Repurchase vs. Retention Rate: How to measure and why these metrics are essential for DTC brands

Customer retention strategy is key for ecommerce brands. Creating a well-rounded customer experience that both attracts new customers and delights existing customers is a delicate balance.

Acquiring customers is expensive, so once you have them, you want to keep them coming back for more purchases. It's essential to measure their impact on your customer lifetime value (LTV) and profitability. Depending on your business, there are two important metrics to look at that give you a view into your customer loyalty: Retention Rate and Repurchase Rate.

These metrics can set you up for creating better benchmarks for customer acquisition as well as churn rate. It's all about engaging your customer base and understanding the various marketing efforts and value propositions that are most important for keeping them coming back.

This article will cover everything you need to know about Customer Retention Rate vs. Repurchase rate, including:

• What is Customer Retention Rate?
• What is a Good Retention Rate?
• What is Customer Repurchase Rate?
• What is a Good Repurchase Rate?
• How to Improve Retention Rate and Repurchase Rate
• How to Segment your Retention Data
  

What is Customer Retention Rate ?

The Customer Retention Rate answers the question: how many of your customers are you retaining over time?

In Peel, the first month is always 100% retention. This matches the amount of customers you acquired that month, so these are considered "retained." After each calendar month, how many customers came back and made yet another purchase? If they came in month 4, Peel considers them not churned in month 1, 2, 3. So, the numbers go up to the left as time goes on if people from that cohort come back and repurchase.

Peel looks at the percentage of customers retained after the number of months. As you look to the right horizontally, you’ll see the retention rate across each month. It is a number that changes as each month goes by because you are still retaining or churning people as time goes on. The percentages go down only when customers stop purchasing in the future.

Note: The higher retention, the stronger the business because it means that more people are coming back and purchasing more. Repeat customers are a sign of high customer satisfaction, which is something you should always strive for with your ecommerce business.Check out Peel’s demo to see the Retention Rate metric in action. 

Check out Peel's demo to see the Retention Rate metric in action.

What is a Good Retention Rate?

The average customer retention rate across ecommerce businesses lands somewhere around 30%. Most would consider this a good retention rate, and if you're experiencing anything above 30%, you can consider that a high retention rate for your business.

This isn't a hard rule, but more of a rule of thumb that you can use to benchmark how many of your current customers you should aim to retain. In the long run, the most important thing is that you are seeing growth from month to month in your retention rate.

It can cost up to 5x more to attract new customers compared to retaining customers, so you'll see a major difference in your bottom line if you can improve your retention.

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What is Customer Repurchase Rate?

Customer Repurchase Rate tells you how many of your customers who originally purchased in each month are coming back for another purchase and when. Ever wonder how many of your customers are making subsequent purchases 2, 3, 4, 5, 10 more times?

Repurchase rate will show you the number or the percentage of customers, per cohort, who made a subsequent purchase, and after which month. The metric is cumulative, so the percentage only increases, which you can see month over month. As time goes on, the repurchase rate of the later months(the right-most columns) should increase or plateau as customers of each cohort have had more time to make new purchases.

In the example below, 1.87% of your customers from the May 2020 cohort come back and purchased again within the first month. You can toggle to see what the repurchase rate is for 3+, 4+, 5+ repurchases.

There is something that you are doing that is enticing 148 people from the May 2020 cohort to come and purchase again in the month of May, and then a month later in June - 3054 people have come back since their original purchase and purchased again - 38.64%.

Are you sending follow up emails/sms to encourage a repurchase?

Does your product lend itself to multiple purchases during a specific time window?

If you create experiments and test the following month to try to improve those numbers, you can then see how those experiments fared. As you can see for the June 2020 cohort, you have a 41.67% repurchase rate by the 2nd month, which is higher than your May 2020 cohort and in subsequent cohorts. Why is that? Did you try something different?

Check out Peel’s demo to see the Repurchase metric in action.

What is a Good Repurchase Rate?

There are many factors that can affect your repurchase rate. Namely, if you have a replenishable product that your customers use/consume and need to repurchase on an expected schedule, you'll have a higher expected repurchase rate (depending on the time frame for expected replenishment).

Variables aside, ecommerce industry experts suggest that a good repurchase rate lands between 20-40%, which makes for a healthy business. Again, this is a rule of thumb to help you set benchmarks. The most important thing is that you experience growth. Many times, the number of new customers you attract with your acquisition strategy can have a major impact on your repurchase rate going forward, especially if you have a large influx of newly-acquired customers based on a new acquisition strategy.

It's important to take these factors into account for a given period of time and adjust your benchmarks and KPIs accordingly.

