Tom Simpkins
Content Marketing Manager
Reading Time: 11 minutes
Merchants will often spend plenty of time and money (as well as blood, sweat, and tears) gaining new customers and focus on little else. While it’s important to keep your net wide and try to catch new customers, it’s equally vital, if not more so, to ensure that those who are already customers don’t slip through the netting.
Enter retention marketing—the difference between constantly struggling to attract first-time buyers and comfortably selling to loyal customers.
Many will often reference impressive numbers with retention marketing, like how increasing customer retention by 5% leads to a 25% to 95% boost in profits.
However, retention isn’t as clear-cut as this (honestly pretty old) soundbite. In reality, there are many ways that you can measure the successes and importance of retention marketing.
For example, using cart abandonment messaging within a retention marketing strategy. With this method, it’s possible to see massive returns, like the almost 4,800% lift in revenue per message one of our clients experienced.
Over 80% of merchants agree that customer retention is vital, highlighting it as a focus of their platform. This is why Omnisend focuses on extensive automation options and easy to use and understand email segmentation to reach out to specific customers.
What is Retention Marketing?
During a store’s lifecycle, a merchant will naturally start to look less at acquiring new customers and begin focusing on keeping the customer they have—this is retention marketing.
Retention marketing can involve a number of different marketing strategies. This includes utilizing omnichannel marketing, which involves messaging via email, SMS, and even social media.
Omnisend has seen incredible success rates using omnichannel marketing, seeing purchase rates soar to heights of 287% more success than single-channel marketing. Naturally, the same successes can be achieved within any retention marketing strategy.
Retention marketing strategies will commonly focus on customers that have already purchased from a store. For retention marketing purposes, a customer can be considered a ‘regular customer’ if they make a purchase even once a year, depending on the product lifecycle.
For example, a store that sells big ticket items like jewelry might consider a customer a regular if they buy something expensive once a year, while another that sells candy or snacks might draw the line at a regular customer engaging with the store once every three months.
Due to this, retention marketing can target either first-time or one-off customers as well as those that have purchased from a store multiple times. The key is in the timing-understanding when a typical buying cycle is finished and messaging customers at the right time.
Of course, a store needs to know when it should begin retention marketing and slow down on acquisition.
The split between acquisition vs. retention should reflect how many regular sales a merchant makes per day, week, or month for larger price-point products and services.
For example, when just starting out, a merchant can expect little to no sales, and so should focus on acquiring new customers. It’s when sales become more consistent that retention marketing should become a part of your marketing strategy.
A closer look at when to start using retention marketing can be seen below:
A store consistently gaining new customers and having to find new ones to make up for lost customers will constantly spend time, effort, and money pursuing them. It’s like trying to fill a bucket of water with holes in the bottom—acquisition just means adding more water to the bucket, while retention aims to plug these holes.
With this in mind, it makes sense that retention marketing focuses on the tail-end of the customer journey—namely the post-purchase and advocacy stages. A customer retention plan can involve a variety of different business activities during these stages that aim to keep existing customers actively engaged with a store.
Post-Purchase
The post-purchase stages of the customer journey truly makes or breaks the experience for many merchants. By actively engaging with customers, you can remain at the forefront of their mind.
According to our Ecommerce Statistics Report 2021, emails sent in the post-purchase period can lead to an impressive 18% conversion rate, with a lift of 180% over one-off campaigns.
Advocacy
Key to customer retention, the advocacy stage of the customer journey is arguably the most important, as it distinguishes one-time buyers from repeat customers. At this stage, your customers have bought from you, so ask yourself—what’s next?
The answer is establishing a relationship with the customer. Now is the time to keep them interested, garner some loyalty, and create a customer relationship that’s mutually beneficial.
Why is Retention Marketing Important?
While many will question how to do retention marketing, others may wonder why they should do it. Simply put, merchants who engage with a customer retention plan can enjoy higher conversions, sales, and ultimately, profits.
An easy way to calculate how important retaining customers is to consider how many sales a slight increase in retention can provide. For example, in the diagram below we see a merchant that has 1,000 customers a month. Each customer’s purchase averages out at $10 and before retention marketing is utilized, only 5% of customers returned to make a purchase each month (represented with the grey line).
