How to Craft an Ecommerce Retention Strategy to Skyrocket Customer Lifetime Value

Acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one, according to Harvard Business Review. Yet the average ecommerce business allocates over 80% of their marketing budget to acquisition, and only 20% to retention.

Why is this a mistake? Consider that:

• A 5% increase in retention can boost profits by 25% to 95%. (Bain & Company)
• Existing customers spend 31% more than new customers on average. (Invesp)
• 40% of an ecommerce store‘s revenue is generated by only 8% of its customers. (Adobe)

The verdict is clear – if you want to grow your ecommerce business sustainably and profitably, you need to focus on retaining customers after the first purchase. But retention doesn‘t just happen by chance. You need a deliberate strategy with the right tactics and KPIs in place.

In this comprehensive guide, I‘ll walk you through how to build a winning ecommerce retention strategy that increases your repeat purchase rate, average order value, and customer lifetime value.

What Makes a Great Post-Purchase Experience

Retaining customers starts with nailing the post-purchase experience, from checkout through delivery and beyond. 73% of customers say the post-purchase experience significantly impacts their decision to buy from a brand again (Narvar).

Essential post-purchase experience elements include:

• Fast and affordable shipping: Offer free or low-cost shipping options and deliver orders as quickly as possible. Display clear delivery estimates on your site.
• Proactive order communications: Send prompt order confirmations, shipping confirmations and delivery updates. Include detailed tracking info.
• Hassle-free returns: Have a clear, customer-friendly return policy and make returns/exchanges easy with pre-printed labels. Minimize turnaround time on refunds.
• Self-service order management: Let customers modify or cancel orders, manage subscriptions, and initiate returns on their own via your site or app.
• Omni-channel support: Offer convenient support options like live chat, phone, email, etc. Empower reps to make customers happy.
• Feedback collection: Survey customers on their post-purchase experience and find ways to continuously improve processes and policies.

Optimize your post-purchase journey by auditing every touch point and interaction. Send yourself a test order to experience the process firsthand. Secret shop competitors to compare. Analyze customer feedback to uncover friction points and invest in solutions.

For example, MeUndies, the online underwear brand, offers free shipping and free exchanges/returns on all orders. They have a dedicated "Happiness Guru" support team available 24/7 via phone, chat and social. They also collect customer feedback after every interaction to maintain sky high satisfaction.

Loyalty Programs Drive Repeat Business

69% of consumers say they choose retailers based on where they can earn customer loyalty/rewards program points (Accenture). Give your shoppers a compelling reason to keep coming back by offering a best-in-class loyalty program with valuable benefits.

The key elements of a successful loyalty program include:

• Point system: Award points for purchases that can be redeemed for discounts, free products or exclusive rewards. Ensure point values and redemption tiers are clear.
• Faster/bigger rewards for best customers: Structure your program with escalating tiers (e.g. silver, gold, platinum) that reward higher spend and engagement with additional perks.
• VIP experiences: Offer top spenders experiential rewards like early access to products, free gifts, priority service, and invites to exclusive events.
• Personalized incentives: Use loyalty program data to personalize marketing and tailor rewards to individual shoppers‘ preferences and habits.
• Omni-channel access: Let members earn/redeem rewards across all your channels – online, in-app and brick-and-mortar.
• Gamification: Make your program fun with features like bonus point challenges, prize wheels, social sharing incentives, and leaderboards.
• Paid tier: Consider offering an optional paid tier with enhanced benefits. 62% of consumers don‘t mind paying for enhanced loyalty program benefits (Bond).

For example, Sephora‘s Beauty Insider program has three tiers based on annual spend. Members earn points on every purchase, redeemable for products or services. They get a birthday gift, savings on their member anniversary, and first access to sales. Elite VIB and Rouge tiers get even more perks like monthly gifts, free shipping and exclusive events. This keeps Sephora customers loyal and consolidating their cosmetics spend.

Personalization Makes Customers Feel Valued

80% of consumers are more likely to purchase from brands that offer personalized experiences (Epsilon). Use data from your ecommerce platform, loyalty program, and other sources to tailor the customer journey. This will make shoppers feel recognized and motivated to buy again.

Key personalization tactics include:

• Product recommendations: Suggest other items to buy based on browsing and purchase behavior. Display on your homepage, product detail pages, cart page, and post-purchase.
• Segmented emails: Segment your email marketing based on demographics, past purchases, browsing behavior, and lifecycle. Send tailored content, products and deals.
• Behavioral triggered messages: Set up automated emails and push notifications for key events like abandoned carts, recent purchases, loyalty milestones, etc.
• Remarketing ads: Show personalized display ads featuring previously viewed products across third party websites and social networks.
• Dynamic content: Change homepage hero images, navigation, and promotions to reflect individual customers‘ preferences.
• Loyalty program personalization: Award bonus points for shopping in their favorite categories or on their birthday. Customize rewards based on past redemptions.

Starbucks Rewards is a great example. The popular app tailors offers and challenges to each user‘s buying habits. It tracks favorite orders for quick reorder. It suggests new products based on past purchases. Members get a personalized Star Dash bonus point challenge every week. This keeps the experience fresh and engaging.

