If you’ve heard it once, you’ve likely heard it a hundred times: It’s cheaper to get existing customers to buy again than it is to get new customers to buy for the first time. It’s true that even a slight improvement in repeat purchases can significantly boost your business’s profit margin. A 2020 study on customer retention strategies found that “80% of a firm’s future profits will derive from 20% of existing customers.”
In the crowded ecommerce sector, customer loyalty is more crucial than ever. The cost of acquiring new customers continues to climb, making the retention of existing customers not just beneficial, but essential.
A well-crafted customer retention strategy can transform casual buyers into loyal advocates for your brand, fostering a cycle of repeat purchases and long-term loyalty. Here’s how to develop a robust retention strategy and why it’s integral to the sustained success of your business.
What is customer retention?
Customer retention is the practice of increasing a business’s repeat customer rate and extracting additional value from existing customers. The goals of customer retention strategies are to ensure that customers make repeat purchases, are satisfied with a company’s products or services, and do not defect to competitors.
Why is customer retention important?
Focusing on customer retention has several benefits:
Higher average order value
A high customer retention rate means your customers trust your products and your company. This trust translates to higher average order values, as loyal customers are more likely to purchase additional items or more expensive products. A study by Bain & Company showed that the longer a customer had a relationship with an online retailer, the more that customer spent over time. For example, in the apparel sector, the average repeat customer spent 67% more in months 31 to 36 of their shopping relationship than in months zero to six.
Word-of-mouth marketing
Satisfied, loyal customers are more likely to recommend a business to friends and family. This word-of-mouth marketing is invaluable, as it brings in new customers through trusted recommendations rather than costly advertising campaigns. Many still consider word of mouth to be one of the best marketing strategies today, and your longtime customers are also your brand ambassadors.
Cost efficiency
The marketing, advertising, and sales efforts required to attract new customers typically cost more than the resources needed to maintain relationships with current customers. By focusing on customer retention, businesses can reduce customer acquisition costs and increase profitability.
For example, in the graph below, each store has 100 customers buying a $10 item each month. The theoretical light purple store is retaining 5% of those customers each month, and the dark purple store is retaining 10%. As you can see, the 5% increase can lead to rapid growth that is difficult to match with straight acquisition.
14 customer retention strategies that actually work
- Use customer accounts
- Improve your customer service
- Start a customer loyalty program
- Send engaging emails
- Offer a discount or credit to return
- Collect customer feedback
- Perfect the returns process
- Offer a subscription service
- Turn customer complaints into resolutions
- Reward referrals
- Be vocal about your values
- Offer buy now, pay later options
- Gamify the customer experience
- Educate your existing customers
Use these 14 strategies as inspiration when brainstorming ways to increase customer retention:
Use customer accounts
Customer accounts make repurchasing a breeze by giving customers instant access to previous orders, pre-filled shipping information, and personalized experiences. These little conveniences encourage repeat purchases and enhance the overall shopping experience.
However, customer accounts can be a double-edged sword. New customers often see creating an account as too big of a commitment, which might deter them from completing their purchase. Many people choose to check out as guests if given the option. To combat this impulse, offer the option to create an account after customers have placed their first order. This way, they can experience the value of your products and services without the initial hassle. Once they’ve completed their purchase and enjoyed the benefits, they’ll be more inclined to create an account.
There is no longer an excuse not to personalize the purchasing experience for every one of your clients, because modern technology has made it so much simpler to do so.
With email automation, you can implement this strategy with no active effort on your part. A well-timed, personalized email can highlight the perks of having an account, such as faster checkout, order tracking, and exclusive offers.
To further boost account sign-ups, consider offering incentives like a discount on their next purchase, access to exclusive sales, or loyalty points. By offering something valuable, you can increase the likelihood that customers will take the time to set up an account.
Improve your customer service
A strong customer service system enables you or a customer success representative to address customer needs clearly and efficiently.
A live chat or help desk tool can turn a customer question into a sale. With Shopify Inbox, you can offer a live chat experience right on your website. Its AI capabilities ensure that customers can get immediate answers and communicate from their computer or phone.
