Shopify Ecosystem

What Is Ecommerce Retention Rate? (And How To Improve It)

what-is-ecommerce-retention-rate?-(and-how-to-improve-it)

The average ecommerce retention rate is 31%. Learn how to calculate your customer retention rate and find out how to improve this metric here.

Ecommerce businesses pour time and money into attracting prospects and turning them into new customers. But as acquisition costs skyrocket due to increased competition and rising ad prices, attracting new customers isn’t enough — especially if you can’t keep them around.

Today, ecommerce brands must prioritize customer satisfaction and retaining existing customers. If you can’t retain customers, you’ll never get out from under high marketing costs and grow your brand in a sustainable way. Plus, if you can’t offer a customer experience that generates brand loyalty, poor word of mouth will chip away at your brand’s reputation and make it hard to get new customers at all.

Fortunately, more tools and resources than ever exist to help you develop a good customer retention strategy by improving the on-site experience, customer support, and all the other elements of a great customer experience.

Customer experience is important to retain customers across the entire customer journey.

Below, we’ll cover the importance of customer retention, how to calculate your customer retention rate, and share ways to improve your customer retention rate and reduce customer churn.

What is ecommerce retention rate?

Customer retention rate is the percentage of existing customers that continue buying from your brand over a given period of time. 

An illustration of customer retention rate.

If your organization sees many repeat customers and — if applicable — keeps customers subscribed, you’ll end up with a good customer retention rate. However, if your company seldom does business with a customer after the initial order, you have an opportunity to improve your retention rate.

Customer retention rate is the inverse of customer churn rate. Check out our guide on churn if you want to learn more about that side of the coin.

Retention rate for subscription-based businesses

Retention rate is most applicable to businesses that sell subscription-based products or services, like software-as-a-service (SaaS) companies or ecommerce brands that sell subscription boxes.

For these companies, measuring and understanding retention rate is straightforward. As long as a customer has an active subscription, they’re retained. The total number of customers who remain active subscribers each month (compared to the previous month’s number) is the brand’s retention rate.

Retention rate for non-subscription businesses

For customers that don’t sell subscription-based products, retention rate is a bit of a square peg in a round hole. Retention rate becomes more of a proxy to understand customer loyalty and the rate of returning customers, which are a little less concrete. It’s difficult to anticipate a customer’s future purchases because they don’t have a clear subscription status. 

Is a customer retained if they buy a product every week? Month? Quarter? What if they don’t buy from your store for half the year, then re-engage for Black Friday — were they retained, or won back? These questions are why retention rate isn’t a perfect metric for the typical ecommerce business.

For these types of companies, we recommend tracking repeat customer rate as well as other leading indicators for repeat shopping, like customer satisfaction (CSAT) and net promoter score (NPS) rather than customer retention metrics.

Why is customer retention rate an important metric?

Your customer retention rate is a valuable measure that gives you important insight into your ability to sustain customer relationships (and turn them into repeat business). It’s easier and cheaper to keep a customer than it is to go out and find new customers. According to Hubspot, a mere 5% increase in customer retention can increase the company’s revenue by a whopping 25%-95%.

According to Gorgias data, repeat customers make up only 21% of the average brand’s customer base but generate 44% of that brand’s revenue because they shop more often and place higher-value orders.

Repeat customers make up only 21% of the average brand’s customer base but generate 44% of that brand’s revenue

If your strategy over-relies on winning new customers, you’re missing out. Due to high customer acquisition cost and low returns from first-time shoppers, you’ll overspend on low-return customer relationships, taking your ROI. Of course, acquiring customers is important — but their value is only truly realized if you can keep them around. 

First time shoppers have high-acquisition costs but low LTV per customers. Repeat shoppers and loyal customers cost less and generate more revenue.

