Your approach to ecommerce is wrong! If you are the average ecommerce retailer, you are currently seeing only 8% of your total purchases coming from repeat customers. That means that you are not only allocating under 20% of your marketing budget to customer retention, but you are also hurting your business.
Let me explain why this common approach to ecommerce is wrong.
You Focus Too Much on Acquisition and Not Enough on Retention
Why pay for customers you can’t get to shop again? That is like going out with a bunch of different people and having none of them turn into anything beyond a first date. It is expensive and never turns into a meaningful relationship. The building of a relationship with your customer is known as customer retention, and it can dramatically change your business.
A repeat customer spends more, is more likely to convert on each visit, and is more likely to tell their friends about your brand. The better your relationships are with your customers, the more likely they are to convert to a repeat customer. You can increase your customer retention through many tools, but my personal (slightly biased) favorite is a rewards program.
As an online business matures, you need to invest more and more of your marketing resources to retaining the customers you have already acquired rather than spending money to always bring in new business that only shops once.
You Will Continue to Pay More Each Year for Ads
Online ads are increasing at a rate 5x that of inflation year over year. That means that each year your customer acquisition bill is getting higher and higher. Not only that, but the strategy is also becoming less effective.
Each year online ads are increasing in price at 5x the rate of inflation.
Even though each online retailer is increasing their advertising budget by about 42% per year to try to achieve growth, that increase in spend is only generating about 11% more visits.
In other words, you are paying more and getting less! If you are going to be paying more for each customer every year, you need to be treating each acquired customer as an investment with a retention strategy ready to keep them shopping with you for years to come.
If you don't start to invest in customer retention, eventually your cost per acquisition (CAC) will be too high to make a profit. Get ahead of the ad increases now!
You Will Always Get Beat on Price
If you are not investing in creating a memorable customer experience, you are not going to be able to compete. Not only do customers have access to low prices everyday on Amazon, but they also have access to lower prices at your competitors everyday.
I guarantee that one of your competitors at any given moment has some form of discount or coupon code out there that makes them cheaper than you. If a shopper is looking for a low price, they will find it. Sure you can always match or beat that discount, but soon you are locked into the discounting death spiral.
That short term spike you see from discounting is just you stealing purchases from those around you who have no customer loyalty. Start creating loyal customers of your own instead of going after those that are not loyal to competitors. Remember: acquiring a customer is 7x more expensive than retaining one.
This is why so many large online brands are turning to points and VIP programs to keep customers engaged and shopping at their stores. Sephora, Starbucks, Nordstrom, and more are all great examples of brands that are ahead of the game at getting repeat customers.
Your Sales Will Plateau or Decline
Have you seen a massive spike in your sales only to see it flatten out or, even worse, decline? This is almost always the result of heavy discounting or heavy ad spend. You think you are priming the engine with sales that will sustain long term success, but you just end up having to keep putting more primer in. Using discounts and ads are a great way to drum up sales, but that does not mean much if you spent a lot to get them and can't keep them.
Investing some of that acquisition budget into a retention tool like a loyalty program can keep that sales line from flattening or declining. That is because each of those sales you paid to acquire will now come back multiple times, giving you exponential rather than linear growth from ads.
Grow Sustainably with Customer Retention
Re-allocating even just a small portion of your marketing budget from acquisition to retention will have a big impact on your ecommerce business’ growth. It will allow you to grow exponentially by increasing customer lifetime value and purchase frequency.
Let one of our rewards marketing specialists walk you through how your business could change with a new focus on creating repeat customers by booking some time with one of them.