These direct interactions are great opportunities to differentiate your business from the competition. Consider adding unexpected extras to the customer service experience, like a small gift or a handwritten thank you note.
Start a customer loyalty program
Customer loyalty programs, sometimes referred to as customer retention programs, are effective because they motivate customers to purchase more often to earn valuable rewards. This becomes a profitable exchange for both you and your customers; they get more value each time they shop, and you benefit from their repeat business.
Encourage customers to invest in the program by giving them welcome points when they create an account. When they see how easy it is to earn rewards, they’ll be excited to come back to your store to do it again.
Creating a loyalty program can be as simple as rewarding customers on their second purchase or rewarding them when they reach a certain spending threshold. Shopify analytics make it easy to see who your loyal customers are by dollar value and total number of orders. Additionally, you can opt for automated loyalty apps, which reward your customers for the actions they take in your store.
Send engaging emails
Email marketing allows you to build and strengthen customer relationships both before and after their initial purchase. Each message you send must add value to your customer’s experience. If it doesn’t, you risk losing them.
A great way to get started is with follow-up emails. A week after a customer’s first purchase, send them an email that says, “Thank you for your purchase.” This type of acknowledgment shows you appreciate their business and are attentive to their satisfaction.
To make this initial email even more impactful, recommend products that would complement their initial purchase. This not only adds value by helping customers discover additional items they might find useful but also enhances their overall shopping experience.
Offer a discount or credit to return
Sending a discount code for an existing customer’s next purchase is a great way to improve your customer retention rates.
To maximize the impact, offer more than the standard 10% off. A 20% discount, for example, can be seen as an investment in boosting your repeat customer rate. While discounting can sometimes lead to a race to the bottom if overused, strategically offering discounts as part of a retention strategy can encourage repeat purchases without significantly impacting your margins.
You may also want to experiment with offering credits to use at your store versus a percentage discount. Store credits, such as a $10 credit toward any future purchase, can feel more tangible and flexible to customers than a percentage discount. This is because store credits can be applied to any purchase, regardless of the total amount, making customers feel like they are getting a gift or a bonus rather than just a discount.
Harney & Sons Fine Teas, for example, emails existing customers a $10 discount code to use on their next order, regardless of what they buy from its online store.
Collect customer feedback
Using customer segmentation, you can filter for people who haven’t placed a purchase in more than three months and send them customer surveys.
Imagine 60% of your one-time customers say they didn’t purchase again because they haven’t used the last item they bought. Enter these people into an email marketing series that focuses on product education. Walk them through the use cases of the product they purchased, the benefits of the product, and testimonials from other customers.
Perfect the returns process
A great returns experience encourages customers to return and buy again, while a poor one can drive them away.
To perfect your ecommerce returns process, start by creating a clear policy that outlines what qualifies for a return and what doesn’t. Since 67% of people check a vendor’s return policy before placing an order, clarifying these details upfront helps manage customer expectations and prevents misunderstandings.
Additionally, consider partnering with services like Loop Returns or AfterShip. These platforms enable you to build an online portal where customers can generate shipping labels, track their returns, and request exchanges—all without draining your customer support resources.
Offer a subscription service
Subscriptions lock customers into purchasing items regularly, providing your business with steady, recurring revenue while keeping customers engaged. This model can enhance customer loyalty by offering convenience and value through consistent service.
You don’t need to make subscriptions your entire business model to reap these benefits. Consider offering a standalone subscription box featuring miniature versions of your bestselling products. This allows customers to sample a variety of items regularly, increasing their engagement and likelihood of making additional purchases.
Turn customer complaints into resolutions
Unfortunately, things can go wrong throughout the customer journey. Shipments may be delayed, products might be damaged in transit, or incorrect items could arrive. Own these mistakes, even if your brand isn’t directly to blame, and turn unhappy customers into loyal ones through exceptional customer service.
This approach leverages the service recovery paradox, which suggests that effectively resolving a mistake can build more goodwill with customers than if the issue had never occurred in the first place.
We are all human, and we all make mistakes. Is it fun to admit you messed up? Of course not. But when you do, apologize. Take ownership of what happened, and communicate how you will make it right, or change things going forward to prevent it from happening again.
