What is Customer Retention and Why is it Important for E-commerce Business?

Customer retention is the process of reducing the number of customer defections and increasing the rate of their stay with the business with the help of different perks provided by companies. It can also be defined as the higher the retention rate, the more existing customers you have returning to your business.

In today’s ecommerce landscape, the customer retention rate is essential for brands, as consumers have many options. With many alternatives just a click away, switching to a competitor is effortless. Therefore, having high retention rates indicates that your products are popular and you have a devoted customer base.

Why Is Customer Retention Necessary for E-commerce Businesses?

The customer retention rates can track the data of new and existing customers to determine how much a shopper is sticking around. It helps to know how well you are acquiring new customers and how many are returning. This helps in knowing about the customer experience level and satisfaction. There are multiple reasons why customer retention is vital in ecommerce businesses. 

1. Increase ROI

Though acquiring a new customer is great, working with the existing one can be much cheaper and increase your ROI on marketing efforts and ad spending.

2. Acquire New Customers

When most shoppers come across a brand or business with a good fan base, they expect a lot from that business. Thus, high retention rates show potential buyers that you care about them and give them a good experience with you. 

3. Brand loyalty

Often customers loyal to the brand prefer to buy from the same platform than other competitors. This can lead to an increase in revenue along with long-term success for the ecommere business. 

4. Focus on Growth

It is challenging to grow and scale your business if you only focus on acquiring new customers, as this will only help get revenue. But you will need more time and resources for growth. When you have a customer retention rate more than this, you can have a fixed amount of revenue coming along with focusing on the new one. 

5. Reduce Customer Acquisition Costs (CAC)

You don’t have to worry about the sale when the business has a reasonable retention rate. Moreover, you also can focus on something other than spending much to get new customers as the previous one will purchase regularly. 

6. Increase Customer Lifetime Value (CLV)

When your business has an effective retention rate, then this means a high rate of returning existing customers. The amount significantly increases with the customer you will make with them in the life span. 

Key Metrics For Measuring Customer Retention

Keeping existing customers is often easier than acquiring new ones for a business. By focusing on retaining existing customers, businesses can reduce the pressure to constantly find new customers. Effective customer retention strategies can lead to increased customer lifetime value and revenue. To achieve this, businesses can use various metrics to ensure their retention efforts are successful.

1. Customer Retention Rate

Customer retention rate, as described above, is the percentage of customers still with a company over time. These are often used by subscription and service businesses.

How to calculate customer retention rate- Choose a timeframe( usually a month or year)

CRR= [(End Number of Customers – Number of Customers Gained) / Starting Number of Customer] * 100

2. Revenue Churn

It is the recurring revenue of the businesses that they lose due to subscription cancellations or downgrades. 

How revenue churn is calculated- it can be measured as the ratio of the loss of revenue due to the cancellation of a subscription versus the revenue available at the beginning of the period. 

Revenue Churn= (Churned MRR)/(MRR at the beginning of the period)

3. Customer Churn

The customer churn rate, also referred to as the user churn rate, is the proportion of customers who discontinue using a product or service within a specified time frame, typically one month or year.

How to calculate customer churn rate

Customer Churn Rate = (Number of customers who left / Total number of customers at the start of period) x 100

4. Repeat purchase rate (RPR)

The repeat purchase rate (RPR), or the repeat customer rate (RCR), is the percentage of current customers who engage in another purchase within a particular time frame.

How to calculate repeat purchase rate

Repeat Purchase Rate = (Number of customers who made more than one purchase / Total number of customers) x 100

5. Customer Lifetime Value (LTV)

Customer lifetime value (LTV or CLTV) is a calculation that approximates the overall worth of a customer to a company throughout their business relationship.

How to calculate the customer lifetime value

Customer lifetime value = Average order value x Average number of purchases x Average customer lifespan

6. Customer Satisfaction Score (CSAT)

The customer satisfaction score (CSAT) is a metric used to evaluate the level of satisfaction that customers experience with a particular product or service. 

