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Customer Retention: How to 10x the profit of one customer

Learn the basics of customer retention and walk away with some practical tips to increase customer retention and profits today.

Customer Retention for Shopify Merchants

The minute you acquire your first customer, and probably a little bit before that, you should be thinking about how to get your customers to stick around.

After all, getting new customers is more expensive than retaining them. 

The probability of selling to a new customer ranges from 0 to 20% whereas, there’s a 60-70% chance an existing customer will buy from you again.

In this article, we will dive into the topic of customer retention and introduce some techniques that will help you retain customers in the long run.

In this article:

What Is Customer Retention?

Customer retention is the practice of getting your customers to buy from you again. This business discipline includes the practices and procedures that prevent customer loss and maximize recurring revenue. 

These practices generally focus on engaging customers after their first purchase and encouraging them to return. 

With great customer retention techniques, you can form a long-lasting relationship with customers. 

These loyal customers are arguably the most valuable asset to your brand. They are highly likely to tell others about your products (word-of-mouth marketing) and influence others to buy from you.

Why Is Customer Retention Important for Shopify Store Owners?

The main reason you should care about customer retention is that it decreases customer acquisition costs massively.

Converting visitors into buyers is the toughest part of ecommerce, and when you have to do it repeatedly, it can be challenging as well as costly.

According to business.com, bringing in new customers can be 5 to 10 times more expensive than selling your product to an existing customer.

Ryan Howard and Michael Scott from NBC's "The Office" discuss customer retention

Here are some other reasons why customer retention is so important for Shopify store owners:

  • Loyal Customers: Already engaged customers buy 90% more frequently and spend about 60% more per transaction
  • Word of Mouth Marketing: When you retain a customer, they tell about your brand to their friends and family; word of mouth marketing is free yet the strongest mode of marketing
  • High ROI: If you increase customer retention by 5%, the overall revenue of your store can go up by 25-95%.

When to Focus on Customer Retention

The level of effort you pour into customer retention depends on what stage of the store lifecycle you’re in.

Here’s a model provided by Shopify (source) that provides a framework of Acquisition vs. Retention efforts.

Customer retention shouldn’t be your top priority when you’re a brand new store (Just Starting stage), instead focus on bringing in new customers. Your CAC (Customer Acquisition Cost) will be high at this stage, but that’s okay.

The Gaining Traction stage is where you start getting infrequent sales. This is where you should start introducing some customer retention techniques. At this stage, you will see your CAC decrease a little.

In the last three stages, when you’re on the road to becoming an ecommerce giant, divert your focus from getting new customers to retaining existing ones. This will bring down the CAC significantly and increase your bottom line tremendously.

4 Essential Customer Retention Shopify Metrics to Track

1. Repeat Customer Rate

The percentage of customers that have made more than one purchase is called repeat customer rate. 

The metric gives you valuable insights into the future growth and optimization needed for your Shopify store.

How to calculate Repeat Customer Rate:
Number of repeat customers / Number of unique customers = Repeat Customer Rate

Here the number of repeat customers means customers who have bought from you at least twice.

The higher the value, the better your repeat customer rate.

2. Purchase Frequency

Purchase frequency refers to the number of times a customer buys from your store in a given period of time. 

Purchase frequency lets you know what steps to take while marketing to best suit your audience’s buying behavior.

How to calculate Purchase Frequency:
Number of orders / Number of unique customers = Purchase Frequency

Pro Tip: To get the best result, calculate purchase frequency on a yearly basis.

3. Average Order Value (AOV)

Average order value measures the average dollar amount spent every time a customer buys a product from your Shopify store.

How to calculate AOV:
Total Sales / Number of orders = Average order value (AOV)

AOV gives you essential information about customers’ buying habits. It can be calculated for any time period, but we suggest you keep track of AOV monthly.

If you ask us, AOV is a key Shopify metric to increase revenue tremendously. Why so?

Optimizing any other Shopify metric would definitely cost you, but when you work on increasing AOV, it won’t cost you a dime! 