Let’s put that into practice. If a customer complains about receiving a damaged order, take responsibility even if the fault lies with the courier. Offer a sincere apology, ship a free replacement, and explain the steps you’re taking to prevent similar issues in the future.
Customer relationship management (CRM) tools can help you manage these interactions effectively. The following tools integrate with your Shopify store and provide a real-time stream of customer data:
Reward referrals
Encouraging your existing customers to refer friends and family can be a powerful way to expand your customer base while rewarding loyalty. When a customer refers someone to your business, they are vouching for your quality and reliability. This trust factor is invaluable, as new customers are more likely to make a purchase based on the positive experiences shared by someone they know.
Creating a referral program is a great way to start a dual reward system, where both the referrer and the new customer receive benefits.
Be vocal about your values
Today’s customers are more inclined to support brands that align with their values. By being transparent about your company’s mission, values, and social responsibility initiatives, you can foster a deeper connection with your audience.
Offer buy now, pay later options
Offering flexible payment options like buy now, pay later (BNPL) can significantly improve customer retention. BNPL options allow customers to purchase items and pay for them over time, often with low fees or no interest.
Highlight the availability of BNPL on your product pages and during the checkout process. This flexibility can reduce the financial burden on customers, making them more likely to complete a purchase and return for future transactions. It also opens up your products to a broader audience, including those who may not have the immediate funds available.
Gamify the customer experience
Gamification can make the customer experience more engaging and fun, encouraging repeat visits and purchases. Incorporate game-like elements such as reward points, badges, levels, and leaderboards into your customer journey. By making the shopping experience interactive and rewarding, you can increase customer engagement and loyalty.
Educate your existing customers
Keep your existing customers informed with newsletters, blog posts, and social media content about new products, services, and promotions. Creating educational content—such as how-to guides, tutorials, and product usage tips—helps customers get the most out of their purchases and feel more connected to your brand.
Hosting webinars or live Q&A sessions is another effective way to engage with your customers and address their questions in real time. Try segmenting your audience to deliver personalized content relevant to their interests and past purchases.
Customer retention rate metrics that matter
Here are the most important customer retention metrics and examine why they matter.
Repeat customer rate
Repeat customer rate measures the percentage of customers willing to make a second purchase from you. The higher this metric is, the more willing customers are to return to your store. Calculating your repeat customer rate is fairly straightforward and only requires two pieces of information:
- Number of customers with more than one purchase. This refers to the number of customers who have made more than one purchase in a specific period of time.
- Number of unique customers. This is the number of different customers who purchased from your store in the same time frame, including those who have only purchased once.
When you write out this equation, it looks like this:
Repeat customer rate = # of Customers That Purchased More Than Once / # Unique Customers
Multiply this number by 100 to get a percentage.
Purchase frequency
Purchase frequency shows you how often customers are coming back to buy from your store. This is especially important when you consider that repeat customers are often responsible for a significant portion of a store’s annual revenue.
Calculating your store’s purchase frequency is similar to calculating repeat purchase rate. Using the same time frame you chose for your repeat purchase rate (e.g., a single month), divide your store’s total number of orders by the number of unique customers.
When you write out this equation, it looks like this:
Purchase Frequency = # of Orders Placed / # Unique Customers
Average order value
Once you understand repeat purchase rate and purchase frequency, it’s time to maximize how much each of those purchases are worth. This metric is known as average order value, and refers to the amount of money a customer spends in your store on each transaction.
Use the same time frame you set for your repeat purchase rate. From there, all you have to do is divide your revenue by the number of orders your store processed. Shopify reports also calculate this number for you. When you write out the equation, it looks like this:
Average Order Value = Total Revenue Earned / # Orders Placed
Customer lifetime value
Whether you hope to increase these metrics one at a time or simultaneously, the ultimate goal of retention marketing is to increase customer value. Customer lifetime value is the final piece of the puzzle, because it helps you understand how much each customer relationship is actually worth.
To calculate CLV, take your average value of a sale, number of repeat transactions, and retention time for a customer and multiply these values together.
