What is customer retention and what 5 factors impact it

What is customer retention and what 5 factors impact it

What factors are crucial in building customer retention and loyalty?

What is customer retention and what 5 factors impact it

There are several e-commerce metrics that are vital for any store’s health, and customer retention is one of them. To keep your business afloat, you’ll need to keep the balance between acquiring new customers and retaining existing ones.

After the early stages of your store’s development, you’ll probably need to prioritize retention over acquisition, as returning customers bring you a higher AOV, are more likely to purchase high-value products, and can become your ambassadors recommending your products to others.

If you already know your way around customer retention, what it is, and how to calculate it, you can jump to our article on 8 proven retention strategies

What is customer retention?

Customer retention is the percentage of customers who return to a store over a given period of time (a month, a year, etc.). The frequency of measuring and analyzing retention rates depends on your niche and type of business. For instance, if you’re selling products that are in regular use, you might want to look at your retention rates every few weeks. But if you’re specializing on items that last for a long time, it might make sense to measure customer retention in the context of a year or even a couple of years. 

How to measure retention?

The formula of customer retention rate is as follows:

(the number of customers at the end of the analyzed period
- the number of customers acquired in that period)
/ the number of customers at the beginning of the analyzed period

Let’s say we need to measure customer retention over 6 months, with a store having 500 customers at the beginning of this period and 400 at the end, having attracted 100 new ones. We’ll have (400 - 100) / 500 = 0.06, or 60%. 

The closer this number is to 100%, the better. However, there’s no average retention rate you should strive for—it should be realistic for your business.

Analytical and reporting tools will help you automatically detect the retention rate. For instance, on Shopify, a basic returning customer graph is available out-of-the-box, while with Woocommerce, you’ll have to filter your data to get the insights. 

What is the cost of customer retention?

Another metric you should be aware of is customer retention cost, which stands for your spendings allocated to retain a customer. You can calculate all your sales and marketing efforts targeted at existing customers and divide the result by the number of returning customers in a given time period—this will be your average retention cost per customer.

You can analyze your customer retention costs in comparison to acquisition costs to understand how much it takes to bring in a new customer and retain an existing one. Plus, you can analyze it in the context of the average customer lifetime value to see if your retention efforts pay off.

5 factors that impact your retention rate

Returning customers are the driving force of your store so you definitely should know how to identify them and how to keep them satisfied. But before you start crafting perfect customer retention tactics, let’s explore what aspects you should consider.

1. Trust and transparency

Retention of customers largely depends on how trustworthy shoppers see your online store. Check if you have the following trust boosters:

  • Secure payment options. Audit your checkout process to make sure it includes the payment methods that are trusted among your target audience. For instance, adding accelerated checkout solutions like Shop Pay or local payment providers will make for a more convenient shopping process and, subsequently, increased conversions and improved level of trust. On top of that, you can use apps like Trust Badges Bear to show the badges of supported payment methods on any page of the store.

  • Clear returns policy. Almost 70% of consumers read return policies, and they are more likely to purchase if they understand the conditions of returning products. Besides the policy itself, you should have a sustainable process of managing returns. Use solutions like AfterShip Returns that will help you automate return shipments, introduce green returns, and eliminate return fraud. 
Detailed returns page
Detailed returns page
  • Fast delivery promise. With 80% of shoppers expecting a same-day delivery (and 61% even want to receive their packages within a couple of hours), stores that are able to offer that and live up to this promise have a clear competitive edge. For instance, Shopify offers the Shop Promise service to its merchants: it guarantees a specific delivery timeframe and, being displayed on the store, serves as a great trust booster.

  • Consistent presence on social media. Building your brand outside your own site is also important. When you run accounts on different social platforms and communicate with users, you’re increasing brand awareness and trust. If, in the opposite scenario, it’s hard to find your company and products on social media, it may raise suspicion in potential buyers. 