Customer retention rate calculation

There’s a simple formula for calculating your customer retention rate. It contains three elements:

  • Number of customers at the beginning of a time period
  • Number of customers at the end of the same time period
  • New customers acquired during the given period

Customer retention rate = [(Number of customers at the end of time period – Number of customers acquired during time period) / Number of customers at the beginning of time period] x 100

Customer retention rate example

Company A had 100 customers at the beginning of the year and 80 customers at the end of the year. During the year, they acquired 45 new customers. The customer retention rate calculation for Company A would be as follows:

Customer retention rate = [(80 – 45) / 100] x 100

Customer retention rate = 35%

The average customer retention rate for ecommerce stores

The widely accepted customer retention rate for the ecommerce industry is 31%, according to Omniconvert. Depending on how well they handle their customer base and their effort in building customer loyalty, some companies may enjoy a considerably higher customer retention rate. Those who only gear their resources toward finding and selling first-time customers may have a lower retention rate.

Of course, the most important thing is consistent improvement, regardless of your brand’s current customer retention metrics. Customer retention is an ongoing process, and there’s always room to improve — which will benefit your customer service ROI and your bottom line.

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6 ways to improve ecommerce customer retention rate and reduce churn rate

Ecommerce brands should keep a razor-sharp eye on their ecommerce retention rate and churn rate, just like they need to look at customer lifetime value (CLV) and average order value. These benchmarks are metrics that help measure a business’s health and identify opportunities to benefit the bottom line. You can put actions in place that help you keep current customers with you instead of your competition.

Let’s dive into six tried-and-true customer retention strategies you can use to increase your ecommerce brand’s customer retention rate.

1) Provide a fantastic customer experience

We can’t say enough about the importance of a positive and pleasant user experience. According to a 2019 research study by Oracle and Jeanne Bliss, 43% of customers will stop doing business with a brand over a single bad experience. In addition, 59% of them will tell their friends and family about the negative experience.

Evaluate your customer service program with metrics like resolution time, net promoter score, and customer satisfaction, and work on improving essential elements of customer experience like:

Gorgias's omnichannel customer service platform unifies conversations across all channels, including live chat, social media, email, and more.

For more tips on the essential elements of a great customer service experience, check out our post on customer service best practices.

2) Introduce a clear post-purchase experience

One of the most important moments of the customer life cycle is immediately after their first purchase. Think of the post-purchase email campaign as your onboarding flow for repeat customers. You need to set customer expectations with clear, proactive communication or else they’ll be less likely to return to your store.

Here are some examples of the consequences of poor post-purchase experiences:

  • If a customer places an order and doesn’t get a follow-up email, they start to doubt whether their order went through
  • If a customer doesn’t get an order tracking number after a purchase, they may stress about the shipping time frame
  • If a customer doesn’t get set-up instructions, they may think the product doesn’t work and ask for a return

Pay special attention to the communication a customer receives after their first purchase. A lack of communication is fatal, and the right combination of confirmations and email marketing can quickly get customers interested in buying additional products. If you nail it, you give the customer a clear, easy path to long-term customer loyalty.

A great example of clear, post-purchase emails is Princess Polly, an apparel brand. They give customers simple but visually informative confirmation emails that communicate the status of the customer’s order at a glance:

An example of a post-purchase delivery confirmation email from Princess Polly.

Source: Princess Polly (via Klaviyo)

3) Build a rewarding customer loyalty program

Loyal customers come back to your brand over and over, making them a profitable addition to your business. According to a 2020 survey by Yotpo, 68% of customers will join a loyalty program if one is available. Cultivate your customers into raving fans and increase their purchase frequency by employing a customer rewards marketing strategy.

To create a successful rewards program, consider looking into tools like LoyaltyLion. They help you determine the rewards that repeat customers will get for important customer engagement behaviors like mentioning you on social media (which is great for word-of-mouth exposure), purchasing a new product, or generating referrals. Consider offering freebies, deep discounts, and early access to new product launches. 

Parade, an apparel ecommerce brand, offers its loyal customers (called Parade Friends) free, early-access items. This supports customer engagement and brand loyalty, and usually leads to a wave of user-generated content (UGC) on social media that promote the brand:

An example of a unique loyalty program from Parade.

Source: Parade

If you use Gorgias, you can also integrate with LoyaltyLion to see customer rewards within the helpdesk so you can see which customers are superfans, prioritize their tickets, and offer personalized service.

