How to increase the lifetime value of a Shopify customer

It’s cheaper to get repeat purchases from current customers than new customers. If you’re not convinced that retaining customers is so valuable, consider research done by Frederick Reichheld of Bain & Company (the inventor of the net promoter score) that shows increasing customer retention rates by 5% increases profits by 25% to 95%. Returning customers spend more money, buy more often, and can be counted on to sing your praises, and refer their friends or family to your business. If you want to learn how to measure customer retention, why it’s important, and the best strategies to keep customers coming back for more, then you have come to the right place.

What is customer retention?

Customer retention refers to your ability to retain repeat customers and increase the lifetime profitability of each customer. This is impacted by the amount of existing customers that churn. It means they either closed a subscription, canceled a contract, or chose not to return to your online store. 

A strong customer retention strategy is about maintaining relationships. It’s also about creating value for your customers by helping them achieve the goal that they had in mind when they purchased your product or service. So an example of a customer retention strategy could be creating a customer loyalty program.  On the other hand, the acquisition is the steps you take to gain new customers. A good acquisition strategy is measurable and repeatable. Customer acquisition is often visualized through a funnel. So an example of an acquisition strategy could include Facebook ads, SEO, and affiliate marketing. In short, an acquisition strategy creates the customer base, while a retention strategy builds the ongoing relationships that allow you to extract more value from your existing customer base.

Why is Customer Retention so Important?

This can be boiled down to four main reasons. Affordability, return on investment, loyalty, and referrals. As mentioned before, focusing on customer retention is a lot cheaper to retain customers than it is to find brand-new customers. So if it costs you $50 to acquire a new customer, it only costs you $10 for a repeat purchase. 

A rule of thumb is acquiring a new customer is five to 25 times more expensive than retaining an existing customer. You don’t have to spend the time and resources finding new customers, you just have to keep the ones that you have satisfied. Increasing customer retention can have a big impact on your bottom line. Loyal customers spend more money than new customers and that’s because they understand the impact and value that your products have had on their lives, and they’re happy to come back and spend more. 

Customer retention also encourages customer acquisition. It does this through referrals. So, if you’ve been able to retain a satisfied customer for years, they are likely to tell their friends about you, and you will gain new customers that way. So not only does your customer retention save your business money, but it makes your business money as well.

Who Should Be Focusing on Retention?

What you sell has a huge impact on how much you should be focusing on retention. If you have high-ticket items that need to be bought frequently, you are the one who has the most to gain from a solid customer retention strategy. In general, as you move right and up the matrix, you are the businesses that need to be focusing on retention. But even if you do fall in the bottom left-hand category, that doesn’t mean that you should completely ignore a retention strategy. So for example, if you have a phone case business that drops collectible designs every month, that would require a strong retention strategy. Every business will have its own unique story. But practically every business can benefit from more loyal customers and repeat sales.

When Should You Focus on Retention?

Whether you focus on customer acquisition or retention, will be dependent on where you are at in your business journey.

If you’re just starting, your main focus should be on getting new customers and building a strong foundation. Once you start gaining traction and things are going well, you should spend a lot of your time trying to bring in even more new customers. But don’t forget about the people who are already your customers. These are the customers who believe in your new business. They’re cheering for you and want to see you succeed. So, make sure that you show them appreciation and care, just like they do for you. At this point, you should start to introduce retention tactics like email marketing.

Then, when you grow bigger and are at the stage where you’re getting consistent sales, you should split your time. The ratio of 70-30 between nurturing existing customers and finding new ones is suitable for business at this stage. You can try a loyalty program or get serious with marketing automation. 

Once you’re established, it’s a common problem for stores to continually find ways to grow. Focusing on acquisition may lead to a lot of one-time purchases this sounds like your situation, it’s crucial to pay serious attention to how you keep your existing customers. This will get customers to buy more often which increases their lifetime value. I suggest aiming for an equal balance, where you spend an equal amount of effort on both getting new customers and keeping the ones you already have. If your business is stable and running smoothly, you should have effective systems and automatic processes in place. This should be the time when you wanna focus heavily on retention.

How to Boost Customer Retention?

1. Improve your customer support

A strong plan for supporting customers involves paying attention to their needs before, during, and after they make a purchase. One of our merchants shares a recent experience from his own business with us. Just last week, a customer contacted him to let him know that the product she received was damaged. He took immediate action by giving her a full refund as soon as I read her email. Additionally, he offered her a 20% discount on her next order. To his surprise, she not only appreciated the quick response but also left a positive review and placed another order. 

This incident highlights an interesting aspect of customer satisfaction. When you acknowledge a mistake and fix it promptly, customer satisfaction can rise even higher than if the mistake never happened. This kind of effective problem-solving can even turn a complaining customer into a loyal one who keeps coming back. Remember, if you assist customers in avoiding issues and making the most of your products, you are not only helping them but also positively impacting your business’s success.

Having a live chat available can turn a customer question into a sale or a complaint into a resolution. For this, you can find many free live chat apps on Shopify app stores.

2. Sending a small gift

Depending on the kind of business you’re running and how much profit you make, sending a small present to your most loyal customers can be a nice way to surprise them and make them happy. It also reminds them to come back to your store. When you give an unexpected gift, you’re tapping into something called the “law of reciprocity.” This is basically when people respond to something nice with something nice in return.

