Word-of-Mouth and Referral Marketing Blog

8 Simple Customer Retention Strategies to Explode ROI (Really)

Want to explode your profits for your ecommerce business? Then increase customer retention. It’s that simple. Learn how in this post.

So, you’ve started a business – congratulations! And it’s been growing – double congratulations!

But now it seems like you’ve hit a plateau or even had a dip in revenue.

You’re still bringing in the same number of new customers and it seems like you’re still meeting customer expectations, but your sales just aren’t growing. What gives?

It might be a customer retention issue.

Let me ask you this – when a customer buys your product or service is it a “nice doing business with you, have a nice life,” relationship, or is it a “so good to see you again, let us know next time you’re coming back,” type of thing? If you chose the first one, this article is for you because we need to work on your customer retention strategy.

In this article, we’ll cover what customer retention is, why it’s important, the metrics you’ll need to track for it, and how you can boost your customer retention to increase revenue and build your business.

What Is Customer Retention?

Customer retention is all about how you keep customers happy and continually coming back to your business. Simply put, customer retention refers to how well your company *ahem* retains customers over a period of time. I’m talking about those loyal customers you’ve put time and effort into building relationships with.

Why Is Customer Retention Important?

You could try to only focus on customer acquisition and it might work really well – for a while. But that’s going to end up being harder and less profitable to do than if you start paying attention to those customers who have already bought from you.

Here are all the biggest benefits of customer retention.

increase profits with customer retention

  • Customer Retention Increases Profit. A 5% customer retention rate increase can boost your profits by 25% to 95%. Customers that stick around spend more and when you let those customers slip through your fingers, you’re waving goodbye to serious profit gains.
  • Customer Retention Improves Word-of-Mouth Referrals. If you have a loyal customer who’s stuck with you for years, they’re more likely to recommend your company to their friends and family. That new potential customer trusts their friend and is then more likely to follow through on a purchase with you. Now, your customer retention strategy becomes a part of your customer acquisition strategy.
  • Higher Customer Lifetime Value. The more time a customer sticks with your brand, the more they’ll likely spend. So, retain customers for longer and each customer’s value goes up.
  • Lower Cost Per Purchase. It can be 5 to 20 times cheaper to get a repeat purchase than it is to get new customers to buy your products and services. That means retained customers will be cheaper and easier to ‘nudge’ into another purchase as opposed to a potential new customer.

The Customer Retention Metrics That You Need To Know

Are you sold on why your existing customers should be a key focus in your marketing strategy yet?

(If more profit, more customers, and fewer expenses don’t catch your eye, we may need to have a bigger talk about entrepreneurship…)

Now that you know customer loyalty and retention are key to improving your business, how do you actually measure it? With a few handy and simple metrics.

If you’re not a numbers and metrics kind of person, don’t worry – we’ll take it nice and easy so you can understand them. Believe me – you’ll want to know these!

Customer Retention Rate

You might have guessed that tracking customer retention rates would be in the metric tracking list. But how do you exactly find this metric? First, you have to define a specific time period such as a week, month, quarter, or year. Then you use this top-secret formula.

customer retention rate formula

 

Here’s the formula:

how to calculate customer retention rate

What you’re basically doing here is figuring out how many customers rolled over from the previous time period, dividing that by the total customers from the previous time period, then multiplying by 100 to get the percentage.

For example, let’s say you have 100 customers in March and 130 in April. Of April’s 13o, 50 are new customers. So you retained 80 customers (130-50=80 for those who don’t like mental math), meaning your customer retention rate is 80%.

Repeat Customer Rate

The repeat customer rate is the percentage of customers who made more than one purchase in a given time period out of all the customers from that same period of time. If you have a high repeat customer rate, you know your retention strategy is going well because guess what? Repeat customers are retained customers!

How Do You Calculate Repeat Customer Rate?

Some eCommerce sites will generate this metric for you automatically, but if you want to calculate it yourself, here’s what that formula will look like:

how to calculate repeat customer rate

 

For example, one quarter, let’s say you had 38 customers who made more than one purchase and a total of 95 unique customers (note that this is specifically customers, not purchases). That would make your repeat customer rate 40% (38/95=0.4 x 100 = 40).

