Editor’s Note: This post was originally published February 20, 2015 and was updated for accuracy and comprehensiveness on August 4, 2017.
In ecommerce, acquiring customers is only one piece of a big pie. It’s equally important that you understand and track how receptive your existing customers are to your store, and find new ways to grow the profitability of your brand. In terms of growing profitability, you’ve got two main options: you can focus on getting people to buy more during each visit (average order value) or you can get them to shop with you more often (purchase frequency). In this post we will look into the growth of profitability by increasing purchase frequency.
How to Calculate Purchase Frequency
When you’re searching for ways to grow profits, a good place to start is retention metrics. Before you try anything new, you want to know how to calculate how well you’re currently doing. This will allow you to set a benchmark that you’ll be able to compare future results against. This benchmark will allow you to analyze the results of your efforts, and with metrics like Purchase Frequency (PF), this analysis can lead to extremely valuable insights.
Let’s learn how to calculate some metrics that will give you a better understanding of how and why you need to increase your PF.
Calculating Repeat Purchase Rate
The repeat purchase rate is a calculation that shows you the percentage of your current customer base that has purchased for a second time. This metric is influenced by your customer retention efforts and is a good indicator of the value you are providing your customers.
A good repeat purchase rate is dependent on the industry. Here at Smile.io, we see the average repeat purchase rate falling somewhere between 20% and 40%. No matter which market you’re a part of, you should also be aiming to fall within (or above) that range. Having a high RCR indicates that you are providing a lot of value to your customers, and that they in turn are aware of that value.
Calculating Purchase Frequency
Purchase Frequency is a metric that calculates the average number of times a customer makes a purchase within a set time frame.This provides you with insight on how to structure your marketing to best suit the buying behaviour of your audience. While knowing the number of purchases is useful, it is also important to use that number to calculate the time between purchases.
PF is a metric that can be utilized in different ways by changing the time frame. Generally, I would recommend looking at data during a one year period. That being said, feel free to use whatever time frame you’d like! PF does not exclusively need to be calculated with a year time frame. No matter what time frame you choose, it is important that you include “unique” purchasers in order to avoid including duplicate purchases in your calculation.
Calculating Time Between Purchases
Time Between Purchases shows you how often a typical customer goes before making a repeat purchase. This is a good metric to know because it allows you to tailor email marketing campaigns to their behaviours. If you know the average customer takes 7 weeks between their purchases, you can start sending promotions during weeks 5 or 6 to get them back a little sooner than they normally would.
Time between purchases will vary significantly between industries. If you are selling furniture you will see longer times between purchases than the average coffee shop. The best practice is to try and find another merchant in your industry that you can compare to. If you can’t find a comparable merchant, just use your current frequency and always try to improve from there.
Time between purchases and repeat purchase rate are critical metrics on your road to increasing purchase frequency, which means that they shouldn’t be taken lightly. Do not restrict yourselves to calculating these metrics on an annual time frame. Feel free to play around with them and test them with different customer segments. But most importantly, do not forget to track, track, track!
3 Tips to Increase Purchase Frequency
Now that we know how to calculate purchase frequency and what it means for your store, we can begin to look at ways to increase it. The goal here is to motivate your existing customer base to buy more often. That means more money in your pocket!
1. Create Retention Email Campaigns
Email marketing is one of the most effective marketing tools that an online store has at their disposal. Email marketing works wonders for increasing your repeat purchase rate. A classic example of email marketing in action is sending a “we miss you” email. This is an email you send to a customer who hasn’t made a purchase in a while and who might be moving outside of your normal purchase frequency average.
A “we miss you” email works best if you have information about their last purchase. This way you can make a new recommendation based on what they like. This strategy is also more effective if you provide an incentive with the email. This ties into personalization and delighting customers, and overall provides a one-of-a-kind customer experience.
You can also use email marketing to increase purchase frequency. The trick is to occasionally email offers that is relevant to that customer. If they like heels, show them the new selection of heels that just came in. The more personalized an email is to a customer, the better conversion rates you’ll get.
Urgency is another amazing tactic you can and should utilize in your email marketing. Creating a sense of urgency nudges your customers to buy your product more frequently. One way you can create a sense of urgency is by using lines like: “While quantities last” “Limited edition item”, or “One day sale!”. You want to encourage that customer to buy now!
Email marketing is a fantastic way of getting customers to know you and vice versa. Take advantage of this channel. Be smart by tracking metrics like open and conversion rates to see if what you are putting out is actually effective.
2. Start a Loyalty Program
A loyalty program can actually help with both average order value and purchase frequency. The enrolment in a loyalty program encourages a customer to shop with you again (increase repeat purchase rate) instead of choosing a competitor. Once a shopper is enrolled you can use points to motivate them to shop more frequently (increase purchase frequency).
You can also team up your email marketing and loyalty program to increase purchase frequency. You can use points in your emails as an incentive to get customers to return. Show them the points balance they have, and what they can spend those points on. You could also give extra points on certain days to encourage customers to buy now.
A loyalty program like Smile.io encourages shoppers to return to your store by establishing a switching cost. When a shopper has points it is more difficult to choose a competitor than forgo those points. Once a shopper is hooked on your brand through points, you can start using points to motivate other profitable behavior like referrals.
3. Introduce Elements of Gamification
Do you remember those moments when you’re having fun collecting points, getting ahead of your friends on a leaderboard, and feeling successful in accomplishing something? That’s gamification. Gamification is the addition of game mechanics in situations that are not particularly tied to gaming.
Mobile apps have made gamification tactics famous with the use of badges, leaderboards, and ranks. These tactics can be replicated to increase your business’ purchase frequency.
Badges and ranks are two gamification elements that can be used together to create a culture where each shopper is striving to be the best. While your customers are journeying through your product, you can delight them with points and perks which increases their customer experience. Two famous examples of loyalty programs using gamification elements are Sephora and Starbucks. Sephora is able to showcase the perks of each increasing they have for their VIB (Very Important Beautician) loyalty program.
The combination of gamification and loyalty is often called a tiered program. In these types of loyalty programs shoppers are incentivized to reach new statuses or tiers in order to unlock increasing rewards. Some common rewards include: earning points faster, exclusive access to certain products or promotions, and even special events.
It’s Time to Increase Your Store’s Purchase Frequency
Now you have the right tools and tips to increase your purchase frequency! Your next steps are executing these these tips. From building a loyalty program to email marketing “we miss you” messages, it’s important that you try them out and track how you’re doing. Purchase frequency only goes up if you’re frequently doing something about it!