A lot of marketers and business owners are obsessed with customer acquisition.
New customers are sexy. They show that your business is growing and tell the competition that you’re a serious threat.
But you know what gets us hot under the collar? Customer retention.
Making more money from existing customers.
Today, we’re going to show you…
- How to calculate your customer retention rate, and 16 strategies to increase it.
- Case studies to show you how real ecommerce companies have executed these strategies.
- The best Shopify apps to help you increase your store’s customer retention rate.
Table of Content
What is customer retention?
How to calculate your customer retention rate
17 strategies to increase Customer Retention
Final thoughts on customer retention
What is customer retention?
Customer retention is about incentivizing previous customers to continue buying from you.
Whereas customer acquisition is focused on finding new customers, retention is only focused on customers who have bought from your business at least once before.
Improving your customer retention rate is a big deal, because it costs six to seven times more to acquire a new customer than retain a current one.
It’s also more successful – it’s possible to achieve conversion rates of 60-70% with existing customers, but only 5-20% when selling to a new customer.
That means that a 5% increase in retention rate could translate into 25% growth in profits!
And in case you’re still not sold on the value of repeat customers, here’s Alex Schulz, VP of Growth at Facebook.
Retention is the single most important thing for growth.
As a result of the Coronavirus pandemic, more marketers are focussing on customer retention, with more than twice as many CMOs choosing retention goals over acquisition.
How to calculate your customer retention rate
Your customer retention rate is the percentage of customers that bought from you in a set time period (e.g. between 24 and 12 months ago), that have bought from you or are still considered engaged in the last six months.
In this example, your customer retention rate formula might look like this:
It’s important to note that the actual period of time you use for your customer retention formula changes depending on your industry and your sales life cycles.
Some types of businesses, like consumables companies that sell food or supplements, may sell a product to a repeat customer every month, in which case they might adjust the retention rate formula to look at the last two months instead of six.
What is a good customer retention rate?
The average retention rate varies depending on your business. Based on research from Statista, the average customer retention rates by industry are:
But hold on a second, these metrics look way higher than most ecommerce stores we work with…if you were able to turn 84% of buyers into repeat customers then you’d have people banging down the door to learn your secrets!
SurveySparrow pegs a 35% retention rate as a good level for online stores, which fits with what we see at Segment.
But don’t work out your customer retention rate just to compare it against your competitors’…measure it on a monthly or quarterly basis in order to understand whether your marketing efforts are improving customer loyalty and profitability.
17 strategies to increase Customer Retention
We’ve outlined 17 tried-and-tested strategies to increase customer retention that span three main areas, along with stats, case studies and examples.
The three areas we’d suggest your ecommerce brand focuses on are:
- Email marketing
- Customer service
- Loyalty programs
The main reason customers stop buying from companies isn’t poor product quality or because of competitors, it’s lack of customer contact. 67% of lost customers cited this as a reason for churning.
That’s why we’ve outlined 11 email strategies you should be using to increase your customer retention rate and combat customer churn:
- Birthday, anniversary and milestone emails.
- Cart abandonment email series.
- Company newsletter email.
- MVP customer emails.
- Post-purchase email series.
- Product recommendations emails.
- Repeat purchase reminder emails.
- Review and testimonial request emails.
- Rewards, deals and discounts emails.
- Welcome email series.
- Win-back campaigns.
1. Birthday, anniversary and milestone emails
If you want to increase brand loyalty, you can use your Customer Relationship Management (CRM) data to send gifts to your customers for special events like their birthday, the anniversary of the first time they bought from you or when they’ve purchased a certain number of items from your online store.
Birthday emails result in 481% more transactions than promotional emails.
Cosmetics brand Sephora used this birthday email to send customers in-store to receive a gift, saving on shipping costs and increasing the chance that customers would buy extra items on their visit.
Remember the principle of reciprocity, when someone gives us something, it’s human nature to want to give them something back!
2. Cart abandonment email series
When a subscriber adds something to their cart without purchasing, most email platforms have the functionality to send an automated email to remind them to complete their purchase.
