Increasing e-commerce customer retention in 2024

Customer retention efforts are paramount in the e-commerce space, as there's now more competition than ever before; individuals won’t hesitate to transition to an alternative if a business isn’t sufficiently meeting their needs. Imagine your customer base as a lush garden; each loyal shopper is a thriving plant, nurtured through attentive care and consistent nourishment. E-commerce companies must continually cultivate their relationships with customers, ensuring that each interaction is a drop of water that keeps their garden growing. 

Today, we’ll examine why e-commerce customer retention is so important, the various factors that contribute to retention, and strategies that organizations can employ to enhance their retention efforts.

What is E-commerce customer retention?

E-commerce customer retention refers to the strategies employed by online businesses to encourage loyalty and repeat purchases among their customer base. 

Unlike acquisition, which focuses on attracting new buyers, retention emphasizes keeping existing customers engaged. This typically involves creating a positive shopping experience, providing top-notch customer service, and offering incentives like loyalty programs. Retaining customers is vital for e-commerce companies as it costs less to maintain existing customers than to acquire new ones.

What is E-commerce customer retention?

E-commerce customer retention refers to the strategies employed by online businesses to encourage loyalty and repeat purchases among their customer base. 

Unlike acquisition, which focuses on attracting new buyers, retention emphasizes keeping existing customers engaged. This typically involves creating a positive shopping experience, providing top-notch customer service, and offering incentives like loyalty programs. Retaining customers is vital for e-commerce companies as it costs less to maintain existing customers than to acquire new ones.

How do we calculate e-commerce customer retention?

Various factors play into e-commerce customer retention; you can quantify your efforts in this arena by establishing relevant key performance indicators (KPIs) that will help evaluate the effectiveness of your approach. Common metrics considered include customer retention rate (CRR), purchase frequency, and average order value (AOV). H3: Customer Retention Rate (CRR)

Customer retention rate quantifies the ability of an organization to retain its customers over a specific period. It represents the percentage of existing customers who continue to engage with a company’s offerings after their initial interaction. High retention rates often indicate that consumers are satisfied, resulting in repeat business and long-term profitability.

The calculation of CRR involves three key figures: the number of customers at the start of a period, the number of customers at the end of the period, and the number of new customers acquired during that period. By using the CRR formula, businesses can assess the percentage of customers they’ve retained. For instance, if an organization begins with 1,000 customers, ends with 1,200 customers, and acquires 300 new customers during the period, the retention rate would be 90%.

Purchase frequency

Purchase frequency is a critical metric that measures how often customers make purchases within a particular time frame. It assists businesses in understanding the buying habits of consumers and gauging the effectiveness of their retention strategies. By analyzing purchase frequency, companies can identify patterns in behavior, allowing them to tailor their efforts to encourage more frequent purchases.

Determining purchase frequency can be achieved by dividing the total number of orders by the number of unique customers within a given period. For example, if an e-commerce store has 1,000 orders from 400 unique customers in a month, the purchase frequency would be 2.5. This means that, on average, each customer made 2.5 purchases during that month.

Average Order Value (AOV)

Average order value measures the average amount of money that customers spend per transaction. This KPI provides organizations with valuable insights into purchasing behaviors and helps in understanding the overall revenue generated per order.

Evaluating AOV necessitates dividing total revenue by the number of orders within a specific time frame. Suppose a retailer generates $50,000 in revenue from 800 orders in a month; in this case, the AOV would be $62.50. This shows that customers spend $62.50 per order on average. 

Customer Lifetime Value (CLTV)

Customer lifetime value (CLTV) estimates the total revenue that a company can expect from an individual over the entire duration of their relationship. This metric helps businesses understand the long-term value of customers, beyond just a single transaction. CLTV is calculated by considering average order value, purchase frequency, and customer lifespan.

For instance, if a company’s AOV is $50, purchase frequency is four times per year, and customer lifespan is five years, the CLTV would be $50x4x5 = $1,000. Thus the organization can deduce that, on average, each customer contributes $1,000 in revenue over their entire relationship.

7 strategies to increase e-commerce customer retention

Though the decision to return for future purchases ultimately falls into the hands of consumers, there are a variety of strategies that businesses can employ to increase this likelihood. Ensuring that individuals consistently receive exceptional experiences, personalized interactions, and sufficient savings opportunities all serve to enhance the probability of cultivating a mutually beneficial, long-term relationship.

1. Prioritize the customer experience

Positive customer experiences (CXs) encompass every interaction that consumers have with a brand, from browsing the website to receiving post-sale support. When individuals enjoy repeated pleasant experiences, they’re more likely to return again in the future. Cultivating a positive CX might involve providing an easy-to-navigate website, fast shipping, and responsive customer service.

