This formula will calculate your customer retention rate
Customer retention rate, in brief, indicates how loyal your customers are. It is one of the critical metrics for analyzing your customers’ shopping behaviours. Unlike other eCommerce metrics like average order value (AOV) and conversion rate, there is no standard measuring method. That’s why we’re here to introduce the basic method of measuring retention rate.
The General Formula
One simple way of calculating your customer retention rate is to take a look at the proportion of customers who shopped previously that would still be considered active at the present. Once you have that data, you can roughly calculate the retention rate with this formula:
Retention rate = a number of customers who have shopped 12 months ago who have also shopped within the past 6 months/number of customers who have shopped 12 months ago.
Let’s say that you have an online store that sells pet supplies; if you had 2,000 customers who shopped 12 months ago and 200 of them shopped again in the past 6 months, then the retention rate is equal to 10%.
This formula simply takes the customers that shopped in your store in a historical period of time (in this case, 12 months) and calculated the proportion of those who shopped recently (within the last six months).
How simple is that? But the retention rate you get is too rough to be efficient. And here is why:
- This formula only reflects the purchase frequency within a given amount of time. It fails to recognize the impact of your product categories. For example, in the case of your pet supplies business, the retention rate of dog food should be different from the retention rate of dog beds/carriers. So when calculating, you should take the different product category life cycle into consideration.
- You should also consider your customer segments. The purchase behaviours of B2B customers and B2C customers are not the same, therefore their retention rate should be measured individually with different metrics.
Three Simple Tactics That Increase Customer Retention Rate
Running loyalty programs that offer rewards for frequent purchases is not a new phenomenon. In fact, it’s something most shoppers expect today anyway. When a customer receives rewards, they are given a switching cost if they want to choose your competitor for their next purchase. It won’t be easy for them to give up that value offered by the loyalty program, whether it is redeemable points, conditional cash backs or special status that comes with perks. Therefore, it is a fairly strong retention driver for many businesses.
Keep A Close Touch
Avoid losing your customers by keeping in close touch with them. The easiest way is to engage them during the post-sales period is by sending emails, notes, special deals and other types of follow-ups with a personal touch. Thank them for their previous purchase or keep them informed about the latest product update; it will help build a long-term relationship.
Poor customer service is one of the biggest reasons customers won’t buy from you again. Whether it is through social media platforms or on-site features such as live chat, customer support creates a way for you to keep them loyal.
You can take one further step by shortening the time gap between receiving a message to responding it. To do so, adopt tools such as Hootsuite to monitor real-time social media activities. Got no time to reply one by one yourself? Hire a community manager or PR agency to share that workload. After all, it’s so important to engage with your customers online to consistently build your brand. Social media is the way to do it!