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Use Customer Lifetime As Your Customer Retention Metric

use-customer-lifetime-as-your-customer-retention-metric

Sometimes it makes sense to use alternative metrics for customer retention.

Repeat Purchase Rate and Lifetime Value are great but are often hard to monitor. They move very slowly for most stores, especially when you have a lot of historic data. You can look at only the recent data but that skews the results in a way that defeats much of their purpose.

An alternative is to look at your customer lifetime. This is a measurement of the number of days between your customer’s first and last orders. You’ll want to grow that as much as possible, a higher value means customers are sticking around longer.

  • Long-term customers who continue to order will increase this.
  • Customers with only one order will cause it to decrease.
  • Defecting customers who never order again will remain where they’re at.

This metric gives you a nice tug-of-war between the different customer groups. It also quickly adjusts to new data (e.g. new order, new customer) which makes it easy to monitor.

It’s not the be-all-end-all metric and is still possible to lead you astray with outliers (e.g. a customer coming back after 5 years). It’s a simple and easy to understand customer behavior metric though which works to its benefit.

Customer lifetime is also very similar to Recency and Frequency from RFM. The difference is RFM is a relative measurement (e.g. how recent have they ordered compared to your other customers) while customer lifetime is an absolute metrics (e.g. 68 days).

If you’d like to see the lifetimes of your own customers, Repeat Customer Insights automatically calculates it for every customer in your Shopify store.

Eric Davis

This originally appeared on the LittleStream Software Blog and is made available here to cast a wider net of discovery.
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