You can add additional emails to turn this into a series rather than a one-off email, which increases the chance of success. You can also send these emails when someone has browsed a particular product, even if they haven’t added anything to their cart. Just keep in mind that you don’t want to overwhelm them with emails.
Use a ‘discount ladder’, a series of increasing discounts only available if the previous discount hasn’t been redeemed, to incentivize purchase.
Remember that incentives don’t always have to be monetary – you can use free shipping and gifts as well as other rewards to seal the deal.
The average abandoned cart email generates $5.81 per recipient, so keep this in mind when deciding what rewards you want to offer.
Here’s a great example from skatewear brand Vans. We love that they’ve suggested other similar items that customers could also buy.
3. Company newsletter email
Whether you decide on a weekly or monthly newsletter, one thing’s for sure – you should definitely be sending one! To become a winning brand in today’s competitive marketplace you need to communicate with your customers regularly.
Use emails, social media, SMS, letters and even carrier pigeons if you have to, but make sure you’re talking to your customers on a regular basis! Businesses that talk to their customers more than 10 times per year make 300% more profit on average than those who don’t, so make starting a newsletter a priority if you don’t already have one.
According to Mailchimp, here are the average stats for an ecommerce newsletter:
- 15.68% average open rate.
- 2.01% average click rate.
- 0.27% unsubscribe rate.
Here’s an example from outdoor fashion retailer, REI. We’ve selected this as it shows how online stores can use informational content to support sales.
4. MVP customer emails
Use Customer Lifetime Value (CLV) or RFM analysis to find your most valuable customers and create marketing campaigns to cater for them. You don’t want to lose these customers, so flag them for special customer service check-ins, give them extra attention and bonuses like free shipping.
From our own research here at Tresl, we’ve seen that the top 5% of customers spend ten times more than everyone else, and typically generate a third of total revenue, so it really does pay to take special care of them!
One of the ways you can do this is by segmenting email campaigns by total spend, which can increase open rates by 14.32% and clickthrough rates by more than 100%.
Luisaviaroma used a tiered system based on spend to create a highly-effective loyalty program. They used different rewards to capture their most valuable customers, as seen below.
5. Post-purchase email series
Many online stores don’t send these and are missing out on a lot of revenue. A good post-purchase series lets people know when the product will arrive, what to do if there are any issues, how to get the most out of the product, asks them to share it on social, give them a written or video testimonial and then begins to sell them on a new product.
This last step can be personalized – for example, a post-purchase email series that suggests similar items to the one originally purchased is probably going to perform better than one that just suggests the same item to everyone.
But if you lack the time and resources to offer this level of personalization, you can just suggest your bestsellers.
Don’t forget that post-purchase emails like thank you’s and confirmation receipts can see open rates of 65%, so don’t forget to customize them and add value where you can!
We like this example from Bellroy, that asks for a product review while reminding customers of the reasons why they bought the product in the first place.
6. Product recommendations emails
This is also called ‘cross-selling. This article will give you an in-depth understanding of what cross-sell emails are and how to use them to increase your customer retention, but here’s an overview.
In the context of customer retention, you can use cross-selling to show buyers a similar product to the one they’ve already purchased.
Use customers’ purchase history to send personalized suggestions. For example, a pet store could send everyone who has bought a chew toy an email about their new doggy treat designed to improve dental health.
Cross-selling also has the benefit that it doesn’t rely on discounts or other incentives to purchase because of the relevance of the products being recommended.
Here’s an example of a personalized cross-selling email from Remarkety.
7. Repeat purchase reminder emails
If you sell consumable products that need to be replaced or renewed regularly, you can use repeat purchase reminders to follow up with customers to let them know they’re about to run out and should shop again. For example, if you sell supplements that on average last for 12 weeks, then make sure to send automated reminders 10 weeks after purchase to get them to buy again. These helpful reminders see better conversion rates because they’re useful.
Research has shown that these type of repeat purchase email campaigns have a super high click-to-open rate of 53.6%!
This example from Graze shows personalized copy and images, pulled automatically through email automation.
