Definition: Customer retention is a business metric that measures the percentage of customers who subsequently return and make a purchase. Retention is an important assessment of a business's product quality, customer service, and ability to distinguish itself from competitors.

Repeat customers are the heart of an online business, given the marketing costs associated with bringing in new prospects and the significant rise in lifetime value associated with repeat purchasers. Customers who return to the same store are also more likely than average consumers to recommend a brand, making their net value almost limitless.

Customer retention drives margins

Businesses and research firms have spent millions of dollars studying consumer behavior and the factors that influence customer retention. The verdict? A mere five percent boost in customer retention has the potential to increase profits by anywhere from 25 percent to 95 percent. The compiled data clearly indicates that it is much more cost efficient to retain current customers than it is to seek out new ones. The impact of retention on a company's ability to stay in the black is tremendous.

  • LTV: a higher customer retention rate puts the company in a fantastic position to achieve the lifetime value of each customer. Yet the effects of customer retention extend beyond lifetime value.
  • Brand advocates: Customers who are retained actually become powerful advertising agents on behalf of the company. They are more likely to promote its goods and services to friends, family, co-workers and beyond.
  • Increase in AOV: In a nutshell, the importance of customer retention boils down to the fact that satisfied customers spend more at the businesses that bring them pleasure. They also serve the business by spreading the word about it to others, which, in turn, creates even happier customers.

Increasing customer retention: where to start

Retaining customers is a challenging endeavor with no magic formula. It all comes down to providing a better experience that stands out in industry.

  • Excel at the basics: Shipping, customer service inquiries, and product fulfillment are the 'meat and potatoes' of effective ecommerce.
  • Monitor and learn from customer feedback, implementing changes based on recurring customer pain points.
  • Stay on top of online reputation, including product reviews, social media feedback and blog posts. Leverage positive feedback as a social proof on your website.


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