Moreover, businesses that prioritize CX are more likely to receive positive reviews, which can build trust and credibility with potential customers.

73% of individuals indicate that customer experience is their top consideration when deciding whether to buy from a company, suggesting that success in this arena can often lead to subsequent purchases.

2. Offer personalized experiences

Personalization involves tailoring the shopping experience to meet individual customer preferences and behaviors. This can range from product recommendations based on previous purchases to customized marketing campaigns that reflect unique engagement histories. When buying experiences feel uniquely catered to each individual, it makes customers feel valued and understood, increasing the likelihood of repeat purchases.

Tailoring CXs can also help identify specific customer needs and pain points. By leveraging consumer data, companies can anticipate issues before they arise and provide proactive solutions. For instance, personalized follow-up emails after a purchase can verify a customer’s satisfaction and offer assistance if needed. 

3. Aim to increase social media engagement

By actively engaging with individuals on social media, organizations create a more relatable brand presence, which can assist in building stronger relationships. Actively responding to comments and acknowledging positive feedback helps demonstrate that a brand values its customers, thus encouraging them to remain loyal.

Additionally, social media provides an excellent platform for creating a brand narrative that resonates with customers. By sharing testimonials, user-generated material, and behind-the-scenes content, businesses can humanize their brand and create an emotional connection with their audience. 

4. Leverage loyalty programs

Loyalty programs are powerful tools that provide tangible rewards and incentives for repeat purchases. These programs typically offer points, discounts, or exclusive benefits to customers who frequently buy from a company. By rewarding loyal customers, businesses create a sense of appreciation, which can serve to encourage ongoing patronage.

Many loyalty programs include personalized offers as well, making the rewards even more appealing. For example, a program might offer double points on a customer's favorite product category or provide early access to new arrivals. This customization not only makes individuals feel valued, but also encourages more frequent interaction.

A staggering 83% of consumers report that reward programs influence their decision to buy again from an organization, making loyalty initiatives a vital component of customer retention blueprints.

5. Offer discounts and deals for returning customers

When consumers receive special deals, they tend to feel more appreciated, which serves to strengthen their loyalty. Exclusive offers can create a compelling reason for individuals to choose the same e-commerce store over competitors, as they perceive a higher value in staying with a brand that rewards their loyalty.

Even more, discounts can encourage customers to make purchases that they might have otherwise postponed. Time-limited promotions create a sense of urgency, prompting consumers to act quickly to take advantage of the offer. Strategically timed discounts can also help to keep a brand top of mind, while persuading them to buy sooner than they might have planned, thus shortening the purchase cycle.

While deals and discounts do save customers money, you may be surprised to learn that these individuals actually wind up spending more than customers who buy regularly priced offerings; online retailers report that customers who utilize coupons spend 37% more than those who don’t.

6. Utilize email marketing and remarketing

Email marketing allows organizations to communicate directly with customers, providing them with personalized content and exclusive offers. Regularly sending tailored emails that resonate with unique interests helps nurture relationships, making individuals feel more connected to a brand.

Furthermore, remarketing efforts target consumers who have previously interacted with a brand, but may not have completed a purchase. This usually involves displaying personalized ads to these customers as they browse other digital channels. Remarketing keeps a brand visible to potential customers, aiming to remind them of their initial interest. For instance, if an individual adds items to their cart but abandons it before checking out, remarketing ads can offer incentives like discounts or free shipping to entice them back.

7. Gather and act on customer feedback

Acting on customer feedback demonstrates a commitment to continuous improvement and customer satisfaction. Suppose that a business’s customers frequently mention issues with website navigation or the checkout process; promptly addressing these concerns can lead to a more enjoyable shopping experience. Implementing changes based on feedback shows consumers that a company values their input and is dedicated to meeting their needs. 

Actively seeking feedback through surveys and reviews also allows organizations to gain valuable customer insights. This information is essential for making informed decisions about how to enhance the CX. Even better, when individuals see that their opinions matter, it builds trust and loyalty, encouraging them to continue patronizing a business.

Current customers will usually respond to a compliant SMS message or survey that they can fill out post-purchase (Tip: include perks in the automation to make the completion rate higher and make this part of your core marketing strategy). Repeat customers are more likely to fill out surveys than the average customer.

How can Freshworks help you build customer loyalty?

Freshworks serves as a comprehensive engagement tool for organizations of any size and across all industries, offering many specialized features to help improve e-commerce customer retention strategies.

If your company requires any features that Freshdesk doesn’t offer, simply browse our extensive Marketplace for access to hundreds of third-party apps that can be easily connected to the platform!