CLV = (Average Value of a Sale) x (Number of Repeat Transactions) x (Average Retention Time in Months or Years for a Typical Customer)
Churn rate
The customer churn rate is the percentage of customers who’ve stopped being your customers during any given time period. There could be a number of reasons for your customer churn rate to increase. Reasons like:
- Unmet expectations
- Better competitor offerings
- Lack of engagement
- Poor customer service
The goal is to keep your customer churn rate as low as possible. But first, you need to find out what your rate is:
Customer retention examples
- Everlywell
- Luxy Hair
- Dia & Co
- Pepper
- West Path
- Chubbies
- Elph Ceramics
- Splash Wines
- The Honest Kitchen
- Jill & Ally
- Mack Weldon
Everlywell
Everlywell regularly sends personalized emails that offer new products or sales to its list. Making additional product recommendations and sending invitations for upcoming sales and promotions for new products are great ways to keep the conversation going with first-time buyers.
Luxy Hair
Luxy Hair mentions in its FAQ section that its hair extensions will last three to six months, on average, or up to a year, depending on wear. Knowing this, Luxy could set up a series of automated emails to go out after three months, six months, and one year that explain to customers the benefits of a fresh set of hair extensions. These emails would help educate a first-time buyer, keep Luxy top of mind, and encourage repeat business, all while providing customers with a great experience.
In all of your post-sale marketing communications, remember to remind customers of why they bought from your brand in the first place. Getting them to come back rests on your ability to show them why an additional purchase is worth their time and money.
Dia & Co
Dia & Co is a clothing brand that specializes in creating clothes for plus-size women. After Dia & Co began its most recent referral program, its referral links were shared more than 50,000 times. Forty thousand customers shared those links, and in the first month, the program saw about 22 conversions per day.
Pepper
Pepper helps women find the right bra size by having them take a 45-second fit quiz, which results in a personalized recommendation based on their answers. This process not only simplifies the shopping experience, improving customer acquisition, but also ensures that customers receive products tailored to their specific needs and preferences. By providing a perfect fit, Pepper encourages repeat purchases and fosters long-term customer loyalty.
West Path
West Path, an ethically sourced clothing brand founded by surfers in San Diego, adds a unique touch to every package with a complimentary West Path sticker. This small, unexpected gesture costs only a few cents, brings joy to customers, and creates a memorable experience.
Chubbies
A return management system helps you handle all aspects of returns for your customers. It allows customers to initiate returns, and enables you to manage and track those returns, relist items in your inventory, and monitor the financial impact on your books.
Chubbies, an online men’s clothing retailer, exemplifies this by offering free returns—free exchanges within 90 days and full refunds within 30 days of purchase. Customers can easily start and complete a return by entering their order number along with either a shipping ZIP code, email, or phone number into an online form, making the process smooth and hassle-free.
Elph Ceramics
Elph Ceramics has an online store that runs parallel to its brick-and-mortar locations. Managing customer data across various sales channels was confusing. So, it enlisted the help of Shopify POS to deliver seamless customer experiences regardless of their shopping channel.
Elph Ceramics can now unify its customer data—including emails and purchase history—in one back end, making it easier to send retention emails that convince customers to buy again. The result? A 25% increase in its customer database and a 30% higher customer retention rate.
Splash Wines
The Black Friday Cyber Monday (BFCM) weekend is the busiest shopping season of the year. But instead of focusing solely on customer acquisition, Splash Wines went into the event with a customer retention strategy in action. “We have customers reorder about 40% of the time, and they reorder an average of five or six times with us, so it’s a very strong point of pride for us as a company,” CMO Garrett Imeson told Klaviyo. “So, when we get an influx of customers like we do on Black Friday and Cyber Monday, we’re always thinking of new ways to try and retain those customers.”
Splash Wines used Recharge to build a subscription model that allowed BCFM customers to “lock in” their discounted price throughout the holiday season. It used historical purchase data to schedule subscription-related email campaigns around key order dates—when people typically finish their first bottle of wine.
This strategy helped Splash Wines achieve a 177% year-over-year increase in Cyber Weekend sales. Some 40% of those customers purchased more than once.
The Honest Kitchen
The Honest Kitchen already had a customer loyalty and subscription program to improve retention, but it had no way for existing customers to redeem points on its subscription orders.
