Customer Retention

Decoding Customer Retention: Metrics and Winning Tactics

Learn what customer retention is, its metrics, and how businesses can create opportunities to improve customer retention and encourage repeat customers.

You’ve probably heard a million times that it’s cheaper to retain customers than to acquire new customers.  This is true for all digital businesses, which are immensely competitive.

Since the high cut-throat competition and the crowded nature, customer acquisition requires many advertising expenses, engagement, and conversion. Therefore, it’s important to have a good amount of focus on customer retention.

This blog will discuss how one can create opportunities to improve customer retention and encourage repeat customers.

What is Customer Retention?

Customer Retention, two words right, self-explanatory?

Yet, let’s explore what these two words are taken together mean from a business perspective.

Customer retention is a set of collective activities a business performs or uses to increase the number of repeat customers, which leads to an improvement in profit per customer, and eventually, overall profitability.

Retention strategies enable you and your brand to provide and extract more value from your existing customer database. It paves the way for other departments under your organization to work together, ensuring that customers have an excellent experience.

In short,

Customer acquisition lays the foundation for your business, gets you started. Whereas customer retention truly brings out the best you have to offer, where the focus shifts towards providing exemplary customer experience and working on the growth of your customers’ success metrics.

The Right Time to Focus on Customer Retention

Customer retention is heavily influenced by where your business stands. Are you just starting up? Are you still in your infancy stage?

Then probably, your focus would be more on customer acquisition over retention.

But, if you fall into the category where you have already acquired a substantial customer base, the focus should shift towards retention and engagement.

Here’s how to identify where you are currently:

  • Getting Started: When you’re new to the market. At this stage, your focus should point to improving your brand’s visibility and acquiring customers.
  • Growth and Traction: The second phase is basically a mixed bag of growth and gaining traction in the market. At this phase, you should balance activities between acquisition and lay the foundations for customer retention.
  • Established: Your company’s at a phase where sales numbers are growing, and revenue has stabilized, and you can plan the next year or two with the projection. At this stage, you should extensively focus on customer retention.

Having discussed this, it’s always a good idea to plan and measure customer retention as a key business metric. Afterall customer retention isn’t just about improving your revenue but also benefits a brand with:

  • Customer Advocacy,
  • Word-of-mouth growth,
  • Better feedback and product growth
  • Loyal customers are more likely to forgive,
  • More brand value.

So how?

How do we focus on improving customer retention?

Before we answer that, we have to understand a few key customer retention metrics that would help us create a better program for retaining our customers.

Understanding Customer Retention Metrics

Improving customer retention highly depends on the underlying metrics. What are the metrics, how to set metric tracking, and how does one improve it?

Here are the 4 metrics that are important when it comes to retention:

Average Order Value

The average order value is the cost of each order placed divided by the total number of lifetime orders. For example, if Anne places 3 separate orders worth $30, $20, and $10, her AOV would be $20.

Why is the average order value important?

It allows you to identify customers that could greatly impact your revenue if retained and helps you identify customers that need to be nurtured further.

By identifying your customers, you will create specific programs for them based on their AOV. We will be discussing this program further down the blog.

Repeat Customer Rate

As the heading says, repeat customer rate gives you an idea of how many customers are making 2nd, 3rd or more purchases on your store.

Measuring this metric will help you gauge the effectiveness of your retention strategies and tactics. All you have to do is:

Record the number of customers with more than one purchase.


Divide this number by the number of unique customers.

And that’s your repeat customer rate.

Purchase Frequency

Purchase frequency depicts how often customers come back to your store to make another purchase. Like repeat customer rate, this one is gauged by the total number of purchases divided by the number of unique customers in a given time frame.

Customer Lifetime Value

The customer lifetime value (CLTV) is probably the most important metric in the entire customer retention process. It’s the final piece of the puzzle that you’d require to reveal a beautiful landscape.

In the end, customer retention is about increasing the lifetime value of all customers that you engage with, and CLTV paints that picture.

Customer lifetime value is measured in different ways across various industries, companies, and verticals. Though basically, to get started, one can use — purchase frequency multiplied by AOV in a certain time period — to calculate CLTV.

How to Grow through Customer Retention

Now that we have covered the important retention metrics let’s get into a few key tactics and methods that could help you with customer retention.

1. Map Customer Data and Activity

The first thing you need to do is start analyzing your customer behavior, data, and activity. By this, all the metrics we discussed above, start creating trackers for these metrics asap. This will allow you to understand where you currently stand and what should be your next step.

Secondly, by mapping customer data and activity, you can create tailored customer journeys, sales funnels, and retention funnels.

