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In ecommerce, companies are battling for attention, customers, and loyalty. Getting customers to come back and make repeat purchases is one of the biggest challenges. But if accomplished, it can make the difference between a successful business and one that treads water. As ecommerce companies navigate the online business landscape and try to grow their customer base, they typically adopt two broad strategic approaches. Marketing efforts may prioritize one or cater to both.
Customer acquisition is usually the primary focus of online businesses, and particularly new ones, for obvious reasons. You need to build up your brand and generate interest before anything else.
However, even established ecommerce businesses tend to focus more on customer acquisition. So while it’s always good to get new interest in your products, these companies might be neglecting strategy number two.
Customer retention is a vital element of ecommerce marketing, yet it tends to get less attention than acquisition, even in established companies. Most likely because extensive campaigns and brand initiatives are based on reaching new markets, and it’s human nature to want to achieve more and grow your business. However, customer acquisition is costly — around five times more than customer retention on average.
Most companies can do more to encourage repeat customers and repeat purchases for much less money and time. Loyal customers come with added benefits as well, like the fact that they are more likely to forgive mistakes and serve as excellent referral sources for your company. The value of a dedicated customer continues to multiply over time, beyond their own customer lifetime value (CLV).
The repeat purchase rate is the first place to start when you decide to focus more time and energy on existing customers. We will cover every aspect you need to know in this article.
The repeat purchase rate, sometimes referred to as the repeat customer rate, is a metric that calculates the ratio of repeat customers to the overall customer base. In other words, of all the customers you have, what percentage of those are repeat customers?
Generally, a repeat customer has made more than one purchase, in other words, two or more purchases. However, some companies prefer to set this bar a little higher and raise that number to increase customer retention goals.
Online businesses can use the repeat purchase rate in conjunction with other metrics to indicate where to focus efforts. That being said, seeing the repeat purchase rate on its own can be a powerful indicator of how effective your retention strategies are.
This metric is essential because it tells you how poorly or successfully your customer retention strategies are performing. Why is it important to encourage repeat purchases and retain customers?
As mentioned, acquisition marketing is costly; it is also time-consuming. Identifying and converting new customers often requires elaborate marketing and sales funnels. While they can be highly effective, many time- and cash-constrained ecommerce businesses may find the development of the funnels and the associated technology to be out of reach financially. Often, they become too expensive and time-consuming to perform regularly.
Customer retention, on the other hand, requires less of an investment. Because you already have a direct channel to your customer, all you need to do is get your value proposition and messaging right to get them back for more purchases. If you have the budget for retargeting ads, they are highly focused and typically prove to be a better financial investment than general advertising.
You spend a lot of time and money acquiring new customers, yet their return rate is often less than 20%. Repeat customers, however, become more profitable over time, and their rate of return steadily increases with each additional purchase. In other words, they’re like a gift that keeps on giving to ecommerce business owners. Return customers also tend to extend their value through referrals and gifting, broadening your company’s audience and getting your products in their hands.
New customers are not easy to convince; hence all the time and money spent. Since they have probably never heard of you, your messages have to compete with thousands of others, making even the first stage of the sales process difficult. Repeat customers, however, have been shown to react more favorably to advertising campaigns from companies they have purchased from before. The same goes for promotional initiatives, making repeat customers much easier to sell to.
Regular customers are also much more receptive to cross-selling and up-selling techniques at the check-out phase. Ecommerce businesses understand the importance and profitability of these sales techniques, which don’t work as well with brand new customers.
Cart abandonment is also much lower with repeat customers. Every online business owner knows how frustrating it is to watch abandoned carts pile up. There is an entire section of marketing devoted just to remedying this situation, which tells you how prevalent and time-consuming the issue can become. Loyal customers are far less likely to leave you behind. And even if they do, they follow through with purchases more often than new shoppers do.
Online businesses must make an important distinction between the repeat purchase rate and the customer retention rate. As mentioned, the repeat purchase rate measures the ratio of customers who made more than one purchase over a set period compared to your overall customer base, giving you an idea of how many repeat customers you have.
The retention rate looks at how many existing customers purchased during a set period. The difference is that the retention rate does not consider new customers that came back for more. With retention rate, the customers that are calculated had to already exist as customers before the period started — existing customers who remained loyal.
While retention rate is an excellent metric to gauge regular customers’ loyalty and determine how effective your retention campaign is over time, the repeat purchase rate encompasses a broader swath of customers. It is the metric that businesses want to use to measure not only existing customers but also new customers as well. The repeat purchase rate can help determine whether or not a retention campaign is necessary.
The repeat purchase rate is a straightforward equation that requires two figures:
The number of customers who have completed two or more purchases during a given time frame
The total number of customers who bought from your company in the same period
The first number is divided by the second number and multiplied by 100 to express it as a percentage. The calculation is:
Example: During 2022, you had 2000 customers in total. Of those customers, you had 650 who made two or more purchases. Your repeat purchase rate would therefore be:
(650 / 2000) x 100 = 32.5%
Generally, a repeat purchase rate above 30% is considered acceptable, and anything below 20% is regarded as a problem. However, this depends on the product category and the market norms. This is a critical percentage to monitor continually to ensure it doesn’t deviate too much in the wrong direction. The repeat purchase rate can alert you to the need for a retention strategy and show you how the plan is performing.
You now understand the repeat purchase rate, why it’s essential, and how beneficial a customer retention strategy can be. But how do you increase your retention rate?
The most effective customer retention strategy is to create the ultimate customer experience from beginning to end — from the first moment a customer finds you to the purchase, support, and everything in between. The process needs to be pleasant, rewarding, enjoyable, and completely smooth.
Remember that the customer experience doesn’t end at the purchase. This is just the beginning of your journey to building strong customer loyalty and an impressive repeat purchase rate. Follow up with your customers to ensure their satisfaction with the product and the process. And track their responses since this data will be used to help refine your sales and marketing strategies. Any issues that the customer has should be addressed immediately. If managed successfully, a slightly dissatisfied customer may be convinced to give your company another chance, allowing you to turn them into a delighted repeat customer.
Every ecommerce brand needs to maintain communication as part of the post-sales service. Online businesses must employ multi-platform customer communication strategies and omnichannel marketing to keep their brands top-of-mind for consumers. Email marketing automation goes a long way in building healthy customer communication and trust. Automation makes it easy to nurture existing customers without constant effort from your marketing team. Retargeting ads are also vital for staying in front of customers across the internet. Use retargeting to tempt your customers with enticing offers that fit their interests and priorities. This ongoing connection will help ensure that they return to your store when they are ready to buy again.
Last updated on March 22nd, 2022.