Maximise profits using customer retention strategies
Pouring the bulk of your time and budget into acquiring new customers? What if we told you there was an easier way… While growing your customer base is important, keeping your existing customers happy is even more so!
Existing customers already know who your business is and have put their trust in it once before, so cultivating repeat business generally requires less money and energy than continually convincing new customers to make a purchase.
In this article, we’ll learn more about the importance of understanding customer retention and explore the most effective strategies and tools for encouraging repeat customers and increasing profits.
What is customer retention?
Customer retention refers to a business’s ability to maintain a relationship with its customers for a set period after their first purchase. During this time, a retained customer continues to buy from or engage with the business without deflecting to another product or service.
How do you calculate customer retention rate?
If you have no idea how your eCommerce business is performing regarding customer retention, don’t worry; we’ll explain exactly how you can work that out.
Customer retention is measured using a metric called the customer retention rate. The customer retention rate is the percentage of customers a business retains during a set period.
To determine your business’s customer retention rate, you must first define the period. Do you want to calculate the retention rate for the month, quarter, or year?
Now, subtract the number of new customers you acquired during this period from the number of customers you had at the end of the period. Divide this figure by the number of customers you had at the start of the period, and then multiply the answer by 100 to get a percentage. This percentage is your customer retention rate for the defined period.
Generally, the higher your customer retention rate is, the more satisfied your customers are. On the other hand, a low retention rate could indicate that there are problems with your product, user experience, or customer service.
What are the benefits of customer retention?
Investing in customer retention can benefit businesses by directly impacting their bottom line and reputation. Let’s find out more about why it’s beneficial to focus on customer retention over customer acquisition.
Cost-effectiveness – Retaining existing customers is generally cheaper than acquiring new ones. In fact, according to an article by American Express, research says it’s five to six times more expensive to find a new client than to reactivate an old one. This means you should be able to achieve a better return on investment by investing your budget in customer retention strategies rather than marketing to new ones.
Increased profitability – Investing in customer retention can significantly boost company revenue, as demonstrated in a study conducted by Harvard Business School, which found that increasing customer retention rates by just 5% increased profits by between 25% and 95%.
Enhanced reputation – When a business has a strong base of returning customers, it’s seen as a testament to the quality of its products or services, which can boost its credibility in the public eye.
Strengthened customer loyalty – Retained customers are more loyal and can evolve into brand advocates. Loyal customers are also more likely to try new products and spend more than new customers.
Enhanced referral traffic – Customers who are loyal to your brand are more likely to refer customers to you or recommend your products or services to people they know.
What factors can influence customer retention rate?
The likelihood of your customers returning for repeat purchases depends on various factors, some of which may be out of your hands.
However, the primary factor influencing customer loyalty is their experience the first time they shopped with you and their satisfaction with the product or service they bought. Businesses that continually delight their customers by offering something unique, an exceptional user experience, or outstanding customer service are more likely to enjoy high customer retention rates and repeat business.
It’s important to remember that some types of business lend themselves better to repeat business than others. For example, a cosmetics business is more likely to see customers returning frequently than a hot tub company. The more essential your product or service is, the more likely it is that you will gain repeat business.
Other factors influencing customer retention rates include pricing, convenience, communication, customer engagement, reputation, and the economy.
Whilst businesses cannot control external factors, there is still plenty that they can do to improve customer retention rates and, ultimately, their profitability.
What are the most effective eCommerce customer retention strategies?
Now that we understand customer retention’s importance and value, let’s learn more about effective strategies and techniques for encouraging brand loyalty and repeat purchases.
Elevate product and service quality – Offering first-class products or services is the foundation of customer retention in any business. If you don’t impress your customers the first time, why would they return? Define your business’s unique selling point (USP) and then market it effectively to distinguish your brand from competitors and keep customers returning for more.
Provide a seamless user experience – Invest in an eCommerce experience that is simple, convenient, intuitive, consistent, and engaging. If customers find it difficult to locate what they’re looking for, or if the checkout process is lengthy or clunky, it could dissuade them from shopping with you again.