2. Leverage Customer Segmentation

With platforms such as Vizury, customer segmentation could be highly beneficial. When you are revamping your retention strategy and introducing new tactics into the mix, it’s important to create appropriate customer personas and segments.

To give you a basic idea, engagement platforms like Vizury provides marketers with the toolset to create detailed segments across the platform. And here are the ways you can start segmenting your customer base:

  • New Customers: As the name suggests, these are new customers, who have made their first purchase, might or might not have created an account, provided you are not gating checkouts on your website. This segment can be targeted with customer nurture programs, onboarding offers, discounts, and first-time order experience feedback programs.
  • Regular Customers: This segment should have more of your focus, as these customers are regularly making purchases off your website.
  • High-Value Customers: At the same time, high-value segment customers are also critical as they contribute a lot to your bottom line. Ensure that you are maintaining an open channel between you and the customer and can address any questions or concerns that you might have.
  • Under-threat customers: These might be customers who are likely to fizzle out of your store. By identifying this segment, you can introduce a retention program that re-engages customers on the verge of leaving and brings them back to the store. Generally, such customers might leave due to poor customer service, grievances, expensive pricing, etc. Mitigate them by reaching out personally, sending out personalized offers and discounts, and more.
  • Churned customers: The group of customers that have already fizzled out. Look for ways to bring them back, maybe by letting them know that the feature/product they were looking for is now available, provide offers and discounts, 1:1 reach-outs, and more.

3. Create Customer Loyalty Programs

Loyal customers need to be rewarded. After all, they are responsible for 40% of the revenue brands make today. As we marketers like to address them, customer retention programs are loyalty programs designed to reward loyal customers.

Such a program is beneficial for both parties, as customers make repeat purchases, they get exclusive rewards for their action, and for the brand, it increases their total revenue.

One of the prominent examples of loyalty programs is Starbucks and their shopping card. With Starbucks cards, you can become a member and get freebies, and exclusive offers the more you buy from them.

And it’s easy to create a loyalty program, nothing too complex. For instance, all you have to do is start rewarding your customers with exclusive discounts or store credit when they cross the ‘X’ number of purchases or ‘X’ amount of money spent in your store.

4. Leverage Individual-level Personalization

You can craft experiences that could improve the number of sales you generate from each of your customers, which leads to an improvement in retention rates.

By leveraging platforms like Vizury, you can create truly omnichannel personalized experiences whether your customers shop online or prefer to visit a retail store.

Think about it this way, Drew was surfing for a watch on the web, and he lands on your store’s app, checks out a watch, and decides to add it to his wishlist. The wishlist’s addition triggers a push notification that informs Drew a day later that he can avail 10% off on the watch he added to his wishlist last night. Now Drew claims to offer and checks-out, he is given two options: get it home delivered in 5 days or collect the watch in the store the next day. He selects the store-collection options, goes to the store, verifies his purchase, and gets his new watch.

5. Create a Voice of Customer and Feedback Programs

Customer feedback is one of the most important methods to understand why sales numbers are stalled and how you can improve your retention program.

By creating the right pre-sales and post-sales feedback loop, you can find the friction in your sales journey. The better the feedback process, the faster you can resolve issues that any unhappy customer has, turning them quickly into happy and loyal customers.

For pre-sales activity, you can create product catalogs, product guides, use-case guides, and more for your shoppers and help them make the right decisions.

When it comes to post-sales, you can gather feedback on the delivery experience, help your new customers with getting the most of their new products (Apple’s Genius Bar is a great example, as is their weekly programs for extracting the most of their products, which is free for everyone) with guides and virtual sessions, and more.

You can even send a handwritten thank you letter with all of the orders, to appreciate your customers. The attention to detail and personal touch will go a long way and stand-out in the eyes of your customers.

6. Bring Them Back With Offers Or Discounts

Generally, discounts can be a double-edged sword. It can be expensive in the long run, whereas it’s probably the most attractive method for the customer to repeat purchase.

But, when it comes to tying new customers into your retention program, it could be a good way to start things up. A first-time buyer can be nudged towards their next purchase by providing them a 10% discount because, according to Paul Farris’ book Marketing metrics, a repeat customer has a 70% chance of converting again.

In fact, Adobe’s report suggests that after 2 purchases, a customer is 9x more likely to buy again than a first-time customer.

Plan-Act-Measure is Critical

There are various ways to approach a customer retention strategy. And the key to implementing full-fledged customer retention strategies can be a complex task at hand.

Therefore it’s important to pick one or two retention metrics as your north star and devise a streamlined strategy around it. This allows you to measure all the progress and iterate the strategy quickly based on the feedback and response.

Remember that a loyal customer is 9-times more likely to repeat their purchases, and a good customer retention strategy is the key to gaining more loyal customers.

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