That’s because you can increase AOV by upselling and cross-selling products or offering free shipping (by purchasing X products or orders over $X).  

4. Customer Lifetime Value

Customer lifetime value (CLV) represents how valuable a customer is to your business. 76% of companies worldwide agree that CLV is an important metric to track.

Through CLV, you can calculate how much money one customer spends on your Store in their lifetime. Use some of the metrics above to help you calculate your CLV

How to calculate CLV:
Average Order Value (AOV) x Purchase Frequency

Let’s get down to the needy greedy (that’s nitty gritty, if you’re not a Nacho Libre fan).

Here’s an example to understand CLV better.

Suppose an athlete buys shoes worth $600 from your store two times a year.

He does the same for four years. So the CLV will be:

CLV = $600 X 2 X 4 = $4,800

What’s the difference between CLV (customer lifetime value) and LTV (lifetime value)? CLV is calculated for an individual customer, like the example above. Eventually, you’ll want to calculate the LTV of your store, which is the average lifetime value of all paying customers. Using LTV is essential in building a high-growth ecommerce store. 

For example, if your LTV is averaging $200 per customer, and you’re only paying $50 to acquire customers, then you have a winning recipe! Of course, you’ll have to pay attention to profit margins as well. In this example, you would have to maintain a profit margin of at least 25% to be profitable. ($200 LTV per customer X 25% profit margin = $50 gross sales; - $50 CAC = $0 profit)

4 Strategies to Boost Customer Retention

1. Give Your Customers Top-Notch Support

There are 12 million - 24 million ecommerce stores worldwide, and new stores are being created daily. 

Standing out in such fierce competition is challenging. Here’s where customer service comes into the picture. 

Here are some of the benefits of providing flawless customer service:

  • Loyal Customers: When you give excellent customer service, people tend to buy from you regularly
  • Increased Profits: When customers buy from your frequently, it increases the CLV, AOV, and other vital metrics leading to increased profits
  • Great Reviews: When customers are happy with your brand’s customer care, you can openly ask them for a review

Shopify App recommendation: Improve your Customer Service with Gorgias

Gorgias is an ecommerce help desk that allows your customer service team to manage everything in one place. 

Source: gorgias.com

Shopify stores use Gorgias to decrease ticket response time and increase customer service efficiency.

Features
  • Lets you provide customer service via email, live chat, social media, and many other platforms
  • Has pre-made templates to respond to customer queries in seconds
  • Set automated responses to common questions and decrease response time
  • Monitor your customer service performance in real-time
  • Live chat with visitors and help them with purchases

2. Create a Customer Loyalty program

Customer loyalty programs help get new customers, retain existing customers, and drive profits to your Shopify store.

In 2019, a study by a retail management platform, iVend Retail, revealed that 58.7% of internet users worldwide valued earning rewards and loyalty points the most when shopping.

Let’s see what advantages you get when you launch a customer loyalty program for your Shopify store:

  • Helps build an emotional connection with your customers
  • Brings in repeat customers that have a high ROI
  • Increases customer engagement that strengthens the bond between customers and your brand

Shopify App recommendation: Use Yotpo to reward customers and get more reviews 

Yotpo Loyalty & Referrals helps your Shopify store maximize the customer lifetime value. 

Source: yotpo.com

The app lets you build customized, on-brand loyalty programs for customer retention and adding new customers.

Features
  • Choose from out-of-the-box campaigns through which you can reward customers for a specific action taken
  • Offer rewards, coupons, free shipping, and more to persuade customers to buy from you frequently
  • Build a tier-based loyalty program according to points, spend, or number of purchases
  • Evaluate the success of your loyalty program via Yotpo’s advanced analytics dashboard

3. Extend Special Offers or Discounts to Returning Customers

Offering discounts can be risky, especially when your profit margins are tight. 

But when you give a new customer an offer on their next purchase, that’s amazing!