Plus, because its target market considers its products an investment in their pet’s health, The Honest Kitchen needs to educate customers continuously—even if they’ve already made a purchase.
The Honest Kitchen uses Yotpo to deliver personalized educational content based on the pet they have, its weight, and any allergies it needs to consider in the food they buy. The retailer also automatically populates a rewards page based on each customers’ previous purchases.
After implementing this personalized approach, opt-in rates for The Honest Kitchen’s referral program rose to four times the industry average. “I’ve definitely seen customers who are inclined to explore new products, because there’s less of a risk if they’re using reward points,” says Leanne Pratt, The Honest Kitchen’s digital marketing and ecommerce manager.
Jill & Ally
Jill & Ally uses its crystal candle club to convince people to make more than one purchase. Generous discounts increase based on subscription frequency and entice first-time customers to purchase more often. There’s also the lure of early access to new products, exclusive sales, and surprise items.
Once they’re subscribed, customers authorize Jill & Ally to bill their payment card according to their chosen subscription schedule. They need to sign into their account to pause or cancel a subscription, making customer retention the default.
Mack Weldon
To encourage feedback, Mack Weldon implemented an email automation that goes out after customers receive their purchase. The email prominently features the purchased item with a “click to rate” widget, making it easy for customers to leave a review.
Additionally, the email includes a personalized product carousel showcasing similar items other customers bought, along with their star ratings. This not only reinforces the positive experience of the initial purchase but also entices customers to consider additional products, especially if they are satisfied with their first purchase.
When to focus on customer retention
The strategies you should prioritize for customer retention can vary significantly depending on the type of products you sell. For instance, a retailer selling high-end leather furniture will approach retention differently than a store selling tea and coffee. Stores with high-value, frequently purchased items will benefit the most from a robust retention strategy, as their customers typically have the highest lifetime value.
In addition to the type of products you sell, your store’s lifecycle stage heavily influences whether you should focus more on customer retention or acquisition. Here’s a guide to understanding when to prioritize retention efforts based on your business’s maturity:
- Just starting. In the early stages, your primary focus should be on acquiring new customers. At this point, acquisition efforts should take precedence over retention so you can grow your customer base rapidly.
- Gaining traction. With loyal customers and sporadic sales, begin incorporating retention elements—starting with automated email campaigns.
- Growing consistently. As sales become more consistent, integrate retention strategies with your acquisition efforts and consider launching referral and loyalty programs.
- Established. While acquisition might lead to many one-time purchases, a solid retention strategy can increase the frequency of purchases, boosting customer lifetime value. Be deliberate and serious about your retention efforts at this stage.
- Well-established. Having navigated the initial challenges, now is the time to focus heavily on retention. With many processes and automations in place, prioritize strategies that deepen customer loyalty and increase repeat business.
Finally, always tailor your strategy based on what you sell and your customers’ behavior. Ensure that your retention strategies align with your business model and meet the specific needs and expectations of your customers.
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Customer retention strategies FAQ
What is a good customer retention rate?
A good customer retention rate for ecommerce brands is around 30%.
What are the key factors in customer retention?
Key factors for increasing customer retention include:
- Customer satisfaction. Maintain high-quality products and positive experiences and act on customer feedback.
- Customer service. Provide prompt, helpful, and friendly support and keep customers informed with regular updates.
- Personalization. Tailor experiences to individual preferences.
- Loyalty programs. Reward repeat customers with points and discounts.
- Engagement. Foster a sense of community around your brand.
- Convenience. Simplify the customer journey with easy processes.
- Value. Offer strong benefits and competitive pricing.
How do you improve customer retention?
First, establish a baseline by figuring out how many of your customers are returning customers. Then use retention tactics like smooth customer onboarding, loyalty incentives, and great customer service to keep your customers happy and coming back for more.
How do you measure customer retention?
Take the total number of customers who made repeat purchases in a certain period and subtract it from the total number of new customers you acquired during that same period. Then divide that number by the total number of customers at the beginning of the designated period and multiply that by one hundred.
What are examples of customer retention strategies?
Examples of retention strategies include offering a discount to returning customers, running email marketing campaigns, encouraging customers to join a subscription program, creating a loyalty program, and improving your customer support.