8. Review and testimonial request emails
Asking customers to review their purchases has a couple of benefits – firstly, it helps to make customers feel part of your business and shows you value their opinion. Secondly, you can use their testimonials as part of a User Generated Content (UGC) strategy as social proof to encourage more sales.
Remember, only 18% of consumers report not reading online reviews, so make gathering testimonials a priority!
This example from The Biscuiteers gives customers helpful suggestions of what to write by showing them what other customers have said.
9. Rewards, deals and discounts emails
We shouldn’t forget that many people sign up to receive emails because they want access to deals, exclusive promotions or pre-sales offers. In fact, 1 in 2 consumers want to receive promotional emails from their most-loved brands once a week.
Reward customers by giving them extra treats than subscribers who haven’t yet bought from you. These emails can help to keep customers engaged and your open rates high, as customers never know when you’ll be including a reward and won’t want to miss out.
This example from Headstart gets subscribers off the mark by rewarding them with points just for joining, and reminds them of the different ways they can earn more.
10. Welcome email series
Set up email automation that automatically sends out a welcome series to your new customers. A good welcome series includes a mix of informational, onboarding and sales messages. This email flow can include details like:
- The team behind the brand.
- Your mission and what you stand for.
- The different channels (e.g. social media, chat, forums etc.) where customers can engage with your company and other customers.
- How to contact you and how your customer service operates.
- What your best-selling products are.
- What new products are in the pipeline.
A welcome email should remind subscribers why they signed up to reduce the risk of unsubscribers or marking your emails as spam.
Welcome series increase the chance customers will not only make a purchase, but understand your wide mission, inspiring loyalty and improving customer retention. And given that welcome email open rates are 42% higher than the average email, you need to say something worth reading!
This example from Allbirds is all about their mission and brand philosophy, and uses the subject line ‘Welcome to the flock’ to enhance the feeling of community.
11. Win-back email campaigns
You should have a campaign set-up to reengage customers that are about to churn and another for those who have already churned. Don’t just resign yourself to losing these customers – 45% of customers that get a win-back email will open your future emails, which gives you the chance to bring them back.
This example from Birchbox uses a free gift worth almost $30 to try and bring someone back to their beauty and cosmetics subscription.
Best Shopify Apps for email marketing
If you’re a Shopify merchant looking to keep more customers using email, then check out these top-rated apps available from the store.
- Automizely Email, Sales Pop Up – ‘Exit Popup, Newsletters, Email Marketing, Free Shipping Bar.’
- Klaviyo – Email, SMS & Forms – ‘Everything you need for ecommerce marketing.’
- Omnisend Email Marketing – ‘Sell more with Email & SMS Marketing Automation.’
- Privy – Pop Ups, Email, & SMS – ‘Exit Popup, Email Marketing, Bars, Upsell, Abandoned Cart.’
- Shopify Email – ‘Email marketing made for commerce.’
86% of those who received a great customer experience were likely to make another purchase from the same company.
And here’s how you increase your customer retention through exceptional customer service:
12. Meet customer expectations
We’re going to talk about the extra things you can do to wow customers in a second, but first things first, make sure you meet their basic expectations before you move on to the fancy stuff!
As Roy Hollister Williams says ‘the first step in exceeding your customers’ expectations is to know those expectations.’
Here’s how you prioritize customer success:
- Aim for clarity in all your communications. Tell customers how long their delivery will take and use email automation and tracking services to keep them updated on their package’s status. Explain how long it typically takes you to reply to a query or complete and the best way to reach you. Meeting customer expectations grows trust and is the secret to creating a strong and loyal customer base. What’s more, research has found that 81% of customers will continue to do business with your brand if they trust it.
- When you make a mistake, fix it. 77% of consumers would make a repeat purchase from a brand that resends lost or damaged items using fast shipping. Be decisive, generous and proactive in your customer service.
