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:
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.
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.
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.
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.
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:
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.