Think of the discount as an investment to boost the repeat customer rate. The cost of the discount is almost certainly lower than the cost of acquiring a new customer, and you’ll only “pay” the cost of a discount if that customer makes another purchase.

Apart from discounts, you can also try offering store credits or gift cards.

The best way to send a customer an exclusive offer is via email or SMS.

Shopify App recommendation: Use Omnisend to deliver special offers to returning customers 

Omnisend is an email and SMS marketing tool trusted by 70,000+ ecommerce brands. Omnisend’s ease of use gives it an edge over other competitors.

Source: omnisend.com

Features
  • Create professional and stunning email offers via Onmisend’s library of pre-built templates without any coding
  • Has TCPA & GDPR compliant customizable forms to collect contact details of new visitors and send them personalized offers for their next purchase
  • Use an omnichannel approach to retarget customers and persuade them to buy from you again

Shopify App recommendation: Use Govalo to sell gift cards or issue store credit

Govalo is modernizing the digital gifting experience through gift cards, giftable subscriptions, store credit and more. They extend enhanced functionality to Shopify merchants of all sizes, empowering them to create the gift experience their customers are looking for.

Source: govalo.com

Features
  • Customizable gift cards
  • Send directly to recipient and schedule send based on timezone
  • Out-of-stock feature which displays option to purchase gift cards on sold out PDPs
  • Issue and manage store credit

4. Create Customer Accounts 

Whether or not you enable customer accounts probably won’t make or break your Shopify store. As a result, customer accounts are often overlooked and undervalued by Shopify merchants. 

However, customer accounts are an inexpensive and low friction way to increase customer retention and repeat purchases. Customers with accounts will see their address autofill during the checkout, making the order process quick and easy. 

Customers who have created accounts on your store are significantly more likely to return for a purchase than customers who do not have accounts. That makes customer accounts a crucial part of your customer retention strategy.

Customers with accounts will also be able to view their order history and current order status for any purchases they’ve made, which will almost certainly reduce your customer support load as well.

Creating an account may be seen as a big commitment by first-time customers. We recommend making customer accounts optional and inviting customers to create an account after their first purchase.

Shopify App recommendation: Use Customer Fields to build custom registration forms 

Customer Fields lets you collect important customer data via registration forms that you can make in minutes with its drag-and-drop builder.

Customer Fields for Shopify: wholesale sign up, customer tags, and better customer registration forms

The data collected during registration can be used for fulfillment, marketing, or to segment customer groups.

Features
  • Create unique registration forms (B2B, pet registration, product registration, etc.)
  • Collect VAT, customer birthday, pet names, etc. 
  • Save customer data to Shopify metafields, your Shopify admin, or integrate with other apps
  • Require email verification or account approval prior to registration
  • Give customers the power to edit their profile and data

Shopify App recommendation: Use CustomerHub to optimize your customers’ account pages

Source: apps.shopify.com/customerhub

CustomerHub transforms Shopify’s native account page into a hub of valuable data for your customers and offers customers visibility to critical shop and order information. CustomerHub integrates with 43+ other Shopify apps (Yotpo, Smile, Recharge, Customer Fields, etc.) to bring the data that your customer cares most about straight to their account page for easy access.

Features
  • Customers can reorder previously purchased products
  • Customize your account page branding and add a custom account menu using Shopify pages & custom links. 
  • Customers can see recently viewed products, most ordered products, and manage their account data.
  • Integrate with your current Shopify Apps to further enhance your customer account functionality (Rewards, Wishlist, Subscription, Product: Reviews, and more!)

Wrapping Up

When you have a significant amount of sales rolling on your Shopify store, customer retention will be the key to take your store’s revenue to the next level.

Without a proper customer retention strategy, your profits will suffer as customer acquisition costs continue to rise.

But if you have a proper customer retention strategy, you can sell your product to existing customers with almost no acquisition cost!

Follow the tips mentioned above and build a solid customer retention strategy to make your Shopify store even more profitable.

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