- Seek feedback. Use customer feedback surveys to understand what you’re doing well and what you need to improve, and then take action. Here are seven methods you can use to generate customer feedback:
3. Phone calls – be mindful of customers’ time and contact them via email to ask their permission first.
4. Transactional emails – e.g. rate your delivery – use automated emails to gather regular feedback.
5. Net Promoter Score Survey – learn how to implement this here.
6. Suggestion boards – These can take the form of customer requests, public roadmaps or forums. Try aha.io to increase your customer engagement.
7. Social media – two-way conversations are easier now than ever, so make sure you ask for feedback from your followers regularly.
Top Tip – ask your customers for feedback on which new products you should offer. It can be a great way to make them feel part of your company and raise the chances that your new products will be successful. Using this method, it’s likely that 50% of your existing customers will try a new product.
13. Delight your customers with surprises
When we’re surprised, the brains’ pleasure centers release dopamine, which makes us feel good. And customers want to buy from companies that make them feel good!
Here’s an example, so you can see what great customer service looks like in action…
Customer Retention Case Study 1 – Yuppiechef
Yuppiechef’s customer support team sent more than 500,000 handwritten thank you notes to their customers over eight years, one with every new order. They achieved 300% year on year growth. The thank you notes didn’t make them a success, their focus on providing amazing customer service did.
According to Paul Galatis of Yuppiechef:
A massive portion of our visitors come from word of mouth because people share positive stories and love telling others about their happy experiences.
14. Offer a gift with purchase
If you’ve ever opened a package to find an unexpected gift inside then you know how it made you feel…perhaps you even mentioned it to a friend or family member.
Dan Ariely explains that consumers ‘perceive the benefits associated with free products as higher’ than their absolute value.
In a paper for Marketing Science journal, Ariely found that, ‘People appear to act as if zero pricing of a good not only decreases its cost, but also adds to its benefits.’
Research has actually found that many shoppers prefer getting an extra product for free over getting the original product discounted by the same amount.
15. Make changes based on customer complaints
It’s important to note that when you resolve a complaint in your customers’ favor (e.g. offering them a refund or accepting a return that’s out of warranty), 70% of those customers may be willing to buy from you again. That’s customer satisfaction.
Think about the last time you returned something on Amazon. Chances are, the refund was in your bank account before they had even received the product back. That’s because Amazon understands how to deliver a great user experience.
Here’s an interesting fact that will help you weigh up how to respond to a customer complaint – a customer is four times more likely to leave you for a competitor if the problem is service-related rather than price or product-related.
It’s one thing to respond to complaints, but the best businesses learn from them and use helpful feedback to improve their operations and procedures. Start thinking about customer complaints as a way to identify weak areas in your products and service. Keep in mind that most customers who have issues, don’t actually complain. For every customer complaint there are 26 customers who felt unhappy but didn’t give you feedback, which means it’s extra important to take action when you receive it.
Best Shopify Apps to improve your store’s customer service
Here’s a mix of chat, FAQ, helpdesk and tracking apps available on Shopify
- Gorgias ‑ Live Chat & Helpdesk – ‘Gather all your customer service channels in one place.’
- HelpCenter | FAQ & HelpDesk – ‘FAQ page, Help Desk ticketing, Live chat for customer support.’
- Order Delivery Date – ‘Let customers choose their order delivery date or store pickup.’
- Reamaze Live Chat & Helpdesk – ‘Live Chat Customer Service + Chatbots & Helpdesk with FAQ.’
- Tracktor Order Tracking – ‘Real time package tracking and order lookup for your store.’
- Zendesk – ‘Omnichannel customer service and engagement platform.’
A customer loyalty program is an incentive-based rewards scheme that customers can sign up for to receive discounts, coupons, free gifts and exclusive access.
Also called customer retention programs, they can be incredibly effective in increasing customer loyalty and Customer Lifetime Value (CLV).
If you’re not using one yet, here are three reasons you should add a customer loyalty program to your store ASAP:
- Adding a loyalty program can make you more money. One B2B ecommerce store made 665% more in monthly revenue from customers who were part of the scheme.
- 73% of customers are more likely to recommend a business with a good loyalty program.
- 39% of customers enrolled in a loyalty program are prepared to spend more on a product when the same product is available elsewhere for cheaper.
