What Is Ecommerce Retention Rate? (And How To Improve It)

Ryan Baum
Ryan Baum
Last updated on 
May 30, 2022
May 30, 2022
What Is Ecommerce Retention Rate? (And How To Improve It)

Ecommerce businesses spend considerable time and money attracting prospects and turning them into new customers. This is especially true as acquisition costs skyrocket with increased competition and rising ad prices.

So why don’t these companies put in the effort needed to keep their hard-won customers?

Failing to prioritize customer retention is a big mistake. It can decrease the return on investment (ROI) of gaining customers, decrease profits, and cause a company to lose its competitive edge. Savvy companies know the value of existing customers and are willing to put effort into keeping them happy — and loyal.

Below, we'll cover the importance of customer retention, how to calculate your customer retention rate, and hammer out some ways to improve your customer retention rate and reduce customer churn.

Table of contents

What is ecommerce retention rate?

Customer retention rate is the percentage of existing customers a business retains over time. Companies in the ecommerce space call this the ecommerce retention rate. If your organization has a high number of repeat customers, your customer retention rate is likely good. However, if your company seldom does business with a customer after the initial order, this indicates an opportunity to improve your retention rate.

Why is customer retention rate an important metric?

Your customer retention rate is a valuable measure that gives you important insight. It's easier and cheaper to keep a customer than it is to go out and find new customers. According to Hubspot, a mere 5% increase in customer retention can increase the company's revenue by a whopping 25%-95%.

If your customer acquisition cost is high and your customer retention rate is low, your ROI falls short of where it could be if your customer retention efforts were more successful.

Customer retention rate calculation

There's a simple formula for calculating your customer retention rate. It contains three elements:

  • Number of customers at the beginning of a time period
  • Number of customers at the end of the same time period
  • New customers acquired during the given period

Customer retention rate = [(Number of customers at the end of time period - Number of customers acquired during time period) / Number of customers at the beginning of time period] x 100

Customer retention rate example

Company A had 100 customers at the beginning of the year and 80 customers at the end of the year. During the year, they acquired 45 new customers. The customer retention rate calculation for Company A would be as follows:

Customer retention rate = [(80 - 45) / 100] x 100

Customer retention rate = 35%

The average customer retention rate for ecommerce stores

The widely accepted customer retention rate for the ecommerce industry is 31%, according to Omniconvert. Depending on how well they handle their customer base and their effort in building customer loyalty, some companies may enjoy a considerably higher customer retention rate. Those who only gear their resources toward finding and selling first-time customers may have a lower retention rate.

It's important to note that, even if your company has a 31% retention rate, it's not time to brush off your hands and exclaim, "We're done here!" Customer retention is an ongoing process, and there's always room to improve — which will benefit your customer service ROI and your bottom line.

6 ways to improve ecommerce customer retention rate and reduce churn rate

Ecommerce brands should keep a razor-sharp eye on their ecommerce retention rate and churn rate, just like they need to look at customer lifetime value and average order value. These benchmarks are metrics that help measure a business's health and identify opportunities to benefit the bottom line. You can put actions in place that help you keep current customers with you instead of your competition.

Let's dive into six tried-and-true customer retention strategies you can use to increase your ecommerce brand's customer retention rate.

1) Provide a fantastic customer experience

We can't say enough about the importance of a positive and pleasant user experience. According to a 2019 research study by Oracle and Jeanne Bliss, 43% of customers will stop doing business with a brand over a single bad experience. In addition, 59% of them will tell their friends and family about the negative experience.

Evaluate your customer service program using metrics like net promoter score, and make sure it contains these essential elements:

  • An experienced, top-notch customer service team: High-quality, well-trained talent understands your customer and delivers top-tier support every time.
  • Intuitive technology: This helps your customer success team perform their jobs faster and more efficiently. Intuitive technology can include live-chat features or asynchronous communication channels.
  • Mobile optimization: According to Statista, smartphone orders generated 46% of revenue for retail ecommerce websites in the third quarter of 2020. If customers can't easily navigate your website via smartphone or tablet, they could click away — and never return. Incorporate apps, mobile capabilities, and a simple checkout process if your ecommerce store doesn't have these features.

Remember, customer support isn't a set-and-forget process. Frequently review and measure your customer support metrics to gauge your success.

2) Build a rewarding customer loyalty program

Loyal customers come back to your brand over and over, making them a profitable addition to your business. According to a 2020 survey by Yotpo, 68% of customers will join a loyalty program if one is available. Cultivate your customers into raving fans and increase their purchase frequency by employing a customer rewards marketing strategy.

To create a successful program, determine the rewards that repeat customers will get — but be sure to make it something they'll find hard to turn down. Consider including freebies, deep discounts, and multiple ways to earn points (such as a purchase or referral) in your strategy.

A side benefit of a compelling customer loyalty program is that happy customers will spread its value by word of mouth and via social media to give your brand priceless free advertising.

3) Offer customers discounts and deals

Everyone likes to feel special. Score some big points with your current customer base by offering them exclusive incentives. This could include letting loyalty program members order new products before the general public, offering them member-only discounts, offering free shipping, and sending a free gift with their purchase. These extra touches will increase your customer's satisfaction and keep them loyal to your brand.

4) Conduct surveys and learn from customer data

Don't assume you know what your customers want — ask them! Retaining customers takes continuous communication, as their interests and preferences can change over time. It's necessary to periodically survey them to ensure you're hitting the mark with your retention efforts. Gather and review customer feedback, looking for trends to use to elevate your buyer's experience.

These surveys don't have to be long or time-consuming. A question or two during checkout, or a marketing email asking for two minutes of their time is enough to give you valuable intel.

5) Improve your customer service and ecommerce store overall

Consistently improve and optimize your store to keep it functioning quickly and efficiently. Segment your customers for more personalized, impactful messaging. Check your load times for your web pages, measure the success of your calls to action (CTAs), cut down on the number of required clicks where you can, and add the most updated content available. Use the information you gather from your customers to make your processes more user-friendly, so your customers can enjoy a seamless experience.

6) Utilize cross-selling and upselling strategies

As your relationship with your customer strengthens, increase the customer lifetime value by using retention marketing. Add to the number of products they buy from you, either from the same or different product lines. Show them the value of increasing their repeat purchase rate and ordering more each time. Marketing a cross-selling strategy can dramatically increase your average customer lifetime value.

Increase your ecommerce retention rate with Gorgias

Being able to calculate your customer retention rate, and understanding why it's important, are the first steps toward creating a powerful customer retention marketing strategy. By focusing on providing a wonderful customer experience at every touch, creating customer loyalty, and cross-selling, you can increase your ecommerce company's retention rate and enjoy more profit from your existing customer base.

Are you nailing your customer service efforts? Are you ready to spoil your customers with unparalleled customer service? Gorgias can help you turn your customer helpdesk into a profit center. We help ecommerce businesses enhance, automate, and increase the speed of their current support, making customer interactions a smooth and pleasing experience. We also help you monitor performance with features like our support performance dashboard and live statistics about agent performance. Sign up today to increase your customer retention rate through exemplary customer service.

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