While acquisition has dominated the previous decade of eCommerce, only now has retention started to be taken more seriously by brands. But there’s a problem: the 3 most common retention metrics DTC stores use to measure the success of their efforts are often tracked incorrectly.
In today’s article, Jeremy Horowitz will show you how to calculate these metrics correctly, and we’ll discuss strategies that can be leveraged to bolster your retention efforts.
1: Repeat Purchase Rate
Jeremy: Repeat Purchase Rate is the % of your customer base that comes back to buy a 2nd time. What you see in Shopify isn't your Repeat Purchase Rate and is dangerously misleading.
Shopify is showing you the % of your Revenue that comes from New vs. Returning customers. While that is nice to see, it doesn't give you much info on how well you are retaining those customers.
What you really want to track is how long it takes for a customer to make a second purchase. You want to get insights such as “30% of my first-time customers come back to make a second purchase in 4 months”
The key is to understand:
- What % of your customers are returners vs. One and Dones.
- Median time between orders to nurture repeat purchases
- A better understanding of how customers buy and use your products to better target them.
How to Increase Repeat Purchase Rate with Email Marketing
Adam: There are two primary strategies I like to deploy to increase repeat purchase rates with email marketing.
1: Transactional Messaging
It may sound unrelated but transactional messaging drives a significant amount of traffic back to your website with an optimised dedicated tracking page.
With click rates north of 20%, I’ve consistently seen these touchpoints help to not only drive repeat sales within the first few days after a customer's initial purchase but also significantly reduce support tickets for the brand.
If you examine your cohorts, you’ll consistently see a large % of repeat sales happen within the customer’s first 30 days. Why not take advantage of this golden opportunity to get them shopping again?
2: Habit Formation
On the flipside, you'll be surprised how many customers simply forget to use your product.
Don't let them off the hook - build excitement and ensure they adopt the product as quickly as possible.
This ties into Jeremy’s third point: you need to understand how/why customers use your product to target them better.
If you can find this information out, you can create specific challenges post-purchase to increase the rate of adoption and results they get.
Selling protein powder? 30-day bench press challenge.
Skincare? 14-day before & after photos.
This is a great way to build product stickiness.
Waterdrop do a great job of this with their “Drink More Water” challenge.
2: Customer Lifetime Value (CLV/LTV)
Jeremy: If you are presenting CLV in terms or Revenue you are doing it wrong (that's Lifetime Revenue - LTR) and are defeating the point of running the analysis.
LTV is the Gross Margin made from a customer over their lifetime as a customer.
It's crucial you analyze Gross Margin/Customer because the goal is to understand how profitable your customers are. Revenue doesn't take into account your product/landed costs, discount and refunds.
Forget about predictive, time-based and all the fancy add-ons. Just sum up the Gross Margin made from all of your customer orders and get to a number. This is the foundation to determine where you can set your CAC.
The 2 ways to increase your LTV (and what you can spend to acquire a customer):
- Increase your AOV for every order. Customer spends = more Gross Margin $$$.
- Increase the customer frequency (how many orders they have). The more stuff they buy the more Gross Margin $$$.
How to Increase Lifetime Value with Email Marketing
Adam: Besides the obvious strategies Jeremy mentioned above (increasing AOV and Purchase Frequency), I’d like to discuss 2 key strategies we’ve deployed for our clients to help promote LTV.
First, on Black Friday/Cyber Monday (BFCM), it’s likely you will acquire a mountain of customers through costly paid social, in addition to driving a high volume of repeat sales at a lower margin.
Think strategically about how to maximise leverage during this period.
That's why I like to build a BFCM around different deals (usually discounted bundles), on every single day over the course of at least a week.
There are two primary reasons for this:
1) Better profits on each order
2) Maximising opportunities for repeat orders within a short time period
(I have seen customers conditioned to check emails/SMS every day, and make several repeat purchases as a result of this strategy).
Which Products Drive Strong LTV?
Second, frequently inspect which products drive a strong LTV.
For brands that have several SKUs, it's critical to identify the "dark horse" products that can be unbelievably sticky yet fly under the radar.
These products can have a tremendous impact on purchase frequency and LTV.
Always dig into your data to see what gems you can uncover and experiment with your acquisition strategies to measure their impact over time.
CAC Payback Period
Jeremy: This is really a metric for the paid media team, but in reality determines how the entire retention program is built. CAC payback is the # of days it takes to break even on an order. aka Gross Margin/customer = CAC.
Let's say you spent $50 to acquire a customer and it takes 6 mos to make $50 in gross margin from that customer over 2 purchases. Your CAC Payback would be 6 months.
While the Retention teams don't own CAC, altering the Gross Margin $$$ the company makes over time the shorter the payback and the healthier the company.
In that previous example let's say you increase the customers' frequency and their Gross Margin hits $75 in 6 mos. Now the team can increase CACs to $75 and acquire more customers, which increases the repeat purchase volume you can drive.
In the opposite effect if CACs continue to rise or Gross Margin/Customer falls and the company wants to maintain the same CAC payback period the weight of Retention becomes much heavier.
Now the team needs to figure out how to greatly increase purchasing behaviour to hit the company's goal.
How to support the CAC Payback Period with Email Marketing
Adam: I believe a key strategy that can be deployed here (especially if you have good historical data around more expensive acquisition periods and seasonality) is by releasing limited edition (or complementary) products.
These products can also be sold at a higher margin since they're more "exclusive" and don't necessarily have to be discounted which can erode the gross margin.
And although not directly related to the CAC Payback Period, they can also incentivise customers to opt in to owned channels at a higher pace (i.e. SMS)
Want to learn more about Retention Marketing and the Shopify ecosystem?
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