Customer Retention: Definition, Benefits, Importance

As it’s becoming more apparent every day that digital commerce will be the norm one day or another, it’s hard not to see the increasing number of new e-commerce stores and outlets. Aside from offering a much more comfortable and streamlined shopping experience for customers, e-commerce also provides businesses and entrepreneurs with an accessible and effective way of selling their products and increasing profits. And expectedly, the growing number of online shoppers and sellers has one clear outcome; increasing competition between e-commerce stores in the marketplace. 

Growing competition between sellers dramatically emphasises the importance of finding new ways to increase your e-commerce sales. And the term ‘customer retention’ emerges as one of the processes business owners need to focus on to stay competitive. This article will describe the definition, importance, benefits, and ways to measure customer retention. 

What is customer retention? 

When it comes to how sellers can increase their revenues, there are several paths a business owner can take. One of the most straightforward paths is attracting potential customers and turning potential buyers into regular customers. While effective, customer acquisition can be a rather costly process since the success of your acquisition attempts cannot be fail-proof. On the other hand, sellers can approach the matter from a different perspective; try to attract their existing customers and get them to continue making purchases from their shops. And customer retention is the name of the process of influencing people who have already purchased from your store to make continuous purchases from you. Unlike trying to acquire new customers, customer retention provides a more cost-effective way to increase your revenues. You can be more confident about the results of any customer retention attempts since people who already shopped from you are naturally more prone to making another purchase from your store. Customer retention can include focusing on your regular customers by increasing their loyalty as well as getting your one-time customers to return to your store. 

Importance of customer retention

It may seem like growing your customer base is the way to go when trying to increase your e-commerce business’ revenue. But the cost difference between customer acquisition and customer retention showcase the superiority of retaining an existing customer over attracting a new one. As research shows, acquiring a new customer is five times more expensive than keeping your current customers. Aside from being cheaper, customer retention is also effective in increasing your sales; an existing customer’s probability of making a purchase from your store is around 60-70%, while the probability of selling to a new buyer is only 5-20%.1 In addition, another research done by Bain & Company shows that a 5% increase in customer retention increases your profits by 25% to 95%. If you are not still convinced to focus on customer retention in your business, here’s one more striking number for you. When people form relationships with brands or stores, they spend more than twice during the 24-30th months of their relationships compared to their first six months with the store.2

Benefits of customer retention

Since it’s the more straightforward way, many businesses still focus on acquiring new customers rather than keeping the ones they already have. For short term goals, attracting new customers can indeed deliver and increase your company’s revenue. But retention is the key to sustainable growth. So, let’s take a look at how customer retention prove beneficial for your business; 

Better marketing opportunities

When dealing with the customers you have already made a purchase to; you will be able to address your buyers’ needs in a much more precise way, especially for e-commerce businesses. Unlike trying to attract new customers with more expensive methods such as paid searches and online ad displays1, reaching out to your existing customers with organic ways provides a cost-effective and customer-friendly practice for your business. Because when attracting your current customer base, you will be in hold of valuable information regarding the shopping habits of your buyers. 

Aside from the precision it provides in your marketing activities; a high customer retention rate can also introduce new customers to your business. Because if a customer is pleased with the service you’re providing, they will be more likely to bring new people to your business by mouth-to-mouth referrals.

An important metric for your business

As a business aiming to satisfy your customers’ needs, making sure that the service you’re providing is enough is not as easy as just checking your monthly revenue. But your customer retention numbers are a great indicator of how well your business is doing its job addressing customer needs. Because when a customer is treated right and feels valued in your business, they won’t necessarily need to go to other stores to find what they are looking for. So, if your customer retention rate is high, you will know that you’re on the right track. Also, loyal customers will provide more insightful and useful feedback about your company, making it easier for you to see where your business may be lacking. 

How to improve customer retention?

With the emergence of m-commerce as the new best way to reach out to customers online, it’s getting easier by day to engage with your customers and address their needs. But how can you improve the customer retention of your e-commerce business? Let’s check out;

Take advantage of customer data

As we already discussed, e-commerce businesses gather significantly valuable information about customers and their shopping habits. Making much more sensible and practical suggestions to your customers is possible by using this data to your advantage. 

Introduce loyalty programs 

Giving extra incentives to your existing customers to come back is always an effective way to increase customer loyalty. So, you can start using loyalty programs in your e-commerce business such as giving points with each purchase for later use, including your loyal customers in an exclusive buyer group for exclusive offers, or creating a subscription program for customers interested in the updates about your products and giving special discounts to these customers. 

Use remarketing strategies

Remarketing is a significantly effective technique in e-commerce for drawing customers back and retaining them. So, use remarketing strategies such as engaging with your existing customers via text messages, e-mails, or push notifications by giving them special offers on items they are interested in. This will not only make them return to your shop, but it will also improve their experience with your company and lead to improved customer retention rates. 

How to Measure Customer Retention?

To this point, we have already discussed how effective customer retention is for increasing your revenue and improving the experience of your customer base. But, how do you actually calculate it? To do this, you need to choose a time period to measure customer retention. Then, it’s just a simple formula;

(Total number of customers at the beginning of the period – New customer acquired in that period) / Customers at the end of the period x 100

In a more understandable way;

1- Take the number of customers at the end of the time period

2- Subtract the number of customers gained in the time period from that number

3- Divide the result by the number of customers at the beginning of the time period

4- Multiply the result with 100

This simple formula will give the percentage of your customer retention rate.

Build a successful e-commerce app with Mowico

As we stated earlier in the article, m-commerce is taking over the e-commerce world, and it’s time for you to build your own e-commerce app to jump on the train. The no-code e-commerce app builder Mowico lets you design and create your e-commerce application within several hours, even if you have no experience and knowledge in app development or coding. Mowico transfers your e-commerce data from over 35 e-commerce platforms to your mobile application and lets you freely design your app with a straightforward drag and drop interface. With Mowico, you can actively engage with your customers through push notifications, improve your customer retention rates with loyalty points, and create targeted campaigns for your customers thanks to Geofence Tracking technologies. Explore all features of Mowico to see what you can build, and start your free trial to get started with your m-commerce journey. 

Was this article useful?

Join the Commerce Bites Community