Commerce Tips

What is Customer Engagement, and Why is it Important?

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Editor’s Note: This post was originally published in September 5, 2017 and was updated for accuracy and comprehensiveness on July, 11 2019.

 

It feels like every other article I read refers to the concept of “customer engagement,” and I know I’m not the only one. The internet is full of articles promising to help you drive “omnichannel customer engagement” or squeeze more “meaningful customer engagement” out of your brand experience.

Unfortunately after reading these articles I’m often left with more questions than I started with. That’s because customer engagement is a tough term to define, and an even tougher one to measure. 

The good news is, you probably know more about customer engagement than you think. To help demystify this buzzword and what it means for your small business, we’re going to take a look at how customer engagement is defined, how to measure it, and ways you can use it to acquire new customers and retain the ones you already have. 

What is customer engagement?

With so many ways to define it, I can definitely understand why customer engagement  feels like such an elusive term. However, at their core every definition I’ve come across shares one thing in common: customer engagement is all about interactions between your customer and your brand. As a result, the interactions that you qualify as an engagement will be just as unique as your business. 

Like most definitions, people describe “customer engagement” differently.  I understand that probably doesn’t give you a lot of confidence in my writing this article, but hear me out.  By looking at a bunch of different definitions, we’ll actually get a better understanding of all of the intricacies wrapped up in the term.

Here are a few of my favorite customer engagement definitions from industry experts.

"Customer engagement is the ongoing interactions between company and customer, offered by the company, chosen by the customer."
Paul Greenberg (for HubSpot)

I love that this definition includes the customer choosing to interact with your brand. When you let your customers choose how they’d like to engage with you, you’ll be more likely to uncover the type of interactions that they find valuable. By making it easier for customers to engage in ways they find valuable, you’ll strengthen their emotional investment in your brand.

"Customer engagement is an estimate of the degree and depth of visitor interaction against a clearly defined set of goals."

While the first definition focused on the idea of choice, I like that this one alludes to the fact that there are different levels of customer engagement. Some customers will have a deeper level of engagement than others. For example, a new shopper might engage by following your brand on social media and placing an order, but this level of engagement is very different than someone who’s placed 10 orders in the last year and also referred their friends. Ultimately, Peterson’s definition clarifies that the more valuable and frequent the engagement is, the more invested your customer will be with your brand in the long term. 

Here at Smile, we define customer engagement as: 

"Customer engagement is the degree and depth of brand-focused interactions a customer chooses to perform."
The Smile Team

We feel this definition accurately addresses both the quality and quantity of engagements that your customers have with your brand are equally important. Finding ways to add value to your customer experience can help you drive more valuable engagements more often. When customers feel like they have just as much to gain from engaging with your brand as you do, you’ll foster a sense of reciprocity that keeps them emotionally connected to your brand.

Why you should care about customer engagement

With platforms like Shopify and Bigcommerce, it’s easy for just about anyone to start a small business. As the ecommerce world has become more crowded, there’s been an overwhelming focus on clicks, conversions and acquisition costs.  

Acquire Engage Retain

However, these acquisition strategies alone won’t be enough to grow your business sustainably. Finding ways to engage with your customers in between purchases strengthens their emotional connection to your brand, helping you retain the customers you already have while sustainably growing your business.

In fact, a study by Hall and Partners’ “Engager” shows that up to 2/3 of a brand’s profits may rely on effective customer engagement.

Up to 2/3 of a brand's profits might rely on effective customer engagement.

Another customer engagement study by Ray Wang of Constellation Research found that “…companies who have improved engagement increase cross-sell by 22%, drive up-sell revenue from 13% to 51%, and also increase order sizes from 5% to 85%.”

With these stats in mind, it’s easy to see that there is a direct correlation between how engaged your customers are and how profitable your business is.  So the first question you need to ask is “how engaged are my existing customers?” 

How to calculate customer engagement

You can’t improve customer engagement if you don’t know how to measure it. There are a number of different ways you can calculate engagement, which is why we’re giving you a head start by highlighting the most important metrics to start with. 

Guest checkout rates 

What it is: the number of customers who complete a purchase without making an account 

How to calculate it: Number of orders completed by a guest/total number of orders 

Why it matters: When a customer creates an account, they are more likely to come back to make another purchase

Purchase frequency (PF)

What it is: how often your customers make a purchase at your store 

How to calculate it: number of orders in the last 365 days/number of unique customers over the last 365 days

Why it matters: when you know how long it takes the average customer to make another purchase, you’ll have a better understanding of how engaged they are. 

Average order value (AOV)

What it is: the average amount a customer spends when they make a purchase

How to calculate it: total revenue over the last 365 days/total number of orders placed in the last 365 days 

Why it matters: this number will tell you how much the average customer spends per purchase when they shop with you. In general, repeat customers spend roughly 7X more than their one-time purchase counterparts, making this an important metric to understand. 

Repeat purchase rate (RPR)

What it is: the percentage of customers who’ve made more than one purchase at your store within a specific period of time

How to calculate it: number of customers that bought more than once/total number of customers 

Why it matters: your repeat purchase rate gives you gives you a clearer snapshot of the effectiveness of your entire retention strategy because it tells you how many customers are engaged enough to make more than one purchase at your store.

Once you have an understanding of your customer engagement baseline, you can start thinking of ways to improve it! 

How a loyalty program can help you increase customer engagement 

The more engaged your customers are, the more emotionally invested they are in your brand. It’s this emotional investment that makes them less likely to shop with a competitor and what so strongly connects customer engagement to customer loyalty. 

Customers don’t want to feel like they’re missing out on something. When you add value to every engagement that a customer has with your brand, you’ll create a powerful switching barrier. They’ll be less likely to shop with a competitor, since they’ll miss out on additional value they could earn from your store.

Loyalty program members not only make purchases more often, they also have an average order value that is 12% higher than their non-member counterparts which makes them a critical part of your growth strategy. 

Here are three simple ways you can use your loyalty program to drive customer engagement. 

Award points when a customer makes a purchase 

Polaroid Explainer Page

Showing your customers that you appreciate their investment in your brand can be as simple as awarding them points each time they place an order. Polaroid Originals adds value to every order their customers place, making each of them more likely to return to make another order in the future. 

By showing their customers they have just as much to gain from each purchase as they do, they’ve fostered feelings of reciprocity that will give them every reason to order from them again.

Encourage your customers to connect with you on social 

Shefit panel and instagram

Driving engagement doesn’t necessarily have to focus solely on more purchases. Simple actions like customers following your brand on social or sharing your store with friends on Facebook can also go a long way in keeping them engaged over time. SHEFIT adds tangible value for every new Instagram follower with rewards. This reward makes each new Instagram follower more likely to find other ways to engage, and gives SHEFIT another way to stay engaged with their customers over time. 

Encourage your best customers to share your brand with referrals 

RUNGUM Give 5 Get 5 Explainer Page

Driving engagement also doesn’t have to be solely between your customers and your brand, it can also be between customers. Empowering your best customers to easily share your brand with their friends and family can not only help you acquire a new one, but also engage the customers you have. RunGum’s Give $5 get $5 simultaneously adds value to the friend that’s been referred to their brand and the customer that referred their friend. It’s this value that will make both customers more likely to re-engage again in the future.

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