For example, if you look at your financial numbers and realize you have a bit of extra money left. You might try using it to give a reward to your best customers. The rewards could be your newest products or some discounts…

Another fantastic suggestion for you to consider in your online world: sending a handwritten thank-you note. Even though everything happens on the internet, taking the time to write a note by hand adds a special personal touch that customers truly appreciate. This little extra effort can make your business shine brightly amidst all those automated messages. And guess what? It’s not just about pleasing customers; it’s also about making your journey as a business owner even more rewarding.

This simple act of kindness could even lead to having a customer who stays loyal to you for a lifetime. So, when you transform numbers into real people through your customer service, it’s a wonderful outcome that benefits everyone involved.

3. Email Marketing

Email marketing allows you to continue a relationship with your customers, and is known as one of the highest-converting tools. Now, a lot of small business owners worry that they might bug their customers with too many emails. But here’s the trick: if each email you send adds something useful, your customers won’t mind at all. And to start with, just send a couple of emails each month – that’s all you need.

However, sending too many low-quality emails can indeed lose some customers. So here are some ideas for good-quality emails. First off, try sending follow-up emails. These can be personalized messages where you check in on your customers and see how they’re enjoying your product. You can also use these emails to say thank you for supporting your small business and sign off as the founder. It’s a win-win because customers will feel acknowledged and you get valuable feedback on your products and service. 

You can even ask your customers to leave a review for your product. This is a great way to build up your brand’s reputation and show that your products are the real deal.  If your product has an expiration date or needs to be replaced after a certain time, you can send well-timed emails to remind customers. This is the perfect way to re-engage with your customers. Customers love these emails because it reminds them to re-up before they run out. 

4. Offer a discount or credit

In general, you should be cautious about offering discounts. The reason is that by consistently lowering your prices, customers might start expecting bargains all the time. However, there’s a smart way to use discounts, especially for first-time buyers. You can also use discounts to win back customers who haven’t bought from you in a while. So, if you have the room to try this out, consider giving your customers a nice 20% off. Think of it as an investment to boost the number of customers who keep coming back to you.

Another idea you might want to test out is to offer store credits, like giving someone $10 to use on any purchase. This kind of virtual gift card could be even more appealing to your customers. It’s all about finding creative ways to keep your customers excited and engaged.

5. Using a loyalty program

A Loyalty program is also a great way to increase purchase frequency. Because it’s going to motivate customers to purchase more often to earn those valuable rewards. This creates two-way value, your customers get more value each time they shop and you get repeat business. Most loyalty programs fall into one of four categories. You’ve got points, tiers, social media, and paid programs. Our merchants are so happy with those features offered in BON Loyalty Rewards & Referrals. Examples of wildly successful loyalty programs are Starbucks rewards, Sephora Beauty Insider rewards, and Tom One for one. You can encourage customers to sign up, by giving them an instant reward when they create an account.

How to Measure Customer Retention in Shopify?

Once you start using these techniques, it’s important to check if they’re making a difference. Here’s how you can do that. You can measure how well you’re keeping customers in two simple ways. One is by looking at how many customers come back to buy again, which is called the “returning customer rate.” The other is by checking how much money customers spend on average when they buy from you, which is known as the “average order value.”

If you’re using a Shopify store, you can easily find these numbers. Just go to your Shopify admin and click on “analytics.” This takes you to a special page where you can see lots of useful information about your store’s performance. The trick to getting even better at keeping customers is understanding these basic numbers. When you know which figures are most important and how to figure them out, you’ll be well-prepared to come up with a plan that helps your store make more money.

Repeat customer rate

Your repeat customer rate is the key way of measuring how well your retention strategy is working. If you have a Shopify account, this calculation is already done for you, But if not you can calculate this by taking the number of customers with more than one purchase, divided by the number of unique customers. Make sure that you’re only counting within the last year.

Your average order value

This metric refers to the average amount a customer is going to spend per transaction. You can find your average order value again in your Shopify analytics. But if you don’t have Shopify just divide your yearly revenue by the number of orders your store has processed. Increasing the average order value maximizes your retention strategy efforts. For instance, if your average order value is $20 and your email marketing retention strategy costs you $17 per customer, you’re not maximizing your time or money. So, if you have a healthy average order value of more than $20 in that case, then this would be an indicator that your marketing and retention strategy is paying off.

Customer value

Customer value is the ultimate goal of retention marketing. Because it helps you understand how much each customer is worth. To calculate it, multiply purchase frequency and average order value. 

Now you have the tools to get you started on creating loyal customers. Keep in mind, your current set of customers is like a valuable treasure for your store. They cost less and earn more because they already know your brand and appreciate the true value of your product or service. Crafting meaningful human connections with your customers is the most enriching part of owning a business.  

If you are looking for a Shopify loyalty program that can help you turn one-time customers into repeat purchasers, I recommend that you try Bon Loyalty Rewards and Referrals for free for 3 days. We offer all the advanced features that a loyalty program should have. More than 5000 merchants have chosen us. Why don’t you find out why HERE.