Reasons Ecommerce Customer Retention Rates Matter

Customer acquisition is exciting. Marketers and ecommerce entrepreneurs may even experience a honeymoon phase during periods of strong acquisition. “Look at all these new customers!” you think. “Our online store has a chance to impress all these first-time shoppers.”

However, in your excitement, it’s important to remember customer retention. Why? First of all, it’s a major part of the equation for success and longevity in the online retail world. Here are three reasons ecommerce customer retention rates matter for your store.

Reasons Ecommerce Customer Retention Rates Matter

Retention Is Cheaper Than Acquisition

Yes, an influx of new website visitors is good. But it costs more to drive traffic to your website and convince visitors to convert than it does to retain a customer. According to an often-cited statistic from Invesp, it costs five times more to attract a new customer than it does to keep an existing one. Furthermore, your store has a higher likelihood of selling products to an existing customer than a new candidate.

Despite these findings, companies tend to focus more on acquisition than retention. One 2014 Econsultancy survey found:

  • 40 percent of companies claimed they’re more focused on acquisition
  • 15 percent considered themselves more focused on retention
  • 45 percent said their focus on acquisition and retention was about equal

People who have purchased products from your store before already have a good idea of how you do business: your website, customer service, shipping options, marketing communications and product quality. It’s less of a risk for them to continue buying from you over time than it is for a new visitor to take the plunge. These veteran shoppers are more likely to have built up some loyalty to your site. It takes less to convince them to buy again—ultimately saving you money on your marketing efforts.

And, existing customers are more likely to try new products. When you add items to your cloud ecommerce store, expect existing customers to be the first ‘in line’ to try them out.

High Retention Rates Means Better Profits

Increasing customer retention rates by just five percent can increase profits by 25 to 95 percent. If someone has purchased goods from your store once, they’re more likely to keep doing so over time. In addition to being cheaper to market to them, but they are more prone to making consistent purchases throughout their relationship with your store. This, in turn, drives profits.

Many Stores Sell ‘Repeatable’ Products

Your exact relationship with both new and returning customers depends somewhat on your product catalogue. If you sell big-ticket items meant to last a long time—like quality furniture, electronics or kitchen appliances—then you may expect existing customers to return infrequently. However, many online sellers specialize in smaller items meant to ‘run out’ at a certain point, necessitating repeat purchases from customers. HubSpot provides a few examples here: cosmetics, coffee, supplements and clothing.

Let’s say you sell specialty greeting cards. A hand-printed card costs consumers $5 a pop. If your customer acquisition cost is $4 and a typical new consumer purchases just one card, it’s simply not economical to spend so much acquiring newbies for such a slim revenue margin.

However, marketing your new $20 box sets toward existing customers pays off—they’ve already held one of your cards in their hands, so they have a deeper connection to the product. While it is crucial to bring in a fresh wave of shoppers, it’s equally (if not more) important to cater to your current customer base. They’re more likely to buy, will spend more and require less convincing because they’ve transacted with you before.

These three reasons illustrate why ecommerce customer retention rates matter, though they can be easy to overlook at first glance.

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One Comment

  1. There are not better or worse profits. There are only more or less profits.

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