Why Customer Retention is Crucial for E-Commerce Businesses (And How to Do it?)


Did you know that a mere 5 percent increase in customer retention can boost your profits by 25 to 95 percent! Customer retention is one of the most critical metrics for every growing business – especially those in the e-commerce domain. Identifying and engaging your most valuable customers ensures not only stable revenue but also long-term profitability. This can be attributed to the 80-20 rule (i.e. 20 percent of your total customers will bring in 80% of the revenue). 

In this blog post, we will see why customer retention stands at the core of your e-commerce brand’s success and how you can implement relevant strategies to retain your best customers

Customer retention means, and why is it important?

Simply put, customer retention is the action a business takes to increase the number of repeat customers, and increase the number of purchases per customer throughout their lifecycle. Customer retention strategies focus on nurturing customer loyalty and providing more value to them with every transaction. 

Successful e-commerce brands are often the ones that focus on their customer retention rate and keep working to improve it. The reason why customer retention is so crucial is simple – acquiring new customers is not possible in perpetuity. A business can only acquire so many customers by efficiently burning their marketing budget. 

Moreover, acquiring a new customer and building valuable customer relationships with time costs 16 times more than just nurturing the existing ones. Thus, it makes more sense to convert the acquired customers into loyal ones – and provide and derive value from them. 

Your digital retail brand’s efforts to maximize the number of repeat purchases through loyal customers is practically a straight road to profitability.

Customer retention rate example

Take the example of a newly launched online store that sells women’s shoes. They launch a social media campaign to get sign-ups from 20,000 women customers. The store then shoots emails and SMS to their list with exclusive discount offers for ‘VIP Members.’ 2,500 Women sign-up for the VIP membership to avail of exclusive discounts on the latest shoes. This new ‘VIP Members List’ now becomes valuable retained customers for the store.  

Which customer retention metrics matter?

Keep an eye on the following customer retention metrics to ensure healthy growth for your e-commerce brand;

  • Repeat Customer Rate: It is the number of customers who are willing to return to your online store a second time. Your analytics dashboard will reveal this number which forms the base for all customer retention your business will have. 
  • Purchase Frequency: This metric tells you how many purchases a repeat customer makes through your online store. Your repeat customers will be responsible for almost 40 percent of your annual revenue!
  • Average Order Value: Once you’ve optimized the repeat customer rate and purchase frequency metrics, you must focus on increasing the worth of every transaction. This is the AOV – which, when optimized yields higher gross profits. 

Why does customer retention work?

Fostering more repeat purchases from your customers should be the apex strategy for every digital retail brand. This strategy is based upon the following statistics;

  • 91 Percent of the customers are likely to purchase from the brands that recognize them and send them personalized & contextual offers. 
  • On average, 65 percent of the e-commerce revenue comes from repeat customers.
  • New customer acquisitions can cost five times more than that of retaining the existing customer base. 
  • 86 Percent of the customers prefers to purchase from a brand that offers a great customer experience. 

The above stats clearly show the power of the win-win relationship between a customer and a brand – as they both derive significant value from each other as long as the association lasts. 

Let us see customer retention strategies that will boost your profit bottom line

Use Customer Segmentation Effectively

Surprisingly, customer segmentation is a straightforward strategy that can uplift an e-commerce company’s retention metrics dramatically. But most of the brands do not leverage the power of customer segmentation. Customer segmentation is simply dividing your users into different clusters based on common attributes/qualities. E.g. you can create customer segments based on new users, cart products/value, online behavioral data, or even their purchase history. 

Segmentation is essentially done to give the customers a more personalized experience and nurture loyalty. Studies show that effective customer segmentation can compel 86 percent of your target audience to make a purchase, and drive impulse buys. This shall be a great starting point to boost customer retention for your brand. 

Use SMS to Engage Customers Outside of Internet

The SMS channel is another unrated yet highly effective engagement channel for e-commerce brands. SMS allows brands to send personalized offers to a broad set of audiences in a short span. With more than 98 percent open-rate, SMS is a great way to enhance your brand recall, onboard new customers, and continually engage existing customers to push more sales. Indeed, SMS marketing automation can be an excellent investment for your brand to uplift your customer retention numbers. 

Use the Customer Loyalty Program

This is an age-old strategy in the quiver of successful businesses. From credit card companies to e-commerce brands, customer loyalty programs can become so successful that they replace other marketing strategies. Customer loyalty programs consist of ‘virtual reward points’ that the customer earns with every purchase. These points can be further exchanged for cash back, discounts, and other valuable deals as per the program design. 

Considering 75 percent of your customers trust a brand that offers a loyalty program, your company can reap wonders out of it. 

Deploy a Customer Referral Program

What can be better than acquiring more loyal customers through your existing loyal customers? Customer referral programs can help you achieve this goal. It is astonishing to know that 54 percent of the marketers find customer referrals to be highly effective – leads wise and profit-wise. 

Make sure you give fair incentives to your best customers to drive referral traffic to your online store as their influence is a vital purchase motivation for the referred customers. 

Ask for Non-Intrusive Web Opt-ins or Push

Capturing more and more of your website visitors through a single-click opt-in can grow your subscriber list significantly. Post that, you can target them with personalized and non-intrusive push messages (over web or app) tailored to their needs. Deploying web opt-ins at scale, e.g. with a tool like Wigzo, can help you streamline your customer retention goals through automated web push notifications. 

No matter what e-commerce niche you are operating in, customer retention comes in as a requisite to create a long-term, sustainable business. Ready to unlock massive profits with effective customer segmentation? Take Wigzo for a FREE demo spin and see how it can add value to your brand’s growth. 

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Zaujan Baig

Zaujan Baig

Experienced digital marketer, currently working as an SEO specialist at Wigzo Technologies. In his free time, you can find him drawing cartoons.

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