Purchase Frequency

Your purchase frequency measures how often your customer base is coming back to buy more of your products and services. It’s basically the average number of purchases your customers make. This can vary a ton depending on your industry. For example, a coffee shop might have a purchase frequency showing daily purchases, whereas a mattress company where their mattresses have a 10-year warranty would have a super low purchase frequency if any.

How Do You Calculate Purchase Frequency?

Calculating this metric is relatively simple. All you need to know is the total number of purchases and the number of customers you’ve had in a period of time.

The formula looks like this:

how to calculate purchase frequency

 

This number should be over 1 or equal to 1 (otherwise you’ve got ‘customers’ who aren’t making a purchase). For example, if in one quarter you had 89 unique customers and 305 total purchases, your purchase frequency would be 3.4, meaning each customer is making an average of around 3 and a half purchases per quarter.

Average Order Value (AOV)

The average order value is the average amount each customer is spending per purchase. This could go up from buying more expensive products or buying more of one product in one go. Your best customers will be the ones piling it on, whereas newer customers might be more hesitant to stack up big expenses.

How Do You Calculate Average Order Value?

Many eCommerce platforms such as Shopify can calculate this metric for you (and will show you a nifty graph to track it over time), but it’s also a pretty simple one to calculate for yourself too. You’ll need to know your total revenue (the amount of money that’s come in from purchases) and the total number of purchases over the same period of time.

Once you have those, plug them into this formula:

how to calculate average order value

What Is A Good Retention Rate?

You’ve calculated your customer retention rate and the other metrics that go along with it. Now you might be staring at them like what does this mean?

what does it mean

Let’s go over it, together!

To start off with, the closer your customer retention rate is to 100%, the better because it means you’ve had absolutely no customer churn. Every single one of the customers that you had in the previous period fell madly in love with your product or service and came right on back for more.

But realistically, it’s not going to be 100%. No matter what industry you’re in, if you have enough customers, you’ll have some customers who will try your product once then for one reason or another, not come back. How much customer churn you have will depend on the industry you’re in, but in general, if you’re hitting a customer retention rate somewhere around 75% or above, you’re on solid ground.

If your customer retention rates are hitting the high 80s or 90s, I don’t care what industry you’re in, you’ve got some seriously loyal customers and you’re doing a knockout job retaining customers.

Customer Retention Rate by Industry

As I mentioned, customer loyalty and customer retention rates look different from industry to industry.

Why? Because each industry will have a different customer lifecycle and there are industries where customers are more likely to churn or to stick around. For example, a monthly subscription service product is more likely to retain existing customers month-to-month than a hotel will because while the subscription service gears itself to automatically keep a customer on board, the hotel will be catering to a traveling customer base that may not be back for a while.

According to Statista’s research, these are the average customer retention rates for some of the main industries:

  • Retail: 63%
  • IT Services: 81%
  • Professional Services: 84%
  • Media: 84%
  • Telecommunication: 78%
  • Banking: 75%
  • Insurance: 83%
  • Automotive and Transportation: 83%
  • Hospitality, Travel, and Restaurants: 55%

8 Strategies To Boost Customer Retention (With Examples)

Are you now comparing your customer retention rate with your industry’s average and cringing a little? Don’t sweat it too much.

First, for small businesses, customer retention can often be lower than the industry average. It’s not your fault you don’t have the marketing and customer service budgets of companies like Target or Apple.

Second, you can often improve your customer retention with just a little extra effort to build relationships with current customers.

Here are a few customer retention strategies that you can implement to increase customer retention and keep current customers happy.

1. Start a Customer Loyalty Program

Loyalty programs are an excellent strategy to retain customers because you are literally rewarding your existing customer for sticking with you. There are tons of different ways to create a loyalty program from a digital or paper punch card to an online account and point reward system.

