store and exclusive chargers, headphones, and accessories that can’t be used in conjunction with other non-Apple products. Similarly, non-Apple products don’t work with Apple devices. This is a simple switching barrier that works in favor of any gadget store automatically. You’re likely to gain a repeat customer because they know everything you sell is compatible with their previous purchase.

While as a small company, it’s not a good idea to start making your product incompatible with the rest of the world, there are simpler switching barriers you can put in place to lure first-time customers back and gain their loyalty.

Offering rewards for second purchases or for signing up for a newsletter is as simple as it has to be. With the idea that the customer gains something extra when they visit your store, they’ll likely hang around and offer repeat custom.

Repeat Customer Rate

How many of your customers purchase from your store more than once? This is the repeat customer rate. A repeat customer who places an order for the second time at your store is 54% more likely to place a third. And as you’ve already done the hard work to acquire this customer in the first place, those two extra orders make this client way more profitable.

How to increase repeat customer rates

In your purse or wallet, you’ve probably got a loyalty or points card for some major retailer. Points cards add value to every purchase for the customer. And as we all know points = prizes. By offering customers points every time they place an order, customers are likely to revisit your store for the additional reward and to build up their points — even if the product is cheaper elsewhere.

Offering customers valuable rewards for the more points they have, will give them a little nudge in the right direction and keep them coming back.

Average Order Value

The average order value relates to how much a particular customer spends each time they order. By understanding the AOV of your customers, you can see which repeat customers are the most valuable to you.

All repeat customers are great. But a repeat customer purchasing a single item for £3 each time, is obviously not as profitable as a customer placing orders at a rate of £50 a time.

How to improve AOV as appreciate repeat customers

According to Digital Index, repeat customers spend around 7 times more than one-time purchasers — which makes them incredibly important.

Appreciating your high spending customers is key to keeping them. Building a VIP program for your store is a surefire way to boost AOV as well as rewarding your best clients.

A VIP program can offer customers exclusive deals and discounts, early access to sales and events as well as free gifts when they spend over a certain amount. Those customers who are already loyal to your brand will feel appreciated, while customers with a smaller AOV will want to buy more to gain bigger rewards.

Another way to improve average order value — even for first-time buyers is to upsell and cross-sell. By putting other products in front of potential buyers, all of which are relevant to what’s already in their basket, you’re likely to persuade at least one of them to add additional items to their order.

Customer Lifetime Value

Lead generation and customer acquisition cost on average 5–25 times more than customer retention. This means it’s actually more profitable to spend less time looking for new customers, and more time giving back to your repeat customers.

By looking at how much a customer has spent with you in total, you can see who is helping your business grow sustainably — without the need for huge marketing costs before each purchase.

With this, you can understand what type of marketing, content, and deals will grab their attention more, and focus your efforts here.

Value-added marketing is what transforms your business into a brand. More and more companies are turning to bloggers, YouTube and other content platforms to give even more to their customers. From video tutorials to step-by-step blogs, your target audience is looking for more than a sales pitch; they’re looking for experts in the field, with product benefits that can be proved, and the best way to do that? Organic content.

Value-added marketing will not only provide your customers with a stronger relationship with their favorite brands but will also help you in terms of SEO for your site. Win-win!

Purchase Frequency

How often are your repeat customers ordering new items? Understanding a customer’s purchase frequency will not only help you to send them marketing at the right time, as well as discounts on their favorite items but can show you if there’s a gap in your inventory.

Do you need a larger pack option? Is the lifespan of your products too short?

How to increase purchase frequency

How frequently a customer buys something from your site could mean your products are of great quality and have great longevity. But if you notice your customers are ordering the same products over and over, why not offer a subscription service?

Providing a subscription will allow you to guarantee certain sales and project profits for the upcoming months. It will also appeal to customers who absolutely love your products and want to try out other pieces in your range.

Order Return Rate

Lastly, you need to watch out for your return rate. Of course, retaining customers is great, but are your customers keeping your products? If you’re noticing a high return rate and customer churn rate, it’s time to take a look at your offering. It’s likely there’s something not quite right with your products.

Improving your order return rate

If you do see a high return rate, try integrating a system like ReturnGO into your online store. ReturnGO will help you resolve return requests, gain insight into why customers are looking to return, as well as giving you time to improve your products without having to process returns.

ReturnGO works alongside your standard returns policy and allows customers to receive store credits instantly instead of return their item. The system will also offer credits for donating the item or returning it at a later date.

So those are just some of the Customer Retention metrics you can take a look at, and few simple tricks to improve your ratings. We hope they help!

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