Some companies even go the extra mile in providing transparency and explaining the costs behind each produced item:

Pricing transparancy
Source: Everlane

2. Shared values and a sense of community

When talking about customer loyalty, we’ve mentioned that matching brand values is one of its 5 fundamentals. Communicating what your company stands for can help increase your retention rates because shoppers who share the same values will feel connected to your store. 

To have that connection with customers, make sure to craft an informative about-us page. If you don’t have one, then you should definitely create it, and if you already have one, re-evaluate it: does it clearly communicate the essence of your brand and products? For instance, on the screenshot below, you’ll see the page of a store that promotes its food as simple and healthy.

Brand values on the about-us page
Source: Kashi

Here are some good ideas of what to add to communicate your values to retain customers:

  • Employ the power of storytelling to share your personal story on the about-us page.
  • Create additional content that inspires. While having stunning and convincing product pages is beyond doubt your number one task, you can add value for customers by creating a blog with articles related to your products—for instance, themed, seasonal recipes.
  • Incorporate real customer stories into your website to show products in real use or the impact they’ve done in people’s lives.

3. Convenience and fast deliveries

As we’ve already said, the majority of today’s shoppers want instant deliveries. Plus, they like having a range of options, including pick-up. The best way to approach this is to cooperate with multiple carriers so that customers have a choice. 

When considering what delivery options to offer, mind the following:

4. Attractive deals

All other factors fade into the background if customers find the products too pricey. Even though there are numerous studies showing that shoppers often put quality and convenience over price, the latter is always a concern. In fact, over 80% of shoppers are looking for special deals throughout their journey (based on the US data). 

What you can incorporate to improve customer retention includes the following:

  • Free gift. Offer a relevant gift with purchase to secure the customer’s intentions.
  • Discount on the next order. This is a way to instantly re-engage with new customers and drive more repeat purchases.
  • Discount on additional items. Upselling and cross-selling can be great customer retention strategies if you offer relevant products and motivate shoppers with a discount.
  • Bundles and subscriptions. Create bundles and subscription options—and clearly describe how they help save money. 

These are only the tip of the iceberg, as the landscape of possible sales promotion is endless. Think of providing additional value with your offers so that customers see them as relevant and cost-effective. 

5. Loyalty perks

Loyalty programs are central to customer retention. 68% of consumers admitted to joining loyalty programs of the brands they like, and it’s a great opportunity to keep engaging with your customers and continuously reward them.

While you can offer various discounts and gifts in your loyalty and retention program, it’s worth adding exclusive perks. Increasingly more customers expect early access to new products and personalized recommendations.

What shoppers expect from loyalty programs
Source: Shopify

Your most loyal customers will account for the biggest share of your sales, and exclusive loyalty perks are how you can keep them satisfied. To maximize the benefits of a loyalty program, you can segment your customers to give more rewards to those who are more likely to convert and spend more. We recommend going with the RFM segmentation method that focuses on the most important business metrics such as the recency, frequency, and monetary value of orders. 

If you’re running a store on Shopify, use a segmentation app like Loyal to automatically detect different groups of customers and communicate with them based on their shopping behavior. 

The key to improving customer loyalty and retention

When developing your customer retention tactics, shape a clear understanding of the benefits your store offers and the ways your products stand out from the competition. This way, you’ll know how to provide value to customers. 

Also, keep gathering feedback—not only product reviews but also general surveys of what shoppers liked and disliked about their experience. It will help you improve your operations and gain additional retention factors. For instance, you might see that people mostly complain about slow delivery times—if you adapt and find better carriers, this will be a crucial factor in increasing the retention of customers. 

Start your Shopify store for free and pay only $1 for the first monthStart your Shopify store for free and pay only $1 for the first month

Anastasiia Osypenko

Anastasiia is a content marketer with expertise in tech and SEO. Besides writing and editing, she makes music and spends time with her pets.

Latest articles

All articles

Boost your Shopify business with our apps

All our apps are designed to help you grow your Shopify business. Check them out and take advantage of the free trial period.

Boost my Shopify