Whether you just started an ecommerce store or have been in business for a while, you’ve probably heard that ad space is getting more competitive and expensive year over year. While I’d love to reassure you that’s not the case, the reality is that paid acquisition is no longer a winning strategy. It takes more than acquisition alone to grow your business sustainably, and without the ability to engage and retain customers over time your business is bound to flatline.
That’s why customer retention is so incredibly important. Knowing what it is and why it’s important can mean the difference between your brand’s success or decline, making it one of the most powerful terms you’ll ever learn as an ecommerce merchant. In a nutshell, “customer retention” describes your ability to reduce customer churn and improve your average customer lifetime value.
In other words, it’s how you keep the customers you’ve already got around longer.
However, customer retention doesn’t happen overnight. This is why many merchants don’t believe in customer retention. While acquisition is easy to see as an increase in revenue, the type of customer engagement retention relies on is not quite so straightforward. When the needle doesn’t visibly move within the first few days, it’s easy to assume it doesn’t work for your business and fall back into an acquisition-focused mindset.
Luckily, that’s not true. Based on our experience working with tens of thousands of merchants all over the world, we here at Smile have seen that you can start seeing results from a customer retention strategy within six months. Considering how long you’re planning on running your business, that isn’t very much time! Even better, every small change you make sets the stage for massive improvements over time.
Retention improves exponentially over time
Since customer retention is a long-term benefit and not a quick fix, the best way to understand its value is to forecast retention-driven revenue. This is an idea we’ve talked about before with our friends at Shopify, but it's worth revisiting this graph:
As you can see, the longer you work on building a retention strategy the more it pays off. Small changes in retention lead to huge results, while focusing primarily on acquisition sees significantly smaller dividends.
This forecasting makes sense when you consider the types of metrics you’re trying to improve with customer retention. No matter what you sell, you’re probably trying to improve things like repeat purchase rate, repeat purchase rate, and customer lifetime value by retaining more of your current customers.
When you look at what each of these metrics are, it’s easy to understand why you can’t see results right away:
- Purchase frequency requires existing customers to make more than one purchase, so unless you’re selling something they actually need every day the chances of them making their second purchase immediately is slim
- Repeat purchase rate builds on purchase frequency to measure what percentage of your customers are making more than one purchase with you
- Customer lifetime value — in order for this to be as high as possible, their lifetime needs to be longer
Investing in each of these metrics, then, becomes a way for you to lay a sustainable, profitable foundation that will help you multiply your business over time, no matter what stage you’re in.
Build retention into the big picture of your marketing strategy
As your business grows, your marketing strategy will evolve with it. That’s because you have different objectives at every stage.
Retention can easily be built into your business’ growth plan:
- Stage 1: just starting — customer retention helps you build on the foundation of customers you’re building by maximizing revenue for every customer you acquire
- Stage 2: gaining traction — investing in your retention strategy makes your store irresistible to those who have already discovered your brand while improving the experience for those who are just getting to know you
- Stage 3: consistent sales — retaining your current customers allows you to dig into their ongoing profitability by giving you the tools to invest in the relationship you have with each of your customers
Once you have consistent sales, emphasizing your customer retention strategy is the most powerful way to push your success forward. By harnessing the power of retention tactics like loyalty programs, re-engagement marketing, and value-add marketing, you will continue to improve your overall customer experience.
These tactics will perfectly complement the other reasons your customers already love your brand, such as your customer support, product quality, and branding. Each of these elements work together to impact the way your customers feel about you, and it’s these emotional connections that ultimately determine whether they want to make another purchase in the future.
Investing in a customer retention strategy guarantees that your business will continue to grow over time. With retention, you can stop investing in only ad space and start investing in what really pays off: your best customers.
Retention is a way of thinking, not a single action or decision
An effective customer retention strategy is designed to achieve the overall goal of retaining more of your current customers. Through a combination of tactics and tools, you can easily integrate it into other parts of your business and unlock the success you’ve always dreamed of.
Ultimately, customer retention is not tied to a single decision you make. Instead, it’s the result of combining other acquisition and customer engagement strategies to encourage more customers to choose you over your competitors. As one piece of a bigger plan to acquire, engage, and retain more customers, customer retention is success worth waiting for and, if done properly, can be the piece of the puzzle that sustains your ecommerce business for years to come.