How to Calculate Customer Retention Rate in Ecommerce

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Why is it essential to track the customer retention rate in e-commerce? According to studies and surveys, even a 5% improvement in customer retention rates increases profits by 25% to 95%.

If you own an online e-commerce store, you keep track of certain metrics to know the outcome of your business. Customer retention rate is a crucial KPI (key performance indicator) to study how successfully your business has managed to retain customers.

Why is it essential to track the customer retention rate in e-commerce? According to studies and surveys, even a 5% improvement in customer retention rates increases profits by 25% to 95%. It is profitable to engage existing customers and entice them to buy from you again and again instead of spending money on acquiring new customers.

In a SaaS business model, you spend on acquiring new customers and getting them to pay for your services. Now, it is in your best interests to keep the subscriptions coming from these customers. Repeat customers are easier to market to and are more likely to spread the word about your products, resulting in an organic growth. A healthy retention rate is thus an indicator of your e-commerce success.         

Customer retention rate formula

Customer retention rate is a measure of the percentage of customers who continue to buy from the business over time. It is the inverse of the churn rate which is the percentage of customers who no longer buy from this e-commerce business.

Customer retention rate is specifically important to the SaaS e-commerce business model. It demonstrates how sustainable the business can be in the long run.

When calculating the customer retention rate, you basically compare the customers present at the beginning of a time period to the customers that remain at the end of the period. This gives you the percentage of customers your business was able to retain successfully for that specific time period.   

Retention rate= [(E-N)/S] x 100

Where E is the number of customers at the end of the period, N is the number of customers acquired during the period and S is the number of customers at the start of the period.

Let’s understand it with an example taking a time period of three months. You had 50 customers (S) at the beginning of the three-month time period. Ten new customers (N) were added in this time period but you also lost five. So, the total number of customers at the end of the time period is 55 (E).

Customer retention rate= [(55-10)/50] x 100 = 90%

 

How to improve customer retention rate in an e-commerce business?

Improving customer retention rate in e-commerce is more of an art. It is experimenting with various techniques to create a positive customer experience. For this, you need to have a strong communication base with your customers. Let’s see how to get it right with some strategies.    

Track the churn rate

As mentioned earlier, customer churn rate is the inverse of retention rate. It indicates the percentage of customers lost during a specific time period. This is a matter of concern and you need to track and address problem areas to know why your customers are leaving you. Understand your audience, interests, and preferences to see how you can market the product in a better way. See if you have got the right target audience and devise strategies to attract customers to your business and boost retention.

Collect customer feedback

Customer review in an online e-commerce store is a great way to study the candid responses from the buyers. Another idea is to send post-purchase survey forms about the shopping experience to first-time buyers. These customer satisfaction surveys provide you with answers regarding the areas where improvements are necessary. You can also email one-time survey forms to your customers and offer them reward points or coupons upon completion.

Strengthen customer support

Put efforts into creating a positive experience for your customers. They may not always be right. However, your goal is to create satisfied customers. So focus on being personable rather than sticking with the return policy rules. When you go a little out of your way, where it is feasible, the customer will appreciate your service and come back for more. If you have made a mistake, take accountability and fix the problem. Train your customer support team to handle customer interactions. Be prepared to offer your customers the experience you want to create in your online e-commerce store or mobile app.   

Implement loyalty programs

Make people feel special so that they keep thinking of your brand and come back instead of going elsewhere. A great way to achieve a higher retention rate is to reward their support with a loyalty program. Keep track of the spending of your customers to determine the structure of the loyalty program. Give the most loyal shoppers early access to sale days, keep them in the loop about new product launches, and offer them more shopping features. You can also introduce the points system and reward achievers with free items or store credit.

Omnichannel marketing techniques

Omnichannel marketing is the process of integrating shopping experiences for customers into both the physical store and online e-commerce store. So, for example, a customer buys a product from your physical store. You email them a 5% discount coupon on their first purchase through your mobile app. By doing this, you are integrating customer experience onto both the online store and in-store.

Conclusion

Increasing customer retention in e-commerce is by eliminating user churn and focusing on enhancing customer experience. We suggest going with a mobile app if you already have an online e-commerce store. Apps help you in strengthening your customer service strategy through personalization.

Now, convert your website into a mobile app with Swipecart. It is fast and easy and can be done at a fraction of the cost as compared to building a mobile app from scratch. If increasing customer retention rate is your goal, what better than a mobile app for it? 

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