Picture this. You only have time for a quick lunch before a big meeting at 1 PM, but you’re not sure what to get.
Then you remember—you’ve earned enough points in your Chipotle app to get a free entree.
Lunch is free today!
Chipotle Rewards are a key part of the Mexican food chain’s brand. The company built its customer loyalty program based on a tiered points system, where frequent visitors can earn points that add up to free products like chips and guac or a full entree.
Reward programs like these incentivize customers to make repeat purchases in exchange for free products, in turn building brand loyalty and increasing customer retention.
Retention marketing has become an increasingly important part of any thriving e-commerce business.
According to a study from Bain & Company, a 5% increase in your customer retention rate (CRR) can increase your company’s profits anywhere from 25% to 95%.
To truly scale your e-commerce business in 2024, it is essential to find ways to stand out against the competition and keep your current customers returning for more.
In this comprehensive guide, we go into the importance of retention marketing, laying out 5 customer retention strategies that can turn first-time buyers into loyal customers in order to boost your bottom line.
What is Retention Marketing?
Retention marketing is a type of marketing that aims to maximize the value of your current customers.
An effective retention marketing strategy engages with your customers beyond their first-time purchase and incentivizes them to become loyal, long-term, and repeat purchasers.
How do you know how well you are retaining customers? There are two main key performance indicators (KPIs) when it comes to retention marketing:
Customer Retention Rate
Retention is primarily measured through a customer retention rate (CRR), which can be calculated using this equation:
CRR = ((E – N)/S)) x 100
Here are the steps to calculate your CRR:
- Subtract the number of new customers (N) from the number of customers at the end of the period (E)
- Divide the difference by the number of customers at the beginning of the period (S)
- Multiply by 100 to get the percentage
What CRR should you aim for? Anywhere from 35% to 84% is considered a good CRR, but it really depends on what industry you are in. The average customer retention rate for an ecommerce business is around 38%.
Customer Lifetime Value
The other way to understand how well you are retaining your customers is by understanding customer lifetime value (CLV). This is the total profit a customer brings to a business over their lifetime.
The basic formula for customer lifetime value is:
CLV = Average revenue per user (ARPU) x Gross Margin x Average Duration of Customer Contracts
When it comes to industry benchmarks, your customer lifetime value should be 3 times or more than what your customer acquisition costs (CAC) are. This means that every new customer you gain has an average lifetime value of 3 times the amount it costs to acquire them.
Retention Vs. Acquisition
When it comes to growing your business and keeping it strong for the long haul, two key strategies come into play: retention and acquisition marketing.
Each has its own focus and goals, but both are essential pieces of the consumer life cycle.
What’s the difference between retention and acquisition?
Acquisition marketing focuses on bringing in new customers to your business. It’s the initial step in the consumer journey, where the primary goal is to expand your customer base through various marketing channels like paid search, social media advertising, content marketing, and SEO strategies.
The key to acquisition is brand awareness and driving that initial customer engagement—reaching potential customers who might have never heard of your business before and getting them to make that first purchase.
Retention marketing is focused on engaging with current customers through the entire consumer lifecycle to maximize their customer lifetime value and reduce the churn rate.
Retention marketing understands that existing customers are more likely to make repeat purchases at a higher average order value (AOV) and spread your brand through word of mouth.
Recognizing this, it aims to keep customers satisfied and loyal to your brand through loyalty programs, referral programs, personalized communication, and targeted offers based on previous purchasing behavior.
5 Reasons To Focus on Customer Retention
Why should your business invest in retention marketing? Let’s dive into five compelling reasons that highlight why keeping your existing customers engaged isn’t just good practice—it’s essential for your business’s growth and health.
1. Cost-Effective
First up, focusing on customer retention is incredibly cost-effective for your business.
Research shows that acquiring new customers can cost up to five times more than retaining existing ones.
And according to a study by Simplicity DX, customer acquisition costs have risen a staggering 222 percent since 2013, and it is showing no sign of stopping.
This trend towards higher acquisition costs emphasizes the importance of investing in your existing customers to keep them coming back.
Research has shown that retained customers are more likely to make repeat purchases and become brand advocates, often at a much lower cost. This helps you save money and grow your business in the long run.
2. Higher Return On Investment
Not only is it cheaper to keep existing customers, but the return on investment (ROI) is also typically higher.
In e-commerce, a customer who has made multiple purchases is worth five times as much as a first-time visitor. That’s because customers who have already bought from you are more likely to do so again if they had a positive experience.
The more you invest in your user experience for your current customers, the more value they will bring to your business.
3. Brand Loyalty
When you engage with your customers and they feel valued and satisfied with your service, they’re more likely to stick around.
Gaining their loyalty not only solidifies their repeat business but also increases the chance that they will become brand advocates. Your best customers can write positive reviews and testimonials, improving your brand image and awareness.
4. Acquisition Through Referrals
Speaking of rave reviews, a strong focus on customer retention naturally leads to customer acquisition.
Happy customers are your best promoters. In fact, 92% of people trust word-of-mouth recommendations from friends and family more than any other form of advertising.
By nurturing your existing customer base, you inadvertently create a network of brand advocates who are more effective than some traditional marketing channels for new customer acquisition.
5. Reduces Churn
A robust retention strategy directly contributes to reducing churn—the percentage of customers who stop using your business over a certain period.
Keeping your customers satisfied and engaged cuts down on the number of people who leave, which in turn helps maintain a healthier bottom line.
An engaged customer spends 67 percent more in months 31-36 of their relationship with a business than in months zero through six, highlighting the importance of efforts to keep the relationship active.
Churn Rate
Another essential KPI to track for retention marketing is your churn rate.
