Calculating repeat customer value and choosing a retention tactic

It seems to be common knowledge that retaining a customer is cheaper than attracting one. New research on retention tools and their importance for business is published every year, but the exact mechanisms are often left out. Let us walk you through it.

How to calculate repeat customer value

Select a time frame (for instance, a year) and calculate the frequency of repeat purchases and average order value for the period.

Frequency of repeat purchases indicates how often the customers return. It is a crucial metric given that repeat customers account for 40% of an average store’s revenue. It is calculated as:

Number of completed orders / number or unique customers

Average order value is the amount per transaction that a customer spends in the store. It is calculated as:

Revenue for the period / number of completed orders

Repeat customer value is calculated as:

Frequency of repeat purchases x average order value

If you compare the result to the costs of attracting first-time shoppers, it will become clear why market research in different countries unanimously claims that retaining repeat customers is cheaper than gaining new ones.

Assess the efficiency of the current strategy by taking a look at the customer retention rate – the number of people making repeat purchases:

Number of customers who made more than one purchase / number of unique customers

If you are generally happy with what you see – congratulations, you are on the right track! If not, this article will offer the overview of the most efficient retention tools and tactics.

Areas for improvement

The best retention tactic is a quality product and good service. If the product is average or you are a retail store with product quality depending on the supplier, you can still take quick steps to upgrade the service to outstanding and create memorable experiences. Here are a few simple but efficient tips.

  • Hire right people

A company is perceived through its employees both online and offline. Customers form an opinion about the brand based on how well they are served, which makes hiring qualified and considerate employees highly important. The first step should be to think through the incentives and employment terms, as poor HR management can turn the most helpful employee into a dull chat bot.

  • Be quick

In today’s online-driven world, customers expect a prompt response to both messages and calls. Try to process the requests as fast as you can. If you cannot give an answer right away, it would be an option to text something like: “We are processing X requests at the moment. The manager will get back to you in five minutes.”

  • Optimise the website

The website is an essential component of your service with significant impact on how the customers perceive the company and its product. Slow website speed, page errors, or unintuitive interface as well a difficult shopping path, a distasteful design, or even spelling mistakes contribute to a negative user experience that can permanently alienate the customer.

Six most efficient retention tactics

Loyalty programmes

Loyalty programme is a win-win: customers receive bonuses every time they shop, and the business benefits from repeat purchases. It maximises the customer's gain through cashback, discounts, and other benefits, and creates a community effect with internal hierarchy and growth that anchors users to the company and encourages them to buy more.

A loyalty programme can be automated and leveraged through a mobile app that gives points for creating an account, scanning checks, writing reviews, and sharing information on social media. When the customers see how easy it is to gain bonuses, they will happily return to the store to do so again.

Email marketing

Emails help build relationships with customers before and after their first purchase. Each message should improve the customer's user experience by triggering positive emotions, making life easier, or offering personalised discounts and promotions. Bulk emails with direct advertisement end up in spam, make users unsubscribe, and cost business the opportunity to maintain relationships and sell again.

It would be a good idea to suggest additional products that complement the original purchase and include customer reviews in your first email, though that would require collecting analytics from users' personal accounts.

Discounts and promos

Discounts and promotions is the oldest and most common way of attracting return customers. But it is also the most controversial one, as by offering regular discounts, businesses essentially urge customers to wait until the price goes down, which results in income loss.

A good alternative for encouraging customers to return would be offering a discount for a second purchase. Furthermore, personalised offers help bring back customers who have not bought anything in a while.

For personalised offers, you need analytics and user data to send discounts on customer birthdays or their first purchase anniversaries.

Feedback

An important aspect of an e-commerce business is feedback. It often plays a crucial role in prompting the customer to buy a product and return for the next one without any major effort on the company’s part. Granted, you would have to collect it first.

Those unhappy with the service do not need any prodding to leave their negative feedback at the customer service, the website, and the brand's (or their personal) social media pages. In that case, the best response would be to try to understand and address the customer’s grievances. Quite frequently, an effectively solved problem turns an unhappy buyer into a loyal customer.

Things are somewhat different with satisfied customers who may need some prompting to leave feedback. This could be a request to take part in a survey after the purchase, a mailed-in questionnaire, or a small discount on the next purchase in exchange for feedback on the previous one.

Mobile apps

With mobile apps, you can combine several customer bring-back strategies by extending membership in loyalty programmes, directly informing them of personalised offers via push notifications, and collecting feedback on service quality and their preferences.

Users prefer buying from companies they have had previous experience with. Therefore, such features as pre-filled payment information, delivery address, purchase history, and promo messages to user’s personal account will certainly facilitate your interaction with the customer.

However, mobile apps are not the only tool for direct sales. The latter has been also available from mobile responsive websites for some time now. Major Russian retailers use mobile apps to collect analytics and increase customer loyalty by seeking to tap into user experience: augmented and virtual reality activities, geotargeting, visual search, and other technologies.

With myTracker, you can analyse in-app user behaviour, evaluate how it is affected by certain events or updates, and collect cross-platform analytics. For example, you can see that users are more likely to leave feedback through an app, but they still prefer to make their purchases on a website. This allows you to adjust the way your mobile app works or use it for other business purposes.

Retargeting and social media

Social media is the most promising and flexible approach to attracting new and bringing back existing customers. Especially considering that RuNet’s mobile traffic has surged 80% in 2020 and is expected to account for 88–92% of the internet traffic in 2021.

Social networks facilitate close interaction with buyers directly informing them about new products and special offers. On top of that, they help personalise advertising allowing customers to get what they really want and through retargeting encourage them to return for new purchases. All of this provided there is quality analytics they can rely upon.

The bottom line

Existing customers are a key business asset. They know the brand and are happy with the product and service quality. Not cultivating their loyalty means losing a great opportunity for business development. In the long term, customer retention is often more sensible than customer acquisition.

In e-commerce, win-back strategies take time to implement, but they do increase customer value and ultimately help lower marketing costs.

For maximum effect, all of the proposed solutions should be combined into an effective customer retention strategy. Send discount notifications by email and a week later follow up with retargeting in social networks reminding of and further personalising the offer. However, for that you would need user behaviour analytics.

The share of RuNet’s mobile traffic is rapidly growing, which makes major retailers believe that mobile apps are the most effective retention tool combining personal accounts, loyalty programmes, and push notifications.

With myTracker’s mobile analytics, flexible reports, and user-level statistics, bringing back return customers is easier, cheaper, and more efficient.