How businesses can grow & sustain improved customer retention
JP Arnaud-Marquez
·December 14, 2023
As most business owners know, the fastest path to profitability isn’t constantly generating new business – it’s generating “stickiness” from the customers that you already have.
Building a loyal, long-term customer base will help you increase your lifetime customer revenue, decrease acquisition costs, and increase word-of-mouth referrals, helping you effortlessly and organically generate new business thanks to your brand advocates.
Let’s look at some key strategies to increase your customer retention rate, and why it’s so important.
What is customer retention?
Your customer retention rate is defined by the percentage of shoppers who continue making purchases from your business over a set period of time.
If your ecommerce business is subscription-based, your customer retention rate is easy to calculate: It refers to the percent of customers who have active memberships, compared to the percent who’ve canceled in the given period of time.
For other businesses, your customer retention metrics may be based on purchase rate over a period of time such as 90 days, or even a year. If a shopper has not made a purchase within the period of time that you’ve defined, that’s referred to as “customer churn” in industry terms. In other words, you’ve lost the customer and aren’t likely to see them come back.
Customer retention rate is a key metric of success for many ecommerce businesses. A high customer retention rate signifies customer loyalty, and points to a higher customer lifetime value. To improve your customer retention rate, you should focus on boosting customer satisfaction and providing incentives to your current customers to keep them engaged with your brand.
Why focus on customer retention over customer acquisition?
If your number of repeat customers is low, that means you’re constantly marketing to replace customers that you’ve lost — making it that much harder to build your customer base.
Additionally, acquiring a new customer is anywhere from 5 to 25 times more expensive than keeping an existing customer. To convert a new customer, you’ll likely need to invest heavily in customer acquisition strategies such as digital ad campaigns, and offer substantial discounts to get them in the door.
When you have an active customer base, you can affordably and easily reach them through your owned channels, such as your email list, a branded app, and SMS messaging. You can use a loyalty program to provide small incentives that keep them coming back, without breaking the bank. And when you have a network of satisfied customers, they’re far more likely to help you grow your brand through word-of-mouth marketing — at no cost to you.
While growth in general is important for any ecommerce business, growing your base of repeat customers and lowering your churn rate is critical for building a sustainable company that will last for the long haul.
Here are six ways to boost your customer retention rate:
1. Deliver personalized offers to your customers
Want to drive higher customer engagement? Then don’t send your shoppers generic email blasts that aren’t relevant to them. The more you can personalize your content and incentives, the more likely your current customers will be to make another purchase. By using a marketing automation platform that collects customer behavioral and purchase data, you’ll be able to use intel on each customer to strike when the iron is hot with the right offer, helping you build stronger customer relationships.
For instance, if a customer who made a purchase last month recently visited your website and clicked on a few pairs of shoes, but didn’t make another purchase, you can follow up by sending them a special promotional offer, with curated shoe recommendations that they might like.
2. Build a customer loyalty program
Keep customers from jumping ship to competitors by rewarding them for repeat purchases. It’s easier than ever to start a customer loyalty or VIP program, which can track each customer’s online and offline purchases with your brand and award them with “points” that can be used for discounts or promotional perks.
Beyond buying products, you can reward customers for actions that demonstrate engagement with your brand, such as sharing your content on social media, forwarding a coupon to a friend, or logging into your app every day. By using your loyalty program to encourage customers to build a relationship with your brand, you can create a connection that’s more than transactional.
Look at Starbucks’ customer loyalty program as a model of what’s possible: The brand has nearly 31 million active Rewards member customers, who are responsible for 57% of the company’s U.S.-based revenue. Starbucks can use customers’ purchasing history to offer special incentives based on their favorite drinks or orders for reaching certain “star” levels, keeping them engaged and driving a higher customer lifetime value.
3. Create a community around your brand
There are so many ways to build community these days, including within your app or website, on social media, and even IRL.
Look for opportunities to create a place for your customers to come together: For a clothing brand, that might mean encouraging your followers to showcase their looks with your products and tag your brand on Instagram; for a fitness video company, it might mean building a Facebook Group and encouraging fans to ask health and fitness questions, and share videos of them completing a daily workout.
