For marketers, there are metrics that you’ve been trained to look at on a daily, weekly, monthly, and yearly basis. Things like:
- Open rates
- Click rates
- Acquired Customers
- ROI on Acquisition
While these are all important metrics to understand parts of your business strategy, to really get the full image of how your business is doing, it’s important to bundle retention metrics into your monthly, quarterly, and yearly snapshots. This article will explore two things:
Customer retention metrics help retailers fully understand the sustainability of their eCommerce business. We’re all guilty of focusing on acquisition, but what good is pouring money into an acquisition strategy if 4 out of 5 customers you acquire never return? The goal when you acquire a customer is to at least ensure they pay back their CAC (customer acquisition cost).
Let’s take a look at a quick example. Say you have a CPC of $.50, a conversion rate of 1-2%, and an Average Order Value for first-time customers of $100. So for every 100 clicks, you spend $50 and acquire 1 new customer who spends $100 with you, so your net total is $50. If your margins are 40%, you are still $10 in the hole. Your one customer has to come back and purchase again at the same or higher value in order to make at least a $30 profit.
Are you with me so far? Good. Now, let’s say that you have enabled email capture on your website, with a capture rate of 10%. As a savvy marketer, you know that not everyone who comes to your site will actually purchase something; however, you’ve created an amazing subscriber series to engage new subscribers and entice them to make their first purchase. In fact, your subscriber series sees a 33% conversion rate. So for every 100 clicks, you will still acquire 1 new customer, but you’ll also capture 10 new email addresses. With a conversion rate of 33% on your subscriber series, you can expect to see 3 new customers from this channel, for a new net total of $350.
With a 40% margin, that’s already of total of $110 profit. Let’s say half of these new customers make a second purchase, thanks to your first purchase email series. All of a sudden you have a $190 profit (assuming they spend the same amount).
Watch this quick video to get a good idea of how evo uses retention to offset their acquisition costs.
Retention Rate & Lift
As you’ve seen above, retained customers are essential to any online business. We define retained customers as those who have purchase from you three or more times. Understanding your retention rate helps you understand whether you are doing a good job keeping customers once you’ve acquired them.
Retention Rate Lift refers to the increase in retention over a period of time. This metric is important to pay attention to on a quarterly and yearly basis.
Average Order Value (AOV)
AOV stands for the typical dollar amounts spent per order by each customer. Ideally, you want to see AOV going up on each customer’s subsequent purchase. As AOV grows, so does your profit, and, generally, increases in AOV indicate that your repeat customers trust your brand, and are on their way to becoming loyal customers.
Customer Lifetime Value (CLV)
Perhaps one of the most important metrics, growing customer lifetime value is critical to retail success. CLV is defined as the total dollars flowing from a customer over their entire relationship with a business.
Latency is simply the amount of time between purchases. Understanding the average amount of time between the first and second purchase, the second and third purchase, and so on, can help you pinpoint customers who are in danger of churning. I would recommend looking at this number every 6 months, as the goal is to decrease the time between purchases.
We’ve created a Key Business Metrics Guide that includes more information and step-by-step instructions to calculate these metrics. Download it for free here.
Don’t feel like doing the calculations? Sign up for a free retention assessment and get access to these metrics and more for FREE for a limited time.