Boost Customer Retention: Important Metrics You Need To Monitor
As a business owner or marketer, it's easy to focus on acquiring new shoppers, but retaining those hard-won customers is where true long-term success lies. We’ve given our two cents on how to build customer loyalty, but what about how to track it and encourage a constant cycle of improvement?
This is where retention metrics come in, providing crucial insights into how well your business is doing to keep customers engaged. Monitor these, and you can identify areas for improvement to enhance customer satisfaction and loyalty over time.
Keep reading as we reveal the top retention metrics you should pay attention to and all the strategies you need to improve them.
Understanding customer retention metrics
You should think of retention metrics as your business’s secret weapon—your behind-the-scenes heroes, quietly telling you how good you are at keeping your customers happy and returning for more.
Why should you care? Well, knowing how well you're retaining customers is like having a crystal ball for your business. It shows you what’s working, what’s not, and what might need a little more TLC to keep your customers around. And trust me, it's much cheaper and easier to keep existing customers than to chase new ones constantly.
In essence, customer retention metrics help you build lasting relationships, to keep your business buzzing with a happy and loyal fan base, which, in turn, drives steady revenue and sustainable growth.
These are the three important customer retention metrics you should be tracking:
(CLV) Customer Lifetime Value
(RPR) Repeat Purchase Rate
(CCR) Customer Churn Rate
Each one, in its own way, helps you understand how much your customers are worth, how active they are, and how many you might be losing.
Understanding Customer Lifetime Value (CLV)
What is CLV?
Customer lifetime value (CLV) projects the amount of money a customer will spend over the entire time they do business with you. It takes into consideration the whole customer journey, and how valuable that individual customer is to you.
CLV is unique in that it’s explicitly tied to revenue. It’s not only a measure of the health and quality of your customer relationships but also a tool that can help improve profit margins.
It’s hard to talk about CLV without mentioning customer acquisition costs (CAC). It costs companies, on average, five times more to acquire new customers than to keep existing ones. When you compare CLV against CAC, you can calculate how long it will take to recover the cost of acquiring a customer. This is crucial because every customer is going to generate a different amount of revenue for your business— it’s important to know how much to spend to acquire different kinds of consumers.
How to calculate CLV
Calculating CLV involves a few steps, but don’t worry—it’s not as complicated as it might seem. Here’s a simple formula to get you started:
Average purchase value: Calculate this by dividing your total revenue by the number of purchases over a specific period.
Average purchase frequency: Then, divide the number of purchases by the number of unique customers who made purchases during that period.
Customer value: Multiply the average purchase value by the average purchase frequency.
Customer lifespan: Estimate how long a typical customer continues to purchase from your business. This can be calculated by averaging the lifespan of all customers.
Customer lifetime value: Finally, multiply the customer value by the customer lifespan.
Click-Through Rates (CTR)
How to increase CLV
Boosting CLV doesn’t have to be rocket science (and involves much less maths than calculating it).
Here’s what we would do:
Maximise every interaction
Turn every customer interaction into an opportunity to strengthen your relationship, enhancing and expanding customer touchpoints. Start with the basics, focusing on improving the overall customer experience before moving to more conversion-driven approaches. Regularly engage with your customers through email and social media. The more they see and hear from you, the more likely they are to return (to a certain extent).
2. Cross-sell & upsell smartly
Cross-selling and upselling will become your best friends when you switch your focus to CLV. Suggest products that naturally complement what your customers are already buying. These little nudges can make a big difference. You can tailor entire flows around these suggestions or just add dynamic blocks into your scheduled campaigns.
3. Reward loyalty appropriately
Loyal customers deserve recognition, and loyalty programmes make them feel deservedly special. It’s a win-win: they get perks, and you get repeat business. Plus, most companies see a solid return from these programmes with an average of 4.9 times more revenue than expenses generated from loyalty programmes.
4. Keep innovating
Never let your product offering go stale. Keep things fresh by regularly introducing new products, improving existing ones, and learning from your bestsellers (something is going right for a reason). This keeps customers interested and coming back for more.
Understanding Repeat Purchase Rate (RPR)
What is RPR?
Repeat purchase rate (RPR) is one of those golden metrics that tells you how many of your customers love your products enough to return and place another order. It gives a percentage that indicates the likelihood a customer will come back and make another purchase based on previous repeat purchasers.
How to calculate RPR?
Calculating your RPR is straightforward. You just divide the number of customers who have purchased more than once in a certain period by the total number of customers over that same period.
For example, if you have 200 repeat customers out of 1,000 total customers, your RPR would be 20%.
How to boost RPR?
Want to see those numbers climb? Boosting RPR also comes down to creating unforgettable customer experiences. Here are a few ways to do that:
Use SMS marketing
SMS can be a great tool for keeping your brand top of mind. Sharing a phone number goes further than sharing an email, and not all customers will jump at the idea of it. But this means that the ones who have shared their number are more likely to want to receive regular offers and updates (and are essentially your most loyal customers). These customers tend to have a higher repeat purchase rate. So invest in your SMS and send compelling offers and updates via text.
