Increasing customer retention in e-commerce

Resale and customer retention rate or customer journey: you may have already heard all these terms before. They have one thing in common: when it comes to looking after your existing customers, you need them. We’ll show you how to correctly calculate and interpret the related key figures.

  • Facts and figures form the basis for customer retention in e-commerce
  • The resale rate
  • The customer retention rate
  • Customer lifetime value
  • The perfect customer journey
  • No more hassle after payment
  • Suggest products to your customers
  • Testimonials increase credibility
  • What do customers actually think of your online shop?
  • Customer retention in the online shop is half the story

Acquiring new customers is gold for a business – however, it’s also a costly affair. Due to the overwhelming flow of information, customer acquisition is now becoming increasingly expensive and challenging. You may have already experienced this.

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It is therefore all the more sensible to invest in long-term customer retention in e-commerce. According to a study by KPMG, this is the greatest revenue driver. Assuming, of course, that you already have a corresponding sales base as an online retailer.

Are you already catering to markets outside your national borders? Or do you want to conquer new markets? Here you can find a compact summary of the key customer requirements in neighbouring countries.

Impressive figures highlight the huge importance of customer retention: According to the Adobe Digital Index, it takes five to seven new customers to generate the same revenue as that of one existing customer.

This is mainly due to the fact that the average shopping basket value of an existing customer is significantly higher than that of a new customer. A study from 2018 calculated that loyal customers, who account for around 30%, generate two thirds of all revenue.

It takes more than good sales prices to win over long-term customers. One key focus here is often the quality of your products. This has the advantage that existing customers react much less sensitively to price increases.

In addition, existing customers are the best advertisement for your company. Through positive feedback, you can quickly gain new customers or at least additional interested parties, particularly on rating platforms.

Even communication approaches are much easier with existing customers. When it comes to data protection, exchanges with new customers are far more complicated.

As an online retailer, it is therefore important to create a good marketing mix. The acquisition of new customers is naturally essential – even the basis – but customer retention is equally vital. After all, it maximises your sales.

Facts and figures form the basis for customer retention in e-commerce

However, things that sound good in theory aren’t always that easy in practice. Customer retention is challenging. There are now many alternatives and ever-increasing competition in online retail.

It is therefore essential to approach the matter pragmatically. The basis should always be facts and figures. For the best possible analysis, you should know what the most important key figures for e-commerce shops are and how to use them:

The resale rate

One of the most important figures is the resale rate. This measures customer loyalty. It shows you the percentage of customers who buy from you again within a specific period of time. You’ll therefore know how many people come back to you after having ordered from you in the past.

The resale rate is also a good indicator of how successful your customer retention in e-commerce actually is. It is also a fairly simple calculation. Take the number of customers who have purchased from you more than once and divide it by the total number.

To capture new markets, you must be willing and able to ship internationally. Our checklist will provide you with an overview of everything you need to consider.

The customer retention rate

Another key figure is the customer retention rate. This shows you how well you are able to keep customers satisfied in the long term and loyal to you. This example provides a simple explanation of how to calculate the customer retention rate:

At the beginning of the year, you have over 80 existing customers. Over the course of the year, you lose 15 of them but acquire 25 new ones. In this case, the formula for the customer retention rate is:

((90–25) : 80) × 100 = 81.25%

Understanding the customer retention rate is particularly important for growing online shops. This is because it measures not only how successfully new customers are acquired, but also whether or not existing customers can be retained. You’ll therefore realise whether customer retention in your online shop is increasing or whether you need to adapt your marketing strategy.

Customer lifetime value

The next figure to be considered as an online retailer is what is known as the customer lifetime value, or CLV.

With the CLV, you can calculate for which customers it may be worthwhile to invest more resources into customer care as they may, for example, generate a particularly high number of orders during a certain period of time. The CLV doesn’t just consider a customer during a particular time window, but rather takes into account the entire duration of the customer relationship in e-commerce.

The CLV includes the period from the first customer contact up to their departure, so the entire actual value of the customer throughout the whole business relationship. There are different options and approaches for calculating this indicator – including a few complicated ones.

Below is the potentially simplest calculation method: You will require the resale rate calculated above as well as the customer lifespan and your profit contribution.

The first thing to consider is the customer lifespan: To do this, you must establish a specific period of time, for example one year. You will also require the customer retention rate you calculated.

For our example, we will use the customer retention rate calculated above, i.e. 81.25%. This results in the following calculation:

1 (1 year) : (1–0.8125) = 5.3 years customer lifespan

This means that your customers will remain loyal for an average of 5.3 years.