The churn rate is the percentage of customers who stop using a service or leave a company within a specific period of time. It’s calculated using the formula:
Churn Rate = (Lost customers at end of the period / Total Customers at start of the period) x 100
In e-commerce, a good benchmark is keeping your churn rate less than 5% annually.
5 Customer Retention Strategies
So, how do you keep your churn rate down and your CLV and CRR up?
Here are five proven customer retention strategies that will keep your customers coming back for more.
1. Loyalty Programs
Everyone loves earning rewards, and nothing improves the customer experience like a good loyalty program.
Take a leaf out of Starbucks’ book with their Starbucks Rewards program, which keeps customers hooked by offering free drinks and exclusive perks through a tiered points system.
68 percent of customers leave if they think you’re indifferent to them, which demonstrates the importance of making the user experience exciting and worthwhile for your customer base.
If you’re running a small to medium-sized e-commerce business, there are some great loyalty program tools that you can leverage to create a loyalty program that will keep your customers coming back for more:
- Recharge: A subscription billing platform that can reward customers for subscribing to your products.
- Yotpo: A comprehensive marketing platform with a loyalty and referral program that can give customers personalized rewards for various actions like making a purchase, writing a review, or referring a friend.
- smile.io: A platform specifically designed for creating customizable loyalty programs that can reward customers for a wide range of activities, including purchases, referrals, social shares, and more.
Whether it’s through points, exclusive discounts, subscribe and save, early access to new products, or even a good old punch card, a strong loyalty program is a great way to give your customers the initiatives to come back for more.
2. Increased Personalization
Personalization isn’t just a marketing buzzword; it’s a proven customer retention strategy that helps you build trust with your target audience.
A recent study showed that 78% of shoppers said they would only act on a retailer’s offer if it has been personalized to their previous actions with the brand.
A great way to personalize your communications is by leveraging the customer data that you have through email and SMS marketing. You can:
- Customize your messages to speak directly to each individual customer by adding a personalization tag for their first name (i.e., Hey {FIRST NAME}).
- Run an automated flow to send a special note and discount on your customer’s birthday to make them feel special.
- Send customized product offerings based on past user behavior. You can automate a flow that will follow up with customers who have viewed a certain product or added it to their cart.
A well-timed, personalized email or SMS can be the nudge a customer needs to make it past checkout for that repeat purchase.
3. Referral Programs
Turn your most loyal customers into your most effective brand advocates with a killer referral program.
Word of mouth is everything. There’s nothing quite like getting a recommendation from a friend, and a referral program gives incentives to both the referrer and the referee for engaging with your brand.
A great example of a successful referral program is Airbnb’s Refer-a-Friend program, which offered Airbnb members $18 in credit to refer a friend and the referee up to $46 in account credit if they stayed.
Before this program ended, it was able to boost referrals by more than 300%. This campaign worked successfully as a customer retention program and as an acquisition program, engaging with loyal customers while acquiring a whole lot of new customers.
Remember, there isn’t only one way to run a successful referral program.
Besides offering store credit, you can offer exclusive discounts, free product giveaways, or even a free month of subscription as a reward for successful referrals. It’s a win-win: your existing customers get rewards, and you get new ones.
4. Lifecycle Marketing
Lifecycle marketing is all about delivering the right message at the right time.
This means looking at the entire customer journey, starting with awareness and going all the way to advocacy.
A key component of lifecycle marketing is highlighting customer progress.
The idea is that you shouldn’t be sending the same message to a first-time visitor as you would to a repeat customer.
When it comes to a first-time visitor, you want to make them aware of your brand and how it can help them solve a problem that they have.
When you’re talking to a repeat customer, they already know the basics about your product or service.
Instead of giving them the basic rundown, you should use your messaging to acknowledge their progress as a customer, speak to their pain points, and encourage them to continue to engage with your brand.
How do you know where someone falls in their customer journey?
Leverage customer data like browsing and purchase history stored in your CRM (Customer Relationship Manager) or ESP (Email Service Provider) to create a personalized experience for your customers through targeted messaging and tailored offers.
When done with care, lifecycle marketing can ensure your brand remains top-of-mind while demonstrating that you value your customers.
5. Customer Support and Success
Stellar customer support can make or break your customer retention rate. It’s not just about solving problems fast; it’s about ensuring every interaction adds value to the customer’s experience.
A great way to ensure customer retention is to invest in a robust support team and utilize tools and resources like state-of-the-art chatbots, FAQs, and self-service options to address customer complaints in real-time.
Depending on your business, you could consider investing in a customer success team that proactively reaches out to customers to help them get the most out of your products or services.
Take a look at Sweetwater Sound, one of the world’s leading music technology and instrument retailers. Along with an online support system that is available 24/7, Sweetwater utilizes its team of 700+ sales engineers who make over 30,000 calls a day to follow up with customers who have made a recent purchase. This way, their customers know there is a real person who can help with any pain points that come up with their new music gear and tech.
By going above and beyond with their customer support team, they create a holistic feedback loop where they can address customer feedback directly and turn regular customers into brand advocates.
Work With An Expert Team
By focusing on what makes your customers stick around, you not only boost your revenue, but you also attract new customers to your brand.
Need help creating a customer retention program that can help you keep your customers happy while attracting new ones?
You don’t have to do it alone.
By partnering with eAccountable, you can leverage a full suite of digital marketing services to optimize every interaction along the customer journey. Our hands-on account managers have an average of 11 years of marketing experience in Affiliate, Amazon, Email, PPC, Paid Social, and more, so you can make the most of your omnichannel marketing strategy.
Through eAccountable’s sister company, ROI Rocket, you can gain access to cutting-edge customer experience (CX) and market research services so you can understand your customer base to enhance customer satisfaction and retention.
Interested in learning more about how you can drive retention and acquisition? Drop us a line here for a free consultation.