How to calculate Customer satisfaction score:

CSAT = (Total positive scores / Number of respondents) x 100

7. Net Promoter Score (NPS)

The numerical measurement of customer satisfaction, loyalty, satisfaction, and enthusiasm based on the question is termed net promoter score.

How to calculate Net Promoter Score

NPS = % promoters – % detractors

8. Customer Effort Score (CES)

Customer effort score (CES) is a metric that gauges the perceived level of effort customers require to complete a purchase or use a product/service. 

How to calculate Customer effort score

CES = ((Total scores / Number of respondents) / Number of options) x 100

Customer Retention is becoming one of the mandatory steps for brands and businesses in ecommerce. So to improve online retention for the ecommerce, some strategies are mentioned below- 

Best Customer Retention Strategies for E-commerce Business

1. Adopt Email and SMS marketing

Email marketing campaigns are crucial, particularly for eCommerce businesses. The company can give a greeting email to the customer as soon as they make a purchase and thank them for being a part of the family. Apart from this, you can also send SMS with shorter messages to the customers with links to redirect directly to the page. You can also add greetings as we miss with discount coupons to encourage investments in customers who have not made any purchases for a long time. 

2. Delight Customers

Going extra for the customer helps them remember your brand better. But you have to remember it should not limit to one time. You have to make multiple efforts to gain sales. For instance, you can add free samples with an order or offer free trials. Some companies even add small discount coupons to delight their customers. 

3. Solid Social Media Presence

An excellent social media presence is why customers stay or start relying on others. It is especially needed if you target Gen Z or Millennials; this concept works here. You have to be active and start responding to queries and concerns, and keep an eye on how people react and share your posts and activity. Accordingly, you can change the process and focus on the new and existing customers, generating interest in it. 

Benefits of Social Media Marketing for Online Business

4. Offer a Rewards Program

This can give the customers a reason to return to the site. Whether discounts, free products, or reward points, it feels good to be a part of it for any customer and encourage them to join again or join as the new. You can also use the reward points as the customer when or where you want to. This way, they can get exactly what they want with the reward points. 

5. Personalize the Experience

Through the online database, the ecommerce brands can have the customer history. You can use this to make a personalized experience for the individual on behalf of the record. You can send the latest updates and discounts on your visited product to encourage buying. You can also make a small poll or personalize auto-generated quiz for individuals in what they are interested in. Make them feel like you are lucky to have them as a customer rather than a source of revenue. 

6. Maintain a Signature Brand Look

As you are an ecommerce brand, you may need a store location, and this means you have to work on the other E-commerce branding forms, such as color themes, digital images, and fonts, to capture consumer attention. Talking about any particular brand, they also put that signature look in the product’s packaging to distinguish them from the others in the market. 

7. Create a Referral Program

Give the customer a reason to create an account with you. Make the process easy for the customers. The existing customers can provide the referral code to the new one to get the extra discounts and benefits. It can be an excellent strategy to gain new customers and make the existing customer happy. These types of things encourage more people to create an account. 

8. Customer Loyalty

These are the programs that give many discounts and bonuses to the most loyal customers of the company. Offering these incentives to the shoppers that come back or are constantly a part of the family can encourage them to purchase continuously from you. 

9. Customer Support

The company’s customer support team should be very active throughout the day. Providing satisfactory and quick resolutions to problems can help the customers gain trust in the company. This also allows them to be part of the company for extended periods. User experience is vital in converting a one-time visitor into a loyal customer. 

Why Choose Emizentech for your E-commerce Business?

As a leading ecommerce development company Emizentech can help in the following ways in your business:

Overall, our company can provide various services to assist in developing and maintaining an eCommerce app, ensuring that it is functional and user-friendly.

Conclusion 

Customer retention is a crucial aspect of any successful ecommerce business. Retaining existing customers is far more cost-effective than acquiring new ones. By doing so, companies can enjoy various benefits, including increased customer loyalty, repeat purchases, and positive word-of-mouth marketing. In today’s competitive online marketplace, where customers have many options, creating a positive customer experience and building lasting relationships with customers are essential for long-term success. By focusing on customer retention strategies and prioritizing customer satisfaction, ecommerce businesses can increase their profitability and build a loyal customer base to support their growth and success.