Now that you’ve calculated the customer lifespan, you can work out the CLV. The basic formula is:

CLV = (profit contribution × resale rate) × customer lifespan – customer acquisition costs

Too complicated? Have no fear! A sample calculation will provide a simpler explanation. Let’s assume CHF 150 for the customer acquisition costs and CHF 500 for the profit contribution. The calculation then looks as follows:

500 CHF (profit contribution) × 66 % (resale rate) × 5.3 (lifespan) – 150 CHF (customer acquisition costs) = 1,599 CHF

In the ideal situation, the CLV rises consistently. This simply means that your customers spend more money and more frequently at your shop. You therefore know that the relationship with your online shop remains intact and the marketing investments are worthwhile.

It is therefore worth the effort to regularly calculate and review the CLV. It indicates whether your customer retention measures are having a positive impact on your revenue. Even if this requires a little mathematical talent at the beginning. Practice makes perfect!

The customer retention calculation is an important tool for assessing where you will need to apply leverage in the future. How can you improve customer retention, however, if your calculated value doesn’t quite meet your target? The following five points will help you retain customers for longer:

The perfect customer journey

We certainly don’t need to tell you, an e-commerce professional, just how important the customer journey is for long-term business success. In this context, it’s important to consider that even your international customers should feel right at home with you. This will encourage them to purchase from you again and start building up a customer relationship.

But what exactly does it mean to offer a perfect customer journey? First and foremost, your online shop must be adapted to the customer requirements in the respective country. Aspects such as payment method, currency, delivery and returns must all be taken into account. The technical term for these adjustments is “localisation”.

You can find detailed information on the topic of cross-border e-commerce localisation in our blog post.

No more hassle after payment – customer retention in the online shop

If a customer places an order from your online shop, they ideally shouldn’t have to take care of anything else after payment. This means you need reliable delivery partners who will deliver the product directly to the customer’s front door or postbox. This is essential for building up a customer relationship in e-commerce. You should also relieve your customers of any work when it comes to customs duties. Finally, you also need a good returns system in case your customers are unhappy with a purchase.

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Poorly thought out logistics will quickly have a negative impact on you and your online shop. After all, negative experiences result in poor reviews – and it goes without saying that customer satisfaction will fall. You should therefore take your time when selecting a trustworthy and reliable customs clearance and shipping partner.

Suggest products to your customers – build up a customer relationship

Big online platforms have already mastered this. The better you know your customers, the better your ability to provide personalised product recommendations. This will keep them satisfied in the long term – and increase their loyalty and thus also your online shop customer retention.

It is therefore important to make clever use of your gathered customer data. There are some classics that usually work well when it comes to product suggestions: “top sellers”, “other customers also bought …”, “product recommendations based on the viewed category”, etc. For the fashion industry, we also recommend suggesting suitable products to customers based on what they have previously selected.

Customers nowadays are faced with an absolute product jungle, so they appreciate receiving good recommendations which facilitate their shopping experience. This also increases the likelihood that they will buy from you again.

Testimonials increase credibility

Use testimonials! Not only do they generate greater attention, they also increase the credibility of brands and products. Successful online shops make the most of this opportunity to win the trust of their customers, increase the appeal of products and thus guarantee long-term business success.

Whether you should use the testimonial of a known ambassador or an unknown person depends on the product to be advertised. In principle, however, your testimonial will only be convincing if it is presented in a credible and authentic manner. This only works if the testimonial and the advertised brand harmonise and the communication strategy is adjusted accordingly. This will allow you to build up a customer relationship.

What do customers actually think of your online shop?

The most common approach for collecting customer feedback is the use of a net promoter score (NPS). This involves a number which measures the likelihood that customers will recommend the product or service to others. The NPS can also be used to measure customer satisfaction and loyalty to a certain extent. A must-have for customer retention in e-commerce.

To calculate the NPS, you will need to send out a random but representative customer survey. “How likely is it that you would recommend the product (or the service) to someone else?” Those surveyed can specify their response on a scale from one to ten.

Once you have established this figure, the formula for the NPS is calculated as follows:

% of promoters – % of critics

The NPS can lie between –100% and 100%. The higher the value, the better. It may be worth adding to the customer survey a question about their reasoning behind the specified number.

To distinguish between promoters and critics, the scale is divided into three tiers. Surveyed customers who tick either nine or ten belong to the promotergroup. Persons who tick seven or eight are classed as neutral. Those who select anything between zero and six are critics. They are critical of your business and could even warn other potential customers against buying from you.

The NPS is an important key figure and should be calculated regularly due to its great significance. However, it does not replace a conventional customer satisfaction survey. Ideally, you should integrate the NPS into such a survey.

Customer retention in the online shop is half the story

In addition to the tools described in detail above, there are naturally many other steps you can take to increase customer retention. This includes, for example, communication calendars, customer loyalty programmes, corporate social responsibility (CSR) programmes, recommendation programmes or one-click functions.

The key aspect, however, is adjusting the measures to your communication strategy, your online shop and your products. It is therefore important to regularly calculate customer retention figures and interpret them correctly.

Combined with a good logistics solution for your customers, nothing will stand in the way of the success of your online shop.

Do you want to organise a cross-border logistics solution tailored to your customer requirements? Then book your free consultation today!

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