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 customer acquisition cost has increased from $9 in 2013 to $29 in 2022, a 222% increase.
Although acquisition is an essential first step in the customer journey, prioritizing it seems odd when you consider your revenue distribution. According to data from Smile.io’s expansive network of small businesses, 41% of an ecommerce store’s revenue is created by only 8% of its customers, and 35% is generated by your top 5% of customers. This 5% is made up of your most loyal 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. These stats are based on Smile Rewards’ all-time numbers from a sample of over 1.1 billion shoppers and 250 thousand ecommerce brands. By the end, we guarantee you’ll have the proof you need to believe that retention marketing is worth adding to your marketing toolbox.
5 reasons repeat customers are profitable
1. A repeat customer is more likely to shop with you again and again
We 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 49% and 62% chance of making another purchase, respectively.
You may be wondering how you can inspire your customers to make that second or third purchase, and the trick is to be 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 an expectation for your customers that you may not always be able to fulfill.
“We offer a first order sign-up discount on our website and prior to having the reward scheme found the same customer would use several email addresses to claim a first order discount. Since starting the reward scheme we have seen a fall in this customer behavior.”
– Sophie Coleman, Co-Director of Oatopia
Customers who receive a discount either start to expect a discount every time, wait until a discount exists to make another purchase, or use hacks like the one above to cash in extra discounts. Instead, we recommend using sustainable retention tools like loyalty programs or personalization to encourage customers to come back to your site.
2. A repeat customer is easier to sell to
While conversion rates in ecommerce are extremely volatile and vary by industry, most experts estimate that the average conversion rate is somewhere between 1% and 3%.
“Smile loyalty program participants have a repeat purchase rate improvement of 72% vs non-program participants”.
– Smile.io data
One of the most important retention metrics is your repeat purchase rate or the percentage of your current customer base that has purchased at least a second time within a year. When a customer joins your loyalty program, they are showing intention to revisit your store and become a repeat customer.
Similarly, with repeat customers or loyalty program members, you’ll have to put less effort into your marketing because they will be part of your database already. This way you can send them automated email campaigns and spend less on conversion tactics like abandoned cart offers.
“Shoppers who use Smile reward coupons have 23% less time between their first and second purchases.”
– Smile.io data
As you can see, customers who join your loyalty program save you both time and money on marketing and conversion efforts.
3. Repeat customers spend more on each purchase
Not only do repeat customers convert more often, but they also 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. Smile.io data reveals that on average, the top 10% of customers spend 2 times more per order than the lower 90%, and the top 1% of customers spend 2.5 times more than the lower 99%.
The next important factor is how long a customer has been shopping with you. Our research indicates that the longer a customer shops with your brand, the higher their average order value will be for most industries. For example, beauty and cosmetics shoppers purchase 30% more per order after shopping with a company for 6 months and 45% more per order after 36 months.
As you can see above, there are similar results for most categories studied. Clearly, repeat customers have a high lifetime value, which contributes to a higher value per order over time.
4. Repeat customers spend more at key times
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?
In the holiday shopping period of November and December 2022, 38.4% of all customers with Smile.io merchants were repeat customers, placing at least their second order with the brand. This means that Black Friday Cyber Monday is not only a great time to acquire customers, but it’s also the perfect season to appeal to your repeat customers.
5. User-generated content from repeat customers is profitable
Not only are repeat customers more valuable when shopping, but they also provide you with some massive marketing potential. A repeat customer gives your store increased word-of-mouth advertising through earned user-generated content, which is almost always regarded as the best kind.
In today’s digital age, you’d be hard-pressed to find a brand that isn’t leveraging user-generated content. This can come in social media posts, video content, online reviews, or anything else a customer creates. The reason? UGC is exceptionally profitable.
Brands that incorporated UGC into their websites see an 18% increase in revenue.
– Annex Cloud Research
With consumers ranking UGC as the most trustworthy content type in 2023, it is a great way to build authentic relationships with your consumers. One way to leverage UGC is by rewarding customers with loyalty points for leaving reviews on your website. You can even offer bonus points for photo or video reviews since 90% of consumers stated that videos influence their purchasing decisions.
37% of consumers only leave positive reviews.
– Brightlocal, 2023 Review Study
With 37% of consumers only leaving reviews for positive experiences and only 7% leaving negative reviews, you can encourage your repeat customers to leave positive reviews. If a customer was satisfied enough to make a repeat purchase, they’ve begun building true loyalty with your brand. These are the perfect customers to ask for reviews given the large upside profit potential of positive UGC.
Repeat customers are important
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.
Editor’s Note: This post was originally published April 27, 2015 and was updated for accuracy and comprehensiveness on April 6, 2023.
Increase your repeat customer rate with a loyalty program.
Launch a point, referral, or VIP program in minutes.