After successfully engaging with a retention marketing strategy, this percentage increased to 20% (in green), seeing the returning customers increase from 50 to 200 customers. This increase in retention pushes sales from $500 a month to $2,000 a month, which piles up significantly over time.
Of course, retention marketing isn’t just for existing customers, as the strategies that are used for retention can also apply for re-securing lapsed customers. Some of its greatest benefits are how it improves engagement with both existing customers and previous customers.
For example, it helps:
- Keep existing customers: The main goal of retention marketing. By engaging with your customers, both old and new, you can keep your store or brand in their mind and keep yourself relevant to them. The more appealing you consistently make yourself to your customers, the more likely they are to return to you and your products.
- Attract prior customers: Customers may not return without making use of marketing retention strategies, which can mean the difference between a customer coming back for more of your products and never seeing that customer again. With emails alone, merchants can send reactivation messages and see a 43% engagement rate.
- Create new customers: The more word of mouth spreads and the higher customer loyalty you have, the better your store will naturally look. This can be achieved by asking for reviews, as review marketing strategies can become a seamless part of your retention marketing.
- Increase how often customers buy: There are many great ways to boost sales once you’ve successfully retained a customer. After all, acquisition marketing can bring your customers to the store itself, yet it’s retention marketing that keeps them coming back. For example, seeing a sweater online attracts the customer to the website, but they’ll want to add more to their cart when the marketing keeps their attention and showcases other products.
Measuring the Success of Retention Marketing
Getting to the bottom line, you can calculate the benefits of retention marketing by looking at repeat customer rate, purchase frequency, and average order value.
Repeat Customer Rate (RCR)
The proverbial bread and butter of customer retention, RCR measures the percentage of your customers who will make more than one purchase. The higher your RCR, the better your retention marketing strategy is working, which makes it more likely that you’ll see customers coming back time and time again.
You can calculate this rate by considering two distinct pools of customers: repeat customers and unique customers.
- Repeat customers: After determining a specific period of time, such as over several months or a full year, you can see which customers have made purchases more than once.
- Unique customers: This is the amount of individual customers that visited and made purchases within the same specific period of time. This can include repeat customers and one-time buyers.
With Omnisend, you can easily determine which of your customers are repeat and which are unique, thanks to comprehensive reports and insights. Without reports such as these, you can calculate your RCR with a simple formula: the number of repeat customers divided by the number of unique customers.
RCR = # of repeat customers / # of unique customers
Unlike the following metrics, it’s solely retention marketing that aims to improve RCR. By utilizing the likes of post-purchase messaging and omnichannel support, a store can improve their RCR.
Purchase Frequency
Your purchase frequency shows you an average of how often customers are returning to your store. The reason it’s an average is that it takes into account all of your unique customers’ purchases, which can include repeat buyers.
You calculate the purchase frequency by taking the number of unique customers within a set period of time and dividing it by the number of orders placed within that same period of time.
Purchase Frequency = # of unique customers / orders placed
There are many ways to improve a merchant’s purchase frequency. Along with retention marketing, the likes of personalized content and targeted messaging can help improve the frequency in which customers return or decide to buy.
Average Order Value (AOV)
The average order value (AOV) refers to how much a customer spends in your store per transaction.
Just like the RCR and purchase frequency, remain with the same set period of time. Then you need to take your total revenue earned and divide it by the number of orders placed. The AOV is usually what merchants will try to focus on and improve, as it’s the more direct route to increasing revenue.
AOV = $ amount of revenue earned / # of orders
This is where on-site personalized content is usually helpful, such as ‘usually bought with’ sections and recommended products. However, decisions like lowering prices and offering discounts can also lead to higher AOV, as it’ll make buying more per order more attractive to customers. Of course, the ecommerce pricing strategy needs to be solid, so a store doesn’t end up losing money.
Customer Value
With the metrics of a successful retention marketing strategy in mind, you can start to increase customer value. You can focus on one of RCR, purchase frequency, or AOV, or you can work on improving them all. Whatever your choice, you can calculate what your customer value is by considering the metrics of your purchase frequency and your AOV.
To make things simple, take your purchase frequency and times it by your AOV. The calculation helps to give you a metric that you can use to monitor the success of your marketing strategies. As you improve RCR, purchase frequency, and AOV, you’ll see your customer value rise in turn.