Not totally sold on the power of customer loyalty programs? Let’s take a look at LuisaViaRoma, a luxury fashion brand that created the LVR Privilege loyalty program.
The brand focused on three key elements to improve their customer retention by 59% and add $16m in revenue to their bottom-line.
- Employ a ‘surprise and delight’ strategy in loyalty emails.
- Use exclusivity to create desire by making the loyalty program limited access.
- Optimize results through A/B testing of email collateral and landing pages.
16. Create a loyalty rewards program
When there are so many benefits to adding a loyalty program, why doesn’t every online store offer one? Here are the questions to ask yourself when creating a rewards program:
- What rewards should I offer? First things first, less than 8% of consumers say rewards don’t influence their buying decisions, so we know offering rewards can make a big impact. You can offer points that can be redeemed against your products, free shipping, discounts, prize draws, offer charitable donations (like The Body Shop), early access to new products, badges, exclusive events and many more. 46% of customers would like early access to sales through a loyalty program.
Keep in mind that 29% of customers would like rewards to be more interesting so make sure you think differently and ask your customers what they’d like you to offer – their answers may surprise you! Don’t let this keep you from starting though – you can always begin by offering points and add to your loyalty program later.
- How do I personalize my store’s loyalty program? When personalization is done well, customer satisfaction levels can see a 6.4x uplift. And there’s clearly a big opportunity to improve as less than a quarter of loyalty program members are ‘very satisfied’ in the level of personalization they currently receive.
- How will I attract sign-ups? If you find the right rewards and you communicate the benefits of joining, people will sign up. 52% of customers will join a brand’s loyalty program if they shop with them regularly. But even if you’re a small store, remember that you don’t have to tell other customers how many people are members. If you’re worried that your store is too small to offer a loyalty program, don’t be. Offer one anyway.
- Do loyalty programs actually increase spend or just bring it forward? Some are worried that offering loyalty programs doesn’t actually lead to a higher number of total purchases, it just brings those purchases forward in time. Firstly, 66% of customers change how much they spend to take advantage of loyalty program benefits. Secondly, even if this was the case (which to be clear, all the evidence we’ve seen suggests it’s not), then it improves your cash flow, which puts your business in a better position.
- Aren’t customer loyalty programs hard to do? Yes, if you were to offer one yourself it would take a lot of effort and an ability to code. Luckily there are many apps that make it easy to set up your own loyalty program…check them out below!
Best Shopify Apps for customer loyalty programs
Here’s a selection of the highest-rated loyalty program apps available on Shopify:
- AiTrillion Email + Loyalty – ‘Loyalty Program Points, Email Marketing, Reviews, Web Push.’
- Bold Loyalty Points & Rewards – ‘Flexible loyalty program. Earn points, get unique rewards.’
- Gift Cards & Loyalty Program – ‘Launch a Loyalty Program w/ Referrals, Store Credit & Rewards.’
- Loyalty, Rewards & Referrals – ‘Reward customers, build loyalty and grow referral sales.’
- Loyalty, Wishlist, Reviews UGC – ‘Loyalty program, rewards, referrals, photo reviews, Instagram.’
- Smile: Rewards & Loyalty – ‘Points & referrals. Attract & retain your most loyal customers.’
- Yotpo Loyalty & Rewards – ‘Loyalty, Referrals & Rewards by Yotpo (formerly Swell).’
Final thoughts on customer retention
Today, we’ve covered why you should be concerned with customer retention, how to calculate it and three strategies to increase your customer retention that’ll put you ahead of the competition.
If you want to get to grips with other important ecommerce concepts, then check out our guides below!
Other ecommerce guides
Want to learn how to understand and improve other important metrics and benchmarks for your online store?
Read our in-depth ecommerce guides here:
Thanks for reading!
We hope you enjoyed reading this post and have some long term takeaways to start actioning internally. As always check out the Segments app for easy to use actionable insights to grow your store revenue and don’t forget to follow us on LinkedIn for more #ecommerce tips and tricks!