Our CandyBar loyalty program service can help you create a simple and effective program that increases customer satisfaction and can improve customer retention.

increase customer retention with a loyalty rewards program

Want to learn more about how to create an effective customer loyalty program? We’ve got you covered with this guide.

2. Offer Discounts on Future Purchases

When you ship an item, include a coupon for a discount or a free shipping code.

Why? Because you’re adding a little extra touch of surprise joy for your customer and showing them you appreciate their business.

When you offer a discount, it keeps you top-of-mind so that when they are looking to purchase an item that you carry, they are more likely to buy from you over a competitor – because hey, it’s 15% off!

With this strategy, it’s one part increasing customer retention and one part improving the customer experience because you’re over-delivering on what they’ve already bought.

3. Include Freebies in Purchases

When you package your product for shipping or deliver on the service, include some extra small items for the customer. Throw in some samples for another product or some stickers or cards with your brand’s logo.

In the mind of the customer, these add-ins increase the value of their purchase and make them feel even better about the purchase. People always love to get more. Plus, if you’re getting in on the whole “unboxing” video trend, you’re making that experience that much more exciting.

If you are including product samples and the customer really enjoys it, they will come to you to buy it. Including branded items like stickers, imprints your brand in the customer’s mind.

One example of this is the UK-based outdoor retailer Wiggle – with each shipment, the brand includes a small package of Haribo sweets so getting the product literally leaves a sweet taste in the customers’ mouth.

include free stuff to increase customer retention

That’s an A+ customer experience that makes customers feel even more excited to order from them.

Adding these things will not cost you much but that can make all the difference in the world when it comes to repeat business.

4. Improve The Entire Customer Experience

If your customers feel like you’re not taking care of them or don’t want to make them happy, they aren’t going to visit your store again.

And the easiest way to improve customer retention?

By making your customer experience better.

This glowing review of Warby Parker is a prime example of customer service gone well.

positive customer experience

Not only is this customer super satisfied, but they’re advertising the brand, free of charge.

There are many different ways you can improve customer service, but here are a few ideas.

  • Reply to questions and concerns from customers in a timely fashion and with information that’s helpful. If customers have to wait for ages to get in contact with you and then when you do respond, they get some unhelpful fluff response, that’s a one-way ticket to customer churn.
  • Reach out to unhappy customers or customers who haven’t come back. If you find poor reviews or if you’re able to reach customers who haven’t come back for another purchase, that customer information can sometimes be the most important and useful information. Sure, the five-star reviews are great to boost your ego, but they won’t help you improve. Talking to customers who didn’t have the experience of their dreams can a) help convince customers to continue working with you and b) offer potential new ideas to improve customer experience.
  • Include a handwritten “Thank You” note in your shipment. A handwritten note feels more personal than a printed form letter and will be a welcome surprise for your customer. Customers like to know they matter and are more than just a price tag to your brand, so when you address them personally, they’re more likely to feel good about supporting your brand again in the future.

5. Start a “Refer a Friend” Program

A referral program turns your loyal customers into your biggest advocate. While you get a chance to bring in a new customer, the existing customer also gets a reward making them more likely to make another purchase and increase their lifetime value.

People trust their friends to recommend items of value. This means a referral program can create new customers while helping you retain your current ones.

Thrive Causemetics, for example, has an easy Refer a Friend program where both the existing customer and the friend receive a $10 discount.

refer a friend example to increase customer retention

They may choose to include their referral program in their email marketing plan or advertise it in pop-ups. Or they can simply link to it in an easy-to-find place like the footer of their website.

refer a friend in footer of ecommerce website

The idea is to make it easy to do and even easier to find so that your customers continue referring their friends (and continuing shopping with you).

(Note: Want to set up a referral program of your own? Try ReferralCandy free for 30 days here!)

6. Have an Email Subscription List

Including email in your customer retention strategies should be something you’ll want to strongly consider. If your brand can pop into your previous and existing customers’ inbox every once in a while, you can stay in their minds and increase customer retention.

Email marketing is a thing of its own and can work wonders on customer retention and customer acquisition – if you do it right. You can build a better relationship with customers and make them feel like they’re important to you.

