Let’s say you noticed your business wasn’t acquiring as many new customers as you expected, and you want that to change. Well, believe it or not, one of the most sustainable ways to improve your customer acquisition cost is through customer retention. The reality is that the customers you already have are the most profitable, and it’s worth your time and effort to keep them around! Before you get ahead of yourself, let us explain. Obviously, acquisition is important because you can’t have a repeat purchaser if they never make that first purchase. However, the problem is that the average ecommerce store devotes more than 80% of their marketing budget to acquisition, forcing retention to take a back seat.
Source: Adobe Digital Index
Although this method of budgeting is common, it seems odd when you consider that 41% of an ecommerce store’s revenue is created by only 8% of its customers; this 8% is made up of your repeat customers, making it clear that they are extremely profitable!
In this post, we’ll go over the stats that illustrate the power of repeat customers and the profits they represent. By the end, we guarantee you’ll have the proof you need to believe that retention marketing is worth adding to your marketing toolbox.
I know what you’re thinking—this seems pretty obvious. After all, a repeat customer is, by definition, a site visitor that has made at least two purchases. What’s Interesting, however, is that a customer becomes increasingly more likely to buy from you again as their amount of purchases increases. After one purchase, a customer has a 27% chance of returning to your store. While that’s not a horrible return rate, if you can get that customer to come back and make a second and third purchase they have a 54% chance of making another purchase.
You may be wondering how you can inspire your customers to make that second or third purchase, and the trick is being careful with how you entice them. While you may immediately think that giving a discount on the next order is a great way to get a customer to return, you should actually be cautious with this tactic. Discounts are effective at getting a customer back, but they almost always set a negative expectation for your customers that you may not always be able to fulfil.
Customers who receive a discount either start to expect a discount every time or wait until a discount exists to make another purchase. Instead, we recommend using sustainable retention tools like these to encourage customers to come back to your site.
While conversion rates in ecommerce are volatile and vary by industry, most experts estimate that the average conversion rate is somewhere between 1% and 3%.
“A repeat customer has a 60 to 70% chance of converting.”
Paul Farris (Marketing Metrics)
According to Paul Farris’ book Marketing Metrics, a repeat customer has a 60% to 70% chance of converting. This means that the more repeat customers you have, the less you’ll have to spend on conversion tactics like abandoned cart offers.
Adobe conducted a similar study that looked at conversion rates of repeat customers. They found that a customer who has purchased with your store two times before is 9 times more likely to convert than a first-time shopper.
“Repeat customers are 9 times more likely to convert than a first time shopper.”
As you can see, that’s a big spike in conversion rates from just a few extra purchases per customer!
Not only do repeat customers convert more often, they have a higher average order value than first time buyers. This means that your repeat customers are buying more from your store and more often!
The number of previous purchases and how long they’ve been a customer directly impacts how much a repeat customer spends.
Let’s look at the first factor affecting how much a repeat customer spends: the number of previous purchases. A study by RJMetrics found that your loyal top 10% spend 3 times more per order than the lower 90%, and your top 1% of customers spend 5 times more than the lower 99%.
The next important factor is how long a customer has been shopping with you. A study by Bain & Company found that apparel shoppers purchase 67% more per order after shopping with a company for 30 months. They also found similar results in all of the categories they studied. Clearly, repeat customers have a high lifetime value, which contributes to a higher value per order over time.
Most ecommerce merchants make the bulk of their revenue during one particularly busy season. If you sell bathing suits, you’ll see a spike in March or April. If you sell costumes, you will see a spike in October. That being said, the busy time for most merchants is between Black Friday, Cyber Monday, and Christmas.
The surge in sales comes from both increased demand leading to more potential shoppers, and from people purchasing more due to the season. But how much more do consumers buy in the busy season?
According to Adobe, the average shopper spends 17% more per transaction during the holiday rush. While this is great news, your store’s repeat customers actually spend 25% more per transaction during the busy season.
Not only are repeat customers more valuable when shopping, they also provide you with some massive marketing potential. A repeat customer gives your store increased word-of-mouth advertising, which is almost always regarded as the best kind.
Customers refer more people to a brand when they have made more purchases with that store.
The amount of people a customer refers to your site increases with the amount of purchases they have made, according to Bain & Company. Each time a customer makes a purchase they are becoming more comfortable with you and are more willing to make a positive referral. Bain found that after 10 purchases, shoppers refer 50% more people to a store than a one time purchaser. This study demonstrates that repeat customers can actually increase their profitability by attracting more shoppers.
This referral process can be further amplified by encouraging referrals with points as part of a loyalty program (one of the strongest retention tools).
Increasing your store’s profitability starts with the customers you already have. Repeat customers are not only going to spend more at your store more often, but they’ll also help market to new customers making them a powerful customer acquisition tool. Focusing on customer retention is a key step in getting the most out of your repeat customers.
Make your rewards program successful to keep your repeat customers around.
Learn how to retain your customers like the world’s best brands.
5 reasons repeat customers are profitable
1. A repeat customer is more likely to shop with you again and again
2. A repeat customer is easier to sell to
3. Repeat customers spend more on each purchase
4. Repeat customers spend more at key times
5. Repeat customers share your store more
Repeat customers are important
This article was originally published by our friends at Smile.io.
