6 customer retention & loyalty metrics every ecommerce brand should know
This list is going to introduce you to the ecommerce retention metrics you need to know to create a sustainable business that does not require you to rely on paid ads.
This list does not include: Customer acquisition cost (CAC), cost per click (CPC), return on ad spend (ROAS), or conversion rate. These metrics focus on acquisition and are already found on every ecommerce metric list out there. Instead we are going to focus on the metrics that will tell you if your customer retention and loyalty is strong.
The metrics on this list are all about measuring and maximizing the value of each customer you have already acquired.
1. Return visitor rate
When you adopt a retention marketing strategy, one of the first things you will see happen before anything else is an increase in your return visitor rate. This is the percentage of traffic to your site that is not here for the first time.
You want to return visits because they usually represent an improvement to every major metric you are tracking. On average ecommerce merchants are seeing return visitors make a purchase 75% more often than a new visitor according to Barilliance.
I have seen this first hand working with clients at Spark Retention too. Here is an example of the increase return visitors represent. The highlighted section is the conversion rate to purchase.
You can easily see the percentage of your visitors that are returning as well as how they compare to new visitors for any goal you have set up in Google Analytics. Just head to Audience > Behaviour > New vs Returning.
2. Repeat customer rate
Your repeat customer rate is one of the most important ecommerce metrics to evaluate the effectiveness of your retention marketing efforts. It’s the percentage of customers in a given time period that are not purchasing for the first time.
The higher the percentage is, the better you are at convincing a previous customer to return and purchase again. Getting an existing customer to buy again is 5x cheaper than acquiring a new one, meaning an increase in your repeat customer rate is reducing your expenses and increasing your profitability.
While repeat customer rate will vary drastically by industry, you should be striving to be above 20%.
Many of the most popular ecommerce platforms track your repeat customer rate for you. If you need to calculate your repeat customer rate manually, you can use the following equation:
= # of customer that purchased more than once / # of unique customers
3. Purchase frequency
Retention marketing is not just about getting people to return, it is also about getting them to return more often. Tactics like post purchase email flows and loyalty programs can increase the amount of times that a customer will make a purchase.
How often the average customer makes a purchase is known as your purchase frequency. To calculate this you are going to need to scope your data to a specific timeframe. I recommend using the last 365 days (if you have that much data) or 30. You need to grab the total number of orders during this time period as well as the number of unique customers.
The equation you want to use is as follows:
= # of orders (365 days) / # of unique customers (365 days)
The key here is to use unique customers. You are calculating how many times the average person is purchasing so you do not want to count the same person who purchased twice as two different customers.
20,000 orders / 6,500 customers = 3.07
This means that the average customer is buying 3.07 times per year. As you focus on retention efforts to bring customers back again, you will see your purchase frequency begin to rise. This increase in purchase frequency is likely why the Harvard Business Review says that a 5% increase in retention can lead to a 95% increase in profitability.
4. Time between purchases
When you know your purchase frequency you can easily calculate your time between purchases. This metric is super useful for ecommerce brands because it allows you to set follow up emails to encourage them to return, or offer your product as part of a subscription right as they would be buying again.
Once you know your purchase frequency (metric #3) you can use this equation:
= 365 days / purchase frequency
If we stick with the example equation from above, 365 days / 3.07 purchases per year = 118 days.
5. Average order value (AOV)
I know, this metric is probably on a few other top ecommerce metric lists out there, maybe even a few acquisition focused ones. This metric is important in ecommerce regardless of focus. Knowing how much each purchase will be on average allows you to make smart marketing decisions.
For retention marketing purposes, average order value is a metric that you will expect to see rise as you focus on bringing more customers back. This is because a returning customer spends more per order than a first time visitor, 67% more, according to business.com.
Most ecommerce platforms will highlight your average order value for you. If you are using any other analytics software to measure, you can also segment your customer further to see which ones are purchasing the most.
I always recommend at least looking at the difference between new customers and returning ones. You will always see movement faster after adopting retention marketing when you are looking at returning customer AOV. You will see improvement here before you see a drastic change in your entire store’s AOV (depending on what percentage of our business is from new customers).
If you ever need to calculate your average order value manually, you can use this equation:
= revenue earned / total # of orders
6. Lifetime Value (LTV)
Lifetime value (LTV) is also sometimes referred to as customer lifetime value (CLV). Regardless of what you call it, it is a measure of how much a customer is worth over the entirety of their purchase lifetime.
Knowing LTV is crucial to understanding what you should be willing to pay to acquire a customer. Theoretically you would be willing to pay up to your customer lifetime value to acquire a customer, minus the profit you seek.
However calculating LTV is extremely difficult. I am not a mathematician, and I am guessing you are not either. Do a quick google search of lifetime value and you will find all sorts of equations like these.
These equations are complicated, and in order to find your true LTV you are going to need to know your average customer lifespan. To calculate that you are going to need to have seriously large data set. If you do not have years and years worth of customer data you can try this simpler LTV equation for ecommerce.
It scopes value to a particular timeframe showing you customer value in X time rather than trying to get super mathematical.
customer value = average order value x purchase frequency
This will not give you the same level of insight, but it is a hell of a lot easier to use and calculate. Considering only around 5% of retailers (usually only the largest ones) are calculating LTV, you will be ahead of most calculating it this way.
Benchmark and monitor these metrics
These 6 metrics will help you measure and analyze how well you are doing at retaining your customers. Every metric on this list is better the larger it is.
The best way to use these metrics is to first benchmark each of them with what you are doing right now. If you do not take a snapshot of where you are, you will never know how far you have come. That is important considering retention marketing is much like going to the gym.
It might feel awkward at first, and you do not see results overnight, but with continued effort and consistency you can transform your business!
Did I miss any retention metrics that you believe should be on this list? Let me know which ones in the comment section below. If you need a hand navigating your retention marketing efforts, or want to get started with retention at all, let’s talk and see if I can help.
The key takeaways
The above was a lot, I get it! That is why I will always include the key takeaways for you to grab at a glimpse.
Key customer retention metrics for ecommerce:
Return visitor rate (% of people viewing your site who are not there for the first time)
Repeat customer rate (% of customers who have made more than one purchase )
Purchase frequency (# of times a person makes a purchase in a given amount of time)
Time between purchases (How long passes between the average person’s purchases)
Average order value ($ amount made per order)
Lifetime value (How much a customer is worth to you over their entire life )