It doesn’t have to be fancy, either.

It can simply update customers about what’s new in your shop and what they can read on your blog.

Sozy, a women’s fashion brand, sends out daily emails with the latest products and blog posts just to keep the customer in the loop and connected to the brand.

example email newsletter by ecommerce brand

However, you’ll also want to be careful not to go overboard with the emails because they can quickly become spammy and send your relationships down the drain.

So be sure to check your open rates and click rates for each email to know how much is too much for your audience and what kinds of emails resonate with them the most.

So how do you do that?

By increasing focus on segmentation and personalization.

Commonly, companies will send confirmation emails, thank-you emails or subscriptions to their newsletters. But that’s where it stops and it shouldn’t.

Our BIGGEST Recommendation is to capitalize on the opportunity to create additional value for a customer segment, even if it takes more time and requires the structuring of multiple automated workflows.

The idea is to keep the ball rolling between you and your customer, keeping them engaged in your brand by asking for feedback and piquing their interest in up-sells and cross-sells, usually through email. Keep every customer in the loop by adding them to a cycle of further options based on their personal and segment-based buying heuristics.

7. Create a Subscription Model

Remember how I mentioned month-to-month subscriptions can often have higher retention rates? Well, why not become one of those companies benefiting! Subscription services have the benefit in that your customers don’t have to do any extra work to make that ongoing purchase each month, quarter, or year. Instead, they’d have to actively do something to stop it.

While the subscription model tends to go with software services like website hosting, video streaming (hello, Netflix), and ongoing services like that, more and more brands have gotten on the subscription wagon from beauty brands like Nourish Beauty Box to stationary brands like Cloth & Paper. If your product is something that your customers have to regularly buy, a subscription option might be a great customer retention strategy for you.

Keep in mind though – some people may not want to commit to a monthly thing, so it’s probably a good idea to still have the one-off purchase option too.

subscription box

8. Create a Community for Your Brand

Every brand has a mission or a reason for existing and selling. Your company’s reason ‘why’ can be leveraged. Focus on your company’s objectives rather than its products. You can use forums and social media sites such as Facebook and LinkedIn to create a community for like minded people and customers who support your business because of its valuable objectives and beliefs.

A community is an easy way to increase your value proposition without putting in additional effort. Facilitate the creation of your community, which will become a place where existing customers can share their experiences, or new customers can ask questions.

You can invite customers to join the community with every purchase, and share their passion with other like-minded enthusiasts, creating an army of loyal customers who will increase your customer base by referring your company because of its high-value offer.

Your community should NOT revolve around your products. If you cannot define the ‘why’ clearly, customers will not invest in your company. You can generalize a topic around your specific needs by integrating different angles. For example, a mattress company could create a community around creating sustainable and comfortable lifestyles.

“Think outside the box around what you stand for and why you do what you do because I guarantee there is a passionate community of people that will engage with that.”— Allen Burt

Your online community can also act as your customer service. By offering community members exclusivity regarding promotions or prices, you make your customers feel special and strengthen their bond, driving up profit margins. And remember:

“Friends and family have the ability of selling products without sounding like a salesperson.”—Raul Galera

Think you’ll be using some of these customer retention strategies to increase the number of customers coming into your business? Your customer retention (and your existing customers) will thank you!

Keep in mind that this is by no means an exhaustive list of ways to improve customer retention. This is just a starter list to get your creative juices flowing. Have some fun with it and develop programs that align with your team.

This post features the key takeaways from this webinar by Allen Burt of Blue Stout and Raúl Galera of ReferralCandy. View the original recording below.

Johanna Flashman

Johanna Flashman

Johanna Flashman is a freelance writer, content marketer, and SEO strategist with a passion for connection, advocacy, and outdoor adventure. She runs an inclusive online information hub for women freelancers in the outdoor industry called The Freelance Outdoorswoman. You can find her on LinkedIn, Twitter, at johannaflashman.com, or contact her directly at jayflash0@gmail.com.