This is the first article of a two-part series on how to acquire and keep your customers for the long haul. In this series, we explore why businesses should go beyond pure customer acquisition and develop strategies for customer retention.

Part 2 of this series is now available!

Acquiring and then keeping customers for your business can be tricky. But mastering that is the most important skill for any e-Commerce business.

We pulled together the expertise of our teams and customers and here are our best tips and tricks to create a customer retention strategy that sticks.

To visualise this construct easier, let’s imagine this: Acquiring and keeping customers is like filling a leaking bucket with water. Over and over again.

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Lets stay with this metaphor. Here is why:

Imagine, the water in the bucket represents your total customer base.

Water flowing through the hose represents your inflow of new customers.

And the water draining through the holes represent your customer attrition.

Merchants have three options to keep your bucket (the flow of customers), full.
1. Keep putting more water in – Highly inefficient
2. Fix the holes
3. Get a new bucket – Too expensive.

The best option therefore is to fix your bucket so it doesn’t leak, but how do you do that?

Your Bucket is Leaking: Why Customers Leave

First, we need to understand why the leak is there in the first place.

Ultimately, customers leave when their needs or expectations are not being met.

They also leave when they don’t feel understood or cared for.

When a customer leaves, it’s easy to believe that it was the last event that occured before their departure that caused the switch.

However, this is not the case. A study by Bain and Company found that while it is true that one event causes customers to switch, their decision to switch follows a longer period of dissatisfaction with the store. This period of dissatisfaction can sometimes last up to years before customers jump to a competitor.

In this case, dissatisfied customers are already primed to leave, they’re only looking for the right opportunity to jump ship.

Unfortunately, it’s also not enough to do just enough; to keep the customer just satisfied.

Customers who describe themselves as satisfied may be passive and easily wooed by your competitors.

Customer Acquisition: Topping Up Your Bucket

Many businesses (and maybe also yours?) realise they lose customers over time. Naturally, they focus on topping up their bucket, acquiring many new customers to replace the ones that leak out.

This is a sound strategy, especially when you’re still hunting for your first few customers. However for more established businesses, customer acquisition is only half of the equation.

Have you thought about how you are going to keep the water in the bucket?

To contextualise this, if you’re spending money on customer acquisition, wouldn’t you want to keep these customers?

Did you know it can cost up to five times as much to attract a new customer than to keep existing customers. Yet, only 40% of companies have an equal focus on customer acquisition and retention.

A whitepaper by mobile commerce Shopgate has some startling findings:

  • Acquiring new customers is more expensive than keeping returning customers : On average, it costs 7 times as much to win a new customer than keep an existing customer
  • Regular customers buy more than new ones : You need to get 7 first-time buyers to match the sales volume of a regular, returning customer
  • Investing in customer loyalty is more profitable than just investing in acquisition alone: Increasing your customer retention by just 5% can increase profits by 25-95%
  • Repeat customers make just 8% of site traffic, but account for 40% of total sales

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Source: Shopgate

For every 100 visitors to an online store, just two actually make a purchase on average. Yet, 78% of the retail industry’s marketing budget is spent on acquiring this type of traffic.

Acquiring new customers to plug the leaks in your bucket can become an expensive, unsustainable strategy. Because stores spend most of their budget on customer acquisition, there is often insufficient budget to re-engage with existing customers.

Here lies another opportunity for revenue generation.

If you can retain just 5 customers out of 100 new customers you can reap up to 7 times more sales and increase profits by 25-95%.

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Look Beyond Customer Acquisition

The trend is clear.

Beyond acquiring customers, merchants need to focus on customer retention and creating customer lifetime value. It’s not only cheaper, but also much more effective.

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We need to go beyond satisfactory; to engage and retain customers more effectively.

The success of your online shop ultimately boils down to answering one question: How can I increase repeat purchases from my existing customers and drive customer lifetime value?

You need to go beyond pure customer acquisition and also look at customer retention and loyalty

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Not Every Customer Is Equally Loyal

Naturally, not every customer spends or is worth equally.

A report by data analytics provider RJMetrics states the top 1% of customers are worth 18 times more than the average customers. Yet, only 32% of customers place a second order with a store in their first year as a customer

Hence, as a eCommerce shop owner, you need to focus on acquiring and retaining the right customers – ones that will be loyal to you and continue shopping with you for an extended period of time.

The key here is to look at your Customer Lifetime Value (CLV) metric to find who your higher value customers are.

CLV is the measurement of the net profit your business earns during the entire time a customer is doing business with you.

CLV can be complex to calculate, but there are two main ways.

  1. Historic CLV: Sum of gross profit from all purchases made so far for an individual customer
  2. Predictive CLV: Use a predictive analysis method of previous transactional history and various behavioural indicators that forecasts the lifetime value of a customer

If you are a Shopify merchant, we recommend to look into these helpful reports within Shopify to calculate CLV for your business. For all the other merchants out there, we will be following up with some tips on calculating CLV, so stay tuned!

If You Delight Them, They Will Stay

In today’s crowded retail eCommerce landscape, consumers have a luxury of options to choose from where it can get their products and services from.

Retailers need to deliver an excellent customer experience with their stores to keep their customers

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A 2016 survey done by eConsultancy shows a third of retail respondents said optimising customer experience represents the single most exciting opportunity for their organisation.

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Source: eConsultancy

In the next few years, retailers need to invest in superior customer experience to differentiate themselves from the multitude of stores out there and drive customer loyalty to stay competitive.

How then, do you do that?

Stay tuned! We’ll be covering that in the next part, which you can read here

In Summary

We’ve covered a lot of – hopefully useful – information in this article. Let’s do a quick recap:

We learned..

  • Why you should look beyond pure customer acquisition for a sustainable approach of growing your business.
  • How returning customers spend more than new customers and therefore should be of strategic importance.
  • The importance of delivering a superior customer experience to meet your customer’s needs

Now that you also know of the importance of looking at Customer Lifetime Value and customer retention, we’ll be dedicating our next article to cover some strategies on how to improve your customer experience for your store and encourage them to return in the next article

Stay tuned!

Joshua is responsible for Parcel Perform’s marketing efforts. He is passionate about technology, reading and continuous learning