6 Customer Retention Metrics for eCommerce Stores to Track

May 18, 2021
| by Rebecca Fox

In order to improve customer retention, you need to understand retention metrics, how they are calculated, and which are the key metrics to track.

Retaining customers has never been more important. It’s more cost-effective to focus on keeping existing customers than to look for new customers. To keep your customers coming back, it’s essential to create a positive and personalized experience.

Tracking metrics can help you with customer retention when you know what you’re looking at and why.

Top 6 Customer Retention Metrics to Track

Here are some key metrics you can track in order to improve your customer retention rate and customer value.

1. Customer Churn Rate

Customer Churn Rate is the number of customers that order once and never return. Tracking your Customer Churn Rate can give you insight into trends and factors that affect your store’s relationship with your customers.

Calculate Your Customer Churn Rate

To calculate your Customer Churn Rate, take the number of existing customers at the beginning of the month, subtract the number of existing customers at the end of the month, and divide by the number of customers you have at the beginning of the month, then multiply by 100.

For example, say on the 1st of January you had 360 customers, but by the end of the month, you were left with only 345 customers. In this case, your Customer Churn Rate would be 4.17%: (360 – 345/360) x 100 = 4.17%.

How to Improve Your Customer Churn Rate

Offering rewards can be a great way to retain customers. Giving a loyalty bonus or points for repeat purchases or for signing up for a newsletter will make customers more likely to buy again because they know they’ll gain something extra when they visit your store again.

2. Repeat Customer Rate

Repeat Customer Rate is the percentage of customers who come back to buy from you again. By tracking this metric you can identify your most loyal customers who order from you again and again, and identify what portion of your revenue these customers are driving. 

Calculate Your Repeat Customer Rate

To calculate your Repeat Customer Rate, take the number of existing customers who came back to purchase again, divide it by the total number of customers you had within the period, and multiply it by 100.

For example, if out of your 1890 customers, 1245 of them make a repeat purchase with the quarter, your Repeat Customer Rate would be 65.87%: (1245/1890) x 100 = 65.87%

How to Improve Your Repeat Customer Rate

In your wallet, you’ve probably got a loyalty card from at least one major retailer. Loyalty programs are a great way to get people to buy again – and your store can use that as a tool to retain customers.

By offering customers loyalty points every time they place an order, customers are likely to revisit your store to build up their points for that extra reward, even if the product is cheaper elsewhere.

3. Average Order Value

Average Order Value is the average amount of money spent on each order. By understanding your Average Order Value you can see which customers are most valuable, and which products bring in the most revenue.

Calculate Your Average Order Value

To calculate your store’s Average Order Value, divide your total revenue for the time period by the number of orders in the time period.

For example, say that in the month of September, your store’s sales were $31,000 and you had a total of 1,000 orders. In this case, your Average Order Value would be $31: 31,000/1,000 = $31.

How to Improve Your Average Order Value

One way to get customers to spend more on each order is to encourage your customers to purchase products that are related to what is in their shopping cart or to purchase a more expensive alternative to their chosen product.

4. Customer Lifetime Value

Customer Lifetime Value is the total revenue generated by a single customer. This is one of the trickiest metrics to track, and one that should be continuously monitored. 

Calculate Your Customer Lifetime Value

Note: There are multiple definitions of Customer Lifetime Value, from basic calculations that only look at revenue to more complex equations that factor in gross margin and operational costs. We will use revenue to keep things simple.

To calculate the Customer Lifetime Value of a particular customer, multiply the Average Order Value of the customer and the average number of purchases they make within a specified time. Then multiply by the number of years that this customer stays with you.

For example, let’s say the typical customer spends $50 per purchase and buys an average of once every two weeks (26 times per year) over a seven-year relationship. Your Customer Lifetime Value would be $9,100: 50 x 26 x 7 = $9,100. 

How to Improve Your Customer Lifetime Value

Customer retention and customer satisfaction are the keys to increasing customer lifetime value. Provide targeted, personalized marketing campaigns and engage them with content that’s tailored to them.

Customers who feel a strong connection to your store are likely to spend more, buy more often, and recommend your store to friends and family.

5. Purchase Frequency

Purchase Frequency is the average number of times a customer makes a purchase within a set period of time. This metric provides you with insights on how to fit your marketing to suit your customers’ buying patterns. 

Calculate Your Purchase Frequency

To calculate your Purchase Frequency, divide the number of orders in a specific time frame by the number of unique customers in that same time frame.

For example, if you have 12,000 orders from 2,000 customers in a year, your purchase frequency is 6 per year: 12,000/2,000 = 6. 

How to Improve Your Purchase Frequency

The goal is to motivate your existing customers to buy more frequently. Email marketing is an effective way to increase your Purchase Frequency rate. 

Tips for using email marketing to improve purchase frequency:

  • Re-engage customers who haven’t purchased in a while with “We Miss You” winback emails.
  • Send emails with offers that are relevant to that particular customer. 
  • Create a sense of urgency with phrases such as “Limited edition”, “flash sale”, and “this week only”.

Email marketing is a great way of getting customers to know you and vice versa. Track open and conversion rates to see how effective what you are putting out is, and keep adjusting and improving to find what works.

6. Product Return Rate

Product Return Rate is the percentage of products that customers return. Your Product Return Rate is an important metric as it has a large effect on customer satisfaction and revenue.

Calculate Your Product Return Rate

To calculate your Product Return Rate, divide the number of products returned by the number of total orders made within the given time frame.

For example, if you sent out 1000 products in the last year, and 200 of them were returned, your Product Return Rate would be 20%: (200/1000) x 100 = 20%.

How to Improve Your Product Return Rate

The best way to improve your Product Return Rate is by integrating an automated returns management system like ReturnGO into your store. ReturnGO works alongside your returns policy to help you resolve return requests, gain insights into why customers are looking to return products, and offer alternative solutions to simple refunds such as exchanges and store credit.

Invest in Customer Retention 

Due to the high value of returning and long-term customers, understanding and analyzing retention metrics is essential to your eCommerce success.

If putting together a comprehensive customer retention plan feels overwhelming right now, then start small. Start with one metric at a time. When you focus on one metric, the other metrics will follow. 

Understanding the relevant customer retention metrics enables you to have a better understanding of what’s going on with your store and your customers.

Start tracking a few of the metrics explained here and you’ll be well on your way to success.

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