Or, you might even host live events around the country, such as free live yoga classes sponsored by your yoga apparel company. Building a community around your brand can help you strengthen your customer relationships and help customers identify more strongly with your brand.
Make sure that your community moderators or social media managers create a strategy for your community that encourages polite, friendly discussion that showcases all the ways that your products can be used. The community shouldn’t push sales, but it should provide helpful guidance that encourages members to learn more about the ways your brand can help them meet their goals. You can also encourage peer interaction, giving your most loyal customers the tools to evangelize for your brand and discuss how to use their favorite products.
4. Deliver best-in-class customer support
Make sure that if a customer has a question, they can find the answer immediately – and not have to play email or phone tag for days to get their issue resolved.
In order to scale your customer support, consider using AI-enabled chatbots, which can recommend commonly searched for resources, and use natural language processing to identify the user’s search term and provide potential answers and links. Chatbots can reduce the number of support tickets that your customers open, and can often help them find the answer to their question quickly, with no need for outside support. In cases where the chatbot isn’t able to solve the problem, the customer can be routed to the right support department for immediate assistance.
Using automation to enhance your customer support makes it easier for customers to solve their own problems, while also getting the benefit of high-quality, specialized assistance when they need it. And, if a customer has a complaint, make sure that your agents have the power to make it right – providing them with a free replacement product or store credit can go a long way towards preserving a customer relationship you might otherwise lose.
5. Pay attention to your data
In order to see how well your existing customers are engaging with your brand, you can ask them directly how they feel about you. Using customer surveys (including the one-question Net Promoter Score) can help you check the pulse on your customers’ experience with your brand, giving you better indicators to understand whether they’re likely to shop with you again.
If their customer feedback is neutral or negative, it’s a great opportunity to follow up with them directly, offering personalized customer support or incentives that will win them over. If they offer positive feedback, you can offer them rewards or recognition for their loyalty, and encourage them to promote your brand to their friends and family through word-of-mouth marketing incentives.
It’s also important to track seasonal retention data that shows your customers’ purchase frequency over time, and use effective customer retention strategies to “win back” shoppers who you are at risk of losing. For instance, if a shopper used to make purchases an average of once every three months, but their last purchase was six months ago, you can offer them a promotional coupon for a large discount off any item of their choice to encourage them to come back.
6. Optimize for exchanges over refunds
There’s one key avenue for retention marketing that you might be neglecting entirely: during the post-purchase experience.
We all know purchases don’t always work out, especially when they’re made online – sometimes they don’t fit, or the color doesn’t match the image, or the customer just didn’t love it, for whatever reason. But don’t overlook the impact of returns on retention.
Anywhere up to 40% of purchases may end in a return, so it’s essential to put a great post-purchase experience in place for those customers to ensure that they’ll try out other products from your brand. If you don’t put a smooth process in place to help them find the right replacement, you’ll risk losing that customer altogether.
To do this efficiently, consider implementing a returns management solution like Loop, so that customers can easily initiate return requests via a self-service platform, rather than contacting customer support. Customers can use an online dashboard on their desktop or mobile device to see which items are eligible for a return, and then instantly receive a printable return label or a QR code that they can scan at a drop-off location for simple, packaging-free returns.
When customers request a return, your platform can ask them why they’re returning an item, and automatically generate recommendations for replacement options based on their response. For instance, if a pair of shoes was too small, they can easily exchange it for the next size up. Loop makes it a painless process to exchange one item for another, even if it’s different from the original item.
In situations where the customer is requesting a refund, you can even provide an incentive for choosing an exchange by offering them bonus store credit, which they can use on any item(s) in your store.
That helps you preserve a customer relationship that might have otherwise been gone for good – another important step in boosting your customer loyalty and customer retention rates. You’ll also be able to retain more revenue from each return, that you would have otherwise lost to a refund.
By putting these tips into practice, you’ll be able to keep your existing customers engaged, leading to referrals that will grow your customer base effortlessly and sustainably.
Want to learn how Loop can help you boost your customer retention rate? Sign up for a demo.
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With Loop, your brand can offer everything from refunds to direct exchanges to shopper incentives and more. Even better? These exchanges build your business.