Customer Value = Purchase Frequency X Average Order Value
For example, an electronics company wants to increase revenue without increasing budget dedicated to acquiring new customers. They decide to implement omnichannel support, which improves their repeat customer rate (RCR). They then decide to begin offering personalized product recommendations sent to customers that have purchased within 30 days, as well as on-site.
This increases RCR, while also increasing average order value (AOV) with relevant recommendations. Not only is the brand retaining new customers, but they’re shortening the amount of time between purchases, and increasing how much customers spend per purchase.
5 Expert Ideas for Retention Marketing
If you’re looking to create a retention marketing strategy that can provide improved metrics like this, it’s best to look for expert retention tips. There’s no shame in standing on the shoulders of giants, and in some cases, specific strategies may be perfect to apply to your store.
Take a look at the following retention tactics used within successful marketing retention strategies:
1. Use Post-Purchase Messaging
Specifically targeting customers who have made a purchase, whether it’s for the first time or after a few separate purchases, helps to bring them back to the store.
Post-purchase messaging can come in many forms for different purposes, some of which work well for one-time buyers while others are better-catered to regular customers, or whether they only purchase from a store once a year or once a month.
These include promoting recommended products, offering discounts for returning customers, or even essential messages such as confirmation emails. Post-purchasing messages can be used to help improve RCR.
2. Make Use of Gamification
Alluring a customer with gamification can be considerably more effective than traditional attempts. Sometimes, it’s this novel approach that can make the difference between someone reading an email engaging with it, finding a discount, and becoming a customer or simply deleting it.
By adding an unexpected element to the customer experience, one that adds the thrill of winning something.
Gamification makes interaction with emails and websites more fun and engaging. It can come in the form of an interactive scratchcard, a spinning wheel of fortune, or simply a gift box that can open up to reveal a discount code. The difference between simply revealing a discount code and gamification is that there is often an element of chance—not every customer will get the same code or offer.
3. Loyalty programs
Loyalty programs are one of the best ways to keep a customer invested. Rewarding them for shopping with you is a win-win situation, especially if you can make the loyalty program worth their time and money. You can do so by making it easy to use, adding different levels of VIP status, and offering unique bonuses and products exclusively to your loyal customers.
Almost 60% of customers state how they value loyalty programs, with surveys revealing it can be as important as being the second-most desirable feature of a customer experience. However, certain stores should carefully look at their audience when considering loyalty programs, as they might not be as popular for certain industries.
4. Consider Customer Accounts
While customer accounts aren’t a guaranteed way to retain customers, they can be incredibly helpful, time-saving, and engaging for them. By offering the option to create an account with your website or store, a customer can save all of their details, making future purchases much quicker, easier, and convenient.
You can also tie it together with the likes of loyalty programs, earning points for using an account, and elements of post-purchase messaging, like recommended products.
However, not all customers will want to engage with accounts. It can take a while for accounts to be set up and some customers might take issue with accounts for a variety of reasons. These can include too many verification steps, the fear of being overwhelmed with marketing, or simply wishing to keep their online presence neater. Combat this by giving the customer options, like account creation via connecting a social account and updating clear email preferences.
5. Omnichannel Customer Support
Understanding how to get in touch with a merchant can make or break a customer relationship. By always being there to help a customer with omnichannel customer support, no matter what their query, you can set yourself apart as a store that’s always there for the customer.
Your competition may not be able to talk to customers over platforms like social media or offer a live chat function, which is where you can shine in contrast. This is how a merchant can easily improve their RCR, with some considering it campaign-worthy to spread the word about improved customer service.
Wrap Up
As you can see, retention marketing can be incredibly beneficial for an ecommerce business. Different industries and stores can thrive with different approaches, but in general, there’s rarely anything to be lost by focusing on retention marketing.
While it might not be on the forefront of a merchant’s mind early on, customer retention marketing will become more important as a business grows. Customer retention plans should be made with care and an understanding of what to focus on first, but the pay-off can outweigh the costs by a long shot.
After all, you’ve worked hard to attract your customers—why would you want to risk losing them?
Naturally, using the right tools can make the job of retaining your customers much easier. That’s where Omnisend can step in to help and make ecommerce easier.
