It’s exciting getting new customers, but the journey doesn’t end as soon as they make a purchase.
In fact, existing customers are the bread and butter for many brands. People who keep coming back to buy again tend to spend more on each order and are more likely to recommend you to their friends and family.
Add to this the sheer amount of competition today and the fact that consumers seek out brands they trust and can be loyal to, and you have a very good argument for increasing customer retention rates. A solid retention strategy can do wonders for your bottom line, too. Increasing retention rates by just 5% can increase profits from anywhere between 25% and 95%.
What is customer retention?
Customer retention is the process of enticing back previous customers to buy from you again. The higher your customer retention is, the more people you have buying from you over and over again. Customers that choose to come back are loyal, spend more, and are your most valuable word-of-mouth marketers.
Measuring your customer retention rates reveals how well your retention tactics are working by tracking and monitoring key metrics.
The Most Important Customer Retention Metrics
1. Customer Retention Rate
The overriding metric you need to track is customer retention rate. This provides you with a percentage of your customers that you’ve managed to retain over a certain period of time.
The higher your retention rate, the higher the chances are that you have a following of loyal customers who happily hand you their money time and time again.
Peel breaks down customer retention rate based on monthly cohorts.
2. Average Number of Orders Per Customer
An order can be made up of one item or several, but the more orders a customer places with you, the more likely they are to be loyal. Consider a customer who, during their lifetime with you, places twelve orders. These orders might be made up of the same products or different items depending on what you sell.
The higher the average number of orders per customer, the more likely they are to be long-term buyers and keep coming back for more.
3. Number of Orders Per Month
The number of orders placed per month by each customer indicates how many times a customer re-visits your website and makes another purchase. Someone who comes back 2-3 times a month to place an order is highly likely going to be a loyal and valued customer.
For example, someone who buys a face cream at the start of the month, then a makeup order mid-month, followed by an order of shower gel towards the end of the month is clearly more loyal to your brand than someone who just makes a one-off purchase. The more orders a customer places with you each month, the more loyal they tend to be.
4. Repurchase Rate
Repurchase rate measures the percentage of customers who have come back to buy from you again. It answers the question: how many of your customers are making subsequent purchases 2, 3, 4, 5, 10 more times? Out of customers who originally purchased in each month, how many made another purchase? And when? It is a cumulative metrics and tells you that by XX month, XX % of customers
For example, if everyone who bought blue slippers on their first purchase came back and purchased any other item, that counts as a repurchase - even if they didn’t buy the same product again.
With Peel, you can see how many customers repurchase based on what products were in their purchase order.
5. Customers Returning Rate
Knowing how many customers return again and again and when they come back can help you identify who your best buyers are and what marketing activities are the most successful in growing their loyalty.
Returning Customers Rate tells you how many customers came back in that first month and placed another order. It is the number of new individual customers in each month who made 1 returning order.
For example, knowing when they return is valuable in structuring your marketing efforts to nudge them to come back and repurchase. Is it because of a special holiday that is pertinent to your brand.
6. Customer Lifetime Value
Tracking how much a customer spends with your brand during their entire lifetime with you indicates how much each potential new shopper is worth. The more times you can win back an existing customer, the more their lifetime value increases.
Ideally, your customer lifetime value should stay consistent or increase, as a decreasing rate means you’re losing customers or are only focusing on one-time buyers.
Peel tracks the average lifetime revenue of your customers.
How to calculate customer lifetime value:
Customer Lifetime revenue takes total revenue, and subtracts, costs, refunds, discounts and divides that by the total number of customers acquired in that period of time.
7. Time Between Purchases
Identifying the time between purchases reveals how long it takes for a shopper to come back. The rate here will vary depending on the kind of products you sell (for example, customers are less likely to buy shoes on a monthly basis, but are very likely to buy diapers or cosmetics every month).
Understanding when customers are likely to come back to buy again can help you level-up your post-purchase campaigns with replenishment emails and product reminders.
Peel tracks the average amount of time that passes before a customer comes back to buy again in the Time Between Purchase Metric & the Days Since First Order metric
Measure Customer Retention for Ongoing Success
Retaining customers should be a high priority for brands of all shapes and sizes. Nurturing a community of returning shoppers leads to a higher average order spend, increased lifetime value, and higher revenue without the effort of acquiring new customers.
Measure your retention efforts using the metrics laid out here to see where your efforts are succeeding and where they could do with improvement.
Peel’s powerful product makes it easy to see how your retention efforts are paying off in one quick glance. Track key metrics like lifetime value, time between orders, return rate, average order value and repeat purchase rate all in one central, easy-to-access tool.