How to Track and Benchmark Retention

To know if your retention strategy is working, you need to track the right KPIs. The most important metrics for ecommerce retention include:

• Repeat Purchase Rate: Percent of customers who make a second purchase (and third, fourth, etc.)
• Purchase Frequency: Average number of times a customer purchases over a time period (e.g. annually)
• Average Order Value (AOV): Average dollar amount spent each time a customer places an order
• Customer Lifetime Value: Total revenue a customer generates over their lifetime as a customer
• Redemption Rate: Percent of loyalty points/rewards redeemed by members
• Net Promoter Score (NPS): Percent of customers who rate their likelihood to recommend as a 9 or 10 out of 10

Here are the average benchmarks for key retention metrics by vertical (Stitch Labs, RJ Metrics):

Industry	Repeat Purchase Rate	Purchase Frequency	AOV	Revenue from Repeat Customers
Apparel	17.6%	1.22	$91.70	14.2%
Electronics	12.3%	1.13	$175.43	8.5%
Food/Bev	21.2%	1.27	$29.02	18.5%
Jewelry	22.3%	1.29	$99.72	23%
Sporting Goods	14.5%	1.16	$88.44	11.3%

Aim to outperform your vertical‘s benchmarks. For example, if you‘re an apparel brand, strive for a repeat purchase rate of 20%+. For food and beverage, over 25% is a strong target. Monitor your KPIs monthly or quarterly, and set goals to continuously improve.

Win Back Lapsed Customers with Reactivation Campaigns

No matter how good your retention strategy is, inevitably some customers will lapse. Don‘t lose hope though – you can bring them back with a strategic win-back campaign. After all, it‘s easier to sell to a lapsed customer than a brand new one.

To re-engage inactive customers, try tactics like:

• Targeted emails: Create email campaigns tailored to customers who haven‘t purchased in X days with an enticing offer. Test subject lines, discounts, and creative.
• Multichannel retargeting: Serve social media and display ads to lapsed customers directing them back to your site or app to redeem an exclusive deal.
• Loyalty reminders: Send emails or app notifications to loyalty members highlighting their points balance and redemption options.
• Replenishment reminders: If you sell consumable products, remind customers when it‘s time to reorder based on past purchase frequency.
• "We miss you" messaging: Sometimes just letting a customer know you noticed they‘re gone and want them back is enough. Highlight what‘s new since their last visit.
• Surveys: Ask lapsed customers for feedback on why they haven‘t bought lately. Their responses may reveal key CX issues to address.

Be sure to test different segmentation and messaging approaches to see what resonates. Start with a small test and scale up as you optimize. Measure win-back campaign success based on response rate, conversion rate, and average order value.

For example, Peet‘s Coffee sends a "Double Points Day" email to reactivate lapsed loyalty members. It offers 2x points on any purchase in the next week. This gives members a low-pressure reason to re-engage.

Turn One-Time Buyers into Subscribers

The holy grail of retention is to turn customers into subscribers. Subscription ecommerce sales have grown over 100% a year over the past 5 years (McKinsey). This model guarantees recurring revenue and builds business predictability.

Types of subscriptions to consider for physical products include:

• Replenishment: Automate reorders of consumable goods on a regular basis. Works well for categories like food, cosmetics, pet supplies, baby products, etc.
• Curation: Surprise and delight customers with new personalized assortments each month. Choose products based on a style quiz and ongoing feedback.
• Access: Charge a monthly membership fee for special perks like discounts, free shipping, exclusive products, etc.

For optimal subscription results:

• Offer flexibility in delivery frequency and assortment
• Allow customers to easily skip orders or change preferences
• Provide incentives for longer subscription commitments
• Use subscriptions to introduce new products
• Celebrate member milestones and reward tenure

Chewy, the pet ecommerce brand, excels at subscription retention. 70% of sales come from their Autoship subscription. They offer 30-50% off a customer‘s first subscription order, then 5-10% off all future orders. Customers can easily change their assortment, pause or cancel. This has resulted in 25%+ CAGR over the last three years.

Invest in Retention to Boost Ecommerce Profitability

While acquisition helps you grow, retention is what makes ecommerce businesses profitable for the long haul. I hope this guide has shown you why investing in retention is so important, and how to craft a strategy to improve your key metrics.

As you can see, there‘s no silver bullet for retention. It requires a concerted effort to optimize your post-purchase experience, invest in loyalty, personalize your marketing, measure the right KPIs, win back lapsing customers, and move buyers to subscriptions when possible.

The good news is, these tactics build on each other. Get the post-purchase experience right and more customers will join your loyalty program. Capture more customer data and you can increase personalization. Run better win-back campaigns and more customers will migrate to subscriptions. Every step you take will compound your retention results over time.

So my advice – just get started! Put a stake in the ground and commit to improving your retention metrics by X% over the next year. Assemble a retention taskforce with key stakeholders across marketing, product, operations and finance. Align on your goals and strategy, then start executing and iterating.

It won‘t be easy, but it will be worth it. Because at the end of the day, your loyal customers are your most valuable asset. Treat them well, and they‘ll continue to grow your business for you.

The future of ecommerce belongs to the brands who invest in keeping the customers they already have.
Will yours be one of them?