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How to Improve Retention Rate and Repurchase Rate

Knowing which cohorts buy your products frequently and/or have a better retention rate is the key to defining your retention marketing plan while detecting weak elements. Thinking about what you can do to increase that repurchase rate and improve retention are the experiments that you should try often to see the numbers on these metrics change.

Here are 8 ideas for increasing your retention rate and repurchase rate:

1. Personalized outreach - Email and SMS are some of the best ways to directly communicate with your customers. Addressing your customers by first name in your automated messages only requires very simple tagging and is a great way to get your customers to open your messages and engage. From there, if you hit them with relevant product suggestions or promotions that resonate with them based on their purchase history and customer behavior, you've got a recipe for success. Many brands are experimenting with direct engagement in comments and direct messages on social media, which is yet another avenue for personalized messaging that will make your customer feel appreciated, boosting customer loyalty and retention.
2. Customer Service - Excellence in customer service is one of the most critical post-purchase elements to any successful ecommerce brand. Making sure your customers are supported in any return/exchange issues, technical issues with products, or other needs is huge for retaining customers. In fact, the customer experience is critical for ecommerce brands. Zendesk found that up to half of consumers report switching to a competitor after just one bad experience with a brand. Customer service isn't exclusively a post-purchase service anymore. How often have you had a chatbot pop up on a website to check on you while you shop on a site? It's almost ubiquitous now. Making sure customers are taken care of before, during, and after their purchase is one of the most important retention strategies around.
3. Loyalty Programs - Speaking of customer loyalty, there's nothing like a good loyalty program to reward your best customers. Providing special pricing, promotional items, or other incentives for loyal customers is a great way to improve repurchase rate. When customers feel like they are getting extra benefits from purchasing more and frequently, you will end up with higher repurchase numbers and oftentimes, higher average order value (AOV).
   
4. Welcome Campaigns - One of the biggest hills to climb in the competitive ecommerce landscape is getting newly acquired customers - or first-time purchasers - to come back and make another purchase. Welcome campaigns are emails that go out post-purchase to welcome your new customer to your brand. These emails can do things like give background about your brand and your mission or other storytelling aspects based on the product the customer purchased. Most importantly though, a great welcome campaigns makes the customer feel important and valued by offering them either a discount on their next purchase or some other benefit for coming back and making another purchase (usually within a pre-defined time period to create a sense of urgency). This is a great means of boosting both retention rate and repurchase rate.
5. Personal Gestures - This falls in the category of email or SMS outreach but with a special purpose: boosting customer loyalty. On customers' anniversaries with your brand (from the first time they purchased) or other important events like birthdays, it's great to send out a personalized message that acknowledges the event and gives them a special discount code or other benefit. Customer anniversaries are an especially great way to honor their lifecycle with your brand; if customers stick around and make purchases with you for a year, you should reward them with a special promotion just for them. This is a great strategy for both retention rate and repurchase rate!
6. Feedback - Getting customer feedback is one of the best ways to know exactly where your brand experience is triumphing, and other areas where you might need to pick up the lack. Your most loyal customers are the ones who care to provide you zero-party data via post-purchase surveys. Feedback directly from the mouths of your customers is a treasure trove of ideas for brand improvement and a better user experience.
7. Informative Website Content - Content-rich landing pages and product pages are essential. You want to have visuals that capture the true essence of your product, videos that help expand upon the value or use cases of the product, and on-page copy that gets right to the core details of your product. Misleading or incomplete content, especially on product pages, can lead to a higher return rate. More returns means less trust in your brand - especially for first-time customers. You want your landing pages to elevate your product not confuse or mislead your customers!
8. Subscription Model - One of the best ways to guarantee a healthy repurchase rate and retention rate is a subscription-based business model. When you can provide your product or services to customers on a pre-determined schedule, that they are automatically billed for regularly, you have built-in retention. This is the best way to guarantee monthly recurring revenue (MRR) for your company. Many brands spend a great deal of their marketing dollars on converting one-time purchasers to subscribers because this is one of the best ways to guarantee that customers come back and improves your overall customer lifetime value (CLV).

Segment Your Retention Data

Like all of Peel’s metrics you can segment the repurchase rate or retention rate cohort metrics by over 20 segment values - products, vendors, SKU’s, discount codes, locations, non subscriber or subscriber, etc. Doing this can help you determine the success of using a specific discount on a campaign, or whether a specific product in your offering initiates better loyalty and repurchase. Thinking about the segment values of your business and looking at the analysis can help you better plan for growth opportunities.

For example:

Does a vendor that we promoted in an email campaign have a better repurchase rate in subsequent months for that cohort?

Does an initial purchase of a product have a stronger retention and/or repurchase rate then other products - is then the one to lead all first purchase promotions with?

Knowing the ways to look at your data through the lens of your segment values can help you use your segment values to your advantage through different applications so you can measure growth.