Editor’s Note: This post was originally published April 2, 2015 and was updated for accuracy and comprehensiveness on August 16, 2017.
Let’s say you noticed your business wasn’t acquiring as many new customers as you expected, and you wanted that to change. In an effort to turn it around, you spent the last few months putting together a killer Adwords campaign, setting up customer re-targeting, and promoting your social media messaging. While all of that might be great in theory, the reality is that the customers you attract from those promotions are not nearly as profitable as the customers you already have. I know it sounds harsh, but it is the truth!
Before you get ahead of yourself, let me explain. Obviously acquisition is important because you can’t have a repeat purchaser if they never make that first purchase. The problem is that the average ecommerce store devotes more than 80% of their marketing budget to acquisition, forcing retention to take a back seat.
This method of budgeting is extremely odd when you consider that 40% of an ecommerce store’s revenue is created by only 8% of its customers. This 8% is made up of your repeat customers, making it clear that they are extremely profitable! But why are they so profitable? In this post, I’m going to go over the stats that illustrate the power of repeat customers and the profits they represent. By the end, I guarantee you’ll have the undisputed proof you need to believe that retention marketing is the way to go. So without further ado, let’s dive into the stats!
5 Reasons Repeat Customers are Profitable
1. A Repeat Customer is More Likely to Shop With You Again and Again
I know what you’re thinking - this seems pretty obvious. After all, a repeat customer is, by definition, a site visitor that has made at least two purchases. What is interesting, however, is that a customer becomes increasingly more likely to buy from you again as their amount of purchases increases.
After one purchase, a customer has a 27% chance of returning to your store. While that’s not a horrible return rate, if you can get that customer to come back and make a second and third purchase they have a 54% chance of making another purchase.
The more times you get a customer to return, the greater their potential lifetime value becomes! With that in mind, you can increase the profitability of your store by starting to encourage your existing customers to come back for a second and third time. The trick is being careful with how you entice them.
You may immediately think that giving a discount on the next order is a great way to get a customer to return, however I would caution against that. Discounts are effective at getting a customer back, but they almost always set an unwanted expectation.
Customers who receive a discount either come to expect a discount every time or wait until a discount exists to make another purchase. Instead, I’d recommend using retention tools like these to encourage customers to come back to your site.
2. A Repeat Customer is Easier to Sell To
While conversion rates in ecommerce are extremely volatile and vary by industry, most experts estimate that the average conversion rate is somewhere between 1% and 3%. Since this is the average conversion rate, we can assume that a repeat customer is more likely to convert than other shoppers.
According to to Paul Farris’ book Marketing Metrics, a repeat customer has a 60% – 70% chance of converting! This is great news for your store – the more repeat customers you have, the less you will have to spend on conversion tactics like abandoned cart offers.
Adobe conducted a similar study that looked at conversion rates of repeat customers. They found that a customer who has purchased with your store 2 times before is 9x more likely to convert than a first time shopper.
As you can see, that’s a big spike in conversion rates from repeat customers that you will not want to miss out on! This increase in conversion makes repeat customers much more profitable than any customer you acquire through your online marketing efforts.
3. Repeat Customers Spend More On Each Purchase
Not only do repeat customers convert more often, they have a higher average order value than first time buyers. This means that your repeat customers are buying more from your store more often!
There are two factors that impact how much a repeat customer spends. These factors are number of previous purchases and how long they have been a customer. Let’s start with the number of previous purchases.
A study by RJMetrics found that loyal customers that purchase from you frequently are much more profitable than your average customer. Research found that your loyal top 10% spend 3x more per order than the lower 90%, and your top 1% of customers spend 5x more than the lower 99%.
Although this study shows the relationship between repeat purchases and increased order value, repeat purchases are only one component of increased order value. How long a customer has been shopping with your company also impacts order size.
A study by Bain & Company found a direct correlation between the amount of time a customer has been shopping with you and the amount they spend per visit. Bain found that apparel shoppers purchase 67% more per order after shopping with a company for 30 months than they spent on their initial purchase.
They found similar results in all of the categories they studied. Clearly repeat customers have a high lifetime value, which contributes to a higher value per order over time.
4. Repeat Customers Spend More at Key Times
Most ecommerce merchants make the bulk of their revenue during one particularly busy season. If you sell bathing suits, you might see a spike in March/April. If you sell costumes, you will see a spike in October. That being said, the busy time for most merchants is between Cyber Monday and Christmas.
These key times play a huge role in the success of your ecommerce store. The surge in sales comes from both increased demand leading to more potential shoppers, and from people purchasing more due to the season. But how much more do consumers buy in the busy season?
According to Adobe, the average shopper spends 17% more per transaction during the holiday rush. While this is great news, your repeat customers spend even more! Your store’s repeat customers actually spend 25% more per transaction during the busy season, but that’s not all!
The same study found that in recessions repeat purchasers are even more important. In Europe’s recession the percentage of revenue from repeat customers increased even while times were bad. This illustrates that your repeat customers will stay loyal even through hard economic times.
5. Repeat Customers Share Your Store More
Not only are repeat customers more valuable when shopping, they also provide you with some massive marketing potential. A repeat customer gives your store increased word of mouth advertising, which is almost always regarded as the best kind.
The amount of people a customer refers to your site increases with the amount of purchases they have made, according to Bain & Company. Each time a customer makes a purchase they are becoming more comfortable with you, and thus are more willing to make a positive referral.
Bain found that after 10 purchases, shoppers refer 50% more people to a store than a one time purchaser. This study demonstrates that repeat customers can actually increase their profitability by attracting more clients.
This referral process can be further amplified by encouraging referrals with points as part of a loyalty program (one of the strongest retention tools).
Putting It Into Practice: How inkbox Focuses on Repeat Customers
We’ve provided you with lots of stats and evidence that demonstrate how profitable repeat customers are to your business, but are these numbers substantial enough for businesses to actually focus on them? Well, considering that almost all Fortune 500 companies reward repeat purchases, I believe that the answer to that question is yes!
To give you specific numbers, though, we’ll take a look at inkbox - a temporary tattoo company that has grown wildly popular in the last year. With over 300,000 passionate followers on Instagram, inkbox decided to launch a rewards program as a token of their appreciation.
Within the first month of running a rewards program and rewarding repeat customers, inkbox saw incredible results as more and more customers joined their Tribe program. An impressive 70,000 rewards members joined in the first 30 days, and it’s this quick adoption that led to an 80% increase in repeat purchases.While this is incredible on its own, these engaged members also brought in over $100,000 in the first month..
To put the cherry on top, inkbox saw a 10% increase in social sharing, which reinforces our earlier point that repeat customers tend to share your store more. By implementing a rewards program and showing appreciation to customers who continue to purchase from them, inkbox successfully moved the bottom line by increasing their repeat purchase rate, generating a lot of revenue from program members, and getting a big increase in publicity.
Repeat Customers are Important
I hope by now that inkbox and I have shown you the benefits of having a strong repeat customer base. “But Alex!” you might be asking, “how do I start to get more repeat customers?” Well, personally I would start by reading The Ultimate Guide to Customer Retention. It will show you how to craft a retention strategy to get more repeat customers.Once you know the strategy you are going to follow, you can begin to look at which tools you can use to help. If you’re looking for some suggestions, you can try Klaviyo for your retention emails, Olark for providing amazing customer service, and Smile.io for creating an engaging customer loyalty program.