2. Segment your customers
Knowing your customers is essential for repeat purchases, therefore, segmentation is a must. One segment we recommend creating is VIPs. It should come as no surprise that your most loyal customers are most likely to make repeat purchases, but this doesn’t mean they won’t need a nudge now and then. Send cross-sell and up-sell emails, push new collections, implement a loyalty program, and even use winback flows if those once-VIP shoppers seem to have fallen off the map.
That said, first-time buyers also hold a lot of revenue potential. If they’ve shopped once, they could shop again. Send follow-up emails after their first purchase with similar products, replenishment offers, and brand-related emails to help build the customer relationship.
Other segments include lapsed customers and customers who were expected to purchase recently but didn’t.
3. Streamline your communication
Don’t underestimate the power of great customer service—think quick responses and helpful solutions. On average, 86 percent of customers will leave a brand after only two poor customer experiences. If you want customers to keep making purchases, you need to resolve issues promptly and show that you’re always there for your customers.
Keep your product quality high and consistent, so customers know they can trust you for every purchase, and personalise your interactions.
Understanding Customer Churn Rate (CCR)
What is CCR?
Now, let’s talk about customer churn rate (CCR), a metric that reveals how many of your customers stop doing business with you over a specific period. CCR indicates the rate at which customers are leaving your business with a percentage. It helps you understand the effectiveness of your customer retention strategies.
How to calculate CCR?
Calculating your CCR is pretty straightforward. The formula is similar to finding RPR but for lost customers, instead of returning ones. You simply divide the number of customers who have stopped purchasing from you over a certain period by the total number of customers at the start of that period.
For example, if you start with 1,000 customers and 200 stop purchasing during the period, your CCR would be 20%.
But don’t panic. The average churn rate in e-commerce can be as high as 70%. So if you’re seeing values around the 50% mark, this is still a healthy churn rate.
How to reduce CCR?
To reduce your CCR, you need to understand why your customers might “churn” to start with. Here are a few reasons you could be losing your shoppers and how to fix them:
Your products aren’t hitting the mark
Firstly, it’s basic and can be hard to fix, but if your customers aren’t happy with your product, then they’re not going to buy from you again. Bad reviews can also deter other customers, whether that’s from making initial purchases or returning for more.
For this, we recommend creating a segment for your 1 and 2-star reviewers and asking them for more feedback, whether by survey or email. Analyse their responses internally and communicate with the customer that you're fixing the issue or offering reparations.
With Klaviyo, you can use a third-party tool like Typeform to quickly set this up.
2. Shipping complaints
Another common subject of bad reviews: if your shipping didn’t meet expectations, or your customers receive damaged goods or poorly packaged products, they will likewise be frustrated and unlikely to return for more.
These problems are usually the result of poor communication (the customer had unrealistic expectations) or your business might need a shipping logistics review. But to prevent this from being a reason for churn, clearly highlight your shipping policy online and in your post-purchase emails. You can’t control all variables, but just make sure your customers know this and are aware of timelines, including limitations and delays.
3. Poor post-purchase support
Post-purchase flows are especially critical when your products require “how to use” guidance and maintenance, or might need to be replenished, but they can be useful in any customer journey.
A good post-purchase flow is educational, familiar, and uses up-selling (which can help reduce churn on its own). Craft your post-purchase emails to show your customers how to get the most out of their purchase, while showing them you understand them with personalised recommendations and a thank-you copy.
4. Your return policies aren’t straightforward
A complicated return or exchange policy discourages customers from repurchasing. Too many companies don’t prioritise convenience because they don’t want mountains of returns, but an intuitive policy promotes retention, which is more important for business in the long run. Plus, your customers will get the products they actually want.
Keep things simple. Digitalise your returns and offer multiple ways to do them. Use easy language and update your customers regularly on the status of their return.
5. You’ve increased your prices
If your prices suddenly go up without you communicating their added value to your customers, then your churn rate will certainly be affected.
You might have very valid reasons for raising your prices, but even if it seems economical now, it may be worse for business in the long run. If you can’t avoid raising prices, just make sure you communicate your “why” to your loyal customers. A bit of honest and even vulnerable communication can go a long way here. You should also alert your customers of these changes far in advance so you can predict churn and either ramp up your acquisition strategies or prioritise keeping those customers most likely to churn.
Final Thoughts:
There you have it—a whirlwind tour of customer retention and some of its glorious metrics. The truth is, successful retention comes down to a number of moving parts, and your metrics are just there to help you keep track of how well you’re doing. Remember, it’s not all about making sales. Building relationships should be at the heart of your business strategy. Our three key takeaways for mastering retention? (1) Communication is key: be straightforward, honest, and time your communications right. (2) Track and test: have a long-term testing mindset. It takes time to see results, so be patient and enjoy the ride. (3) When in doubt, just ask: send surveys, ask colleagues, and fall in love with learning more (about your customers, about your business, and about your products). Implement these and you’ll create a loyal customer base that keeps coming back for more.
If you need any extra help with your email and SMS marketing, don’t hesitate to reach out!