Learn more about the Gorgias and LoyaltyLion integration.

4) Offer customers discounts and deals

Everyone likes to feel special. Score some big points with your current customer base by offering them exclusive incentives. This could include letting loyalty program members order new products before the general public, offering them member-only discounts, offering free shipping, and sending a free gift with their purchase. These extra touches will increase your customer’s satisfaction and keep them loyal to your brand.

Amazon is a great example of a company that uses deals and discounts to get people to shop on their site. When you sign up for Amazon Prime, you get free shipping, an enormous library of original movies and TV titles, and so many other perks to incentivize you to keep shopping at Amazon.

Of course, this strategy isn’t feasible for small stores running on Shopify, BigCommerce, and other ecommerce platforms. But, if it makes sense for your products, consider replicating the strategy with a Subscribe and Save option. By signing up for automatic repeat purchases, customers get a discount. This is great for customers because they save on the purchase and don’t have to remember to restock. It’s also great for your company: You retain more existing customers, driving revenue.

Here’s an example of how OLIPOP, a beverage brand, advertises their subscribe and save option on product pages:

Offer upsell offers (like Subscribe & Save) on product pages.

Source: OLIPOP

5) Conduct surveys and learn from customer data

Don’t assume you know what your customers want — ask them! Retaining customers takes continuous communication, as their interests and preferences can change over time. It’s necessary to periodically survey them to ensure you’re hitting the mark with your retention efforts. Gather and review customer feedback, looking for trends to use to elevate your buyer’s experience.

These surveys don’t have to be long or time-consuming. A question or two during checkout or a marketing email asking for two minutes of their time is enough to give you valuable intel.

Learn more about gathering customer feedback with CSAT surveys or NPS surveys.

6) Improve your ecommerce store’s marketing with segmentation

Consistently improve and optimize your store to keep it functioning quickly and efficiently. Segment your customers for more personalized, impactful messaging. For ecommerce brands, the best tool around is Klaviyo. Klaviyo helps you segment your customer base and send highly targeted SMS and email marketing campaigns.

Plus, if you use Gorgias, you can integrate with Klaviyo to bring you SMS marketing and support into one tool:

Klaviyo and Gorgias integrate for superior marketing and customer experience.

On top of segmentation, continue making your website as seamless and low-effort as possible. Check your load times for your web pages, measure the success of your calls to action (CTAs), and cut down on the number of required clicks where you can. Remember, the best way to delight customers (and keep them coming back) is a low-effort experience.

7) Utilize cross-selling and upselling strategies

Upselling and cross-selling are the most effective strategies to maximize the lifetime values of repeat customers by driving higher order values. While you never want to be too pushy, you can employ retention marketing strategies to suggest new, exciting products to existing customers to bring them back to your store and spend more.

Check out our guide to ecommerce upselling strategies for:

  • A list of tools to support your upselling efforts
  • Tips to turn customer support interactions into upsell opportunities
  • Tips to proactively reach out to customers as an upsell strategy (which has been shown to lift revenue)
  • Tips to reduce returns and get more exchanges instead, which reduces lost revenue and still gives you a chance to wow customers

Alternatively, learn how Ohh Deer, a stationary brand, partnered with Gorgias to revamp their customer support and upselling strategy and lift quarterly revenue by $12,500.

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Increase your ecommerce retention rate with Gorgias

By focusing on providing a wonderful customer experience at every touch, creating customer loyalty, and cross-selling at the right moments, you can increase your ecommerce company’s retention rate and enjoy more profit from your existing customer base.

Ready to improve your customer service? Gorgias, the helpdesk built exclusively for ecommerce, helps ecommerce businesses enhance, automate, and increase the speed of their customer support, improving customer experience and, by extension, customer retention. Brands that switch to Gorgias see an average of 5% higher gross merchandise volume (GMV). 

We also help you monitor performance with features like our support performance dashboard and live statistics about agent performance. 

Book a demo today to learn how you can increase your customer retention rate with exemplary customer service.

Special thanks to our friends at Gorgias for their insights on this topic.
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