Excel at customer service – It should be simple and hassle-free for customers to contact your business if they have a question or problem. Provide customers with multiple methods for contacting you, be it by phone, live chat, email, or WhatsApp. A well-trained customer service team that provides timely and empathic assistance can turn a negative situation into a positive customer experience, helping businesses avoid a high customer churn rate.
Enhance the unboxing experience – The customer experience shouldn’t end after they’ve checked out online. Invest time into creating product packaging that is well-designed, attractive, and thoughtful, and customers will be as delighted when they receive their physical product as they were when interacting with your store online. An enjoyable unboxing experience can improve customer satisfaction and boost retention rates.
Adopt competitive pricing – One factor that can really scupper customer retention is if your customers find comparable products or services cheaper elsewhere. Customers want to feel like they are getting excellent value for money, so it’s important to do your market research and ensure that your pricing strategy is competitive.
Introduce a customer loyalty program – Customer loyalty programs are tools designed to keep and engage existing customers to boost retention rates. Customers are incentivised to make repeat purchases or spend more money to receive points that can be exchanged for rewards or discounts. Because customer loyalty programs require customers to register for an account, they also help businesses collect valuable customer data for future marketing campaigns. Shopify stores can install the Smile: Loyalty & Rewards app to add a customer loyalty program to their store.
Offer discounts and deals – Offering seasonal discounts, product bundles, and loyalty-based pricing are all effective strategies for encouraging repeat purchases. Customers are usually more tempted to buy if they feel they are getting more for their money. Create urgency around an offer by putting a time limit on it, or make customers feel valued by offering the discount exclusively to those on your customer loyalty program or connected to your business on social media.
Maintain active communication – Regular communication is key to keeping your business fresh in your customers’ minds and prompting them to make repeat purchases. Encourage or incentivise customers to stay in touch with your business by signing up for email newsletters and SMS marketing or by connecting on social media. Then, use these channels to provide customers with valuable content, exclusive discounts, and special offers.
Use retargeting ads – Have you ever noticed how adverts for some websites you’ve visited seem to follow you around online? This is the power of retargeting ads. These ads serve as a reminder of products you’ve viewed or abandoned in your shopping cart, nudging you to return to the website and finalise the purchase.
Build an online community – In today’s connected, digital age, customers like to have more meaningful relationships with the businesses they buy from. One way to forge deeper relationships with customers is to build a community where they can engage with you and each other and feel like they’re a part of something bigger. Businesses should establish a strong online presence on social media, encourage user-generated content, and partner with influencers within their industry to foster a sense of community to stay at the forefront of customers’ minds.
Offer a subscription service – A subscription service is the golden ticket when it comes to customer retention. If you can encourage customers to subscribe to receive your products regularly, you will benefit from reliable, repeat business and increased predictability of monthly revenue. In return, the customer will receive a convenient service – your products or services are delivered automatically and regularly without them lifting a finger. Shopify stores can install the Recharge Subscriptions app or the Appstle Subscriptions app to add a subscription service to their store.
Make delivery, returns, and refunds transparent and straightforward – Often overlooked, the procedures for delivery, returns, and refunds are pivotal in shaping the customer experience. Long delivery times, convoluted returns processes, and unexpected costs can all leave a bad taste in a customer’s mouth. Delivery, returns, and refund processes should be transparent and straightforward. Businesses should eliminate hidden costs and complicated procedures to build trust and encourage repeat purchases.
Leverage reviews, testimonials, and case studies – Businesses should display positive customer feedback prominently throughout their website and marketing campaigns. This social proof will help to build credibility and trust, enhance customer loyalty, and encourage repeat business. Shopify stores can install the Ali Reviews app or the Loox Product Reviews & Photos app to collect and showcase customer reviews and testimonials online.
Ask for customer feedback – Proactively seeking customer feedback provides actionable insights for improvement and makes customers feel valued and heard.
Partner with Create8 to boost your customer retention rate
Are you ready to take your eCommerce store’s customer retention strategy to the next level?
If you need help implementing any of the tips, techniques, or tools in this article, why not partner with Create8? We are a leading branding and eCommerce web design agency that understands the value of a loyal customer base.
Whether you need help implementing a customer loyalty program for your Shopify store or running a remarketing advertising campaign, our team has the tools and expertise to help.
Contact us today to discuss your customer retention goals and kickstart your project.