Customer loyalty and repeat business are the lifeblood of your ecommerce store. Studies show that as much as 65% of a company’s business comes from it’s existing customers, and according to Adobe Digital Index, 41% of revenue for e-commerce stores is driven by just 8% of repeat customers. What’s more it cost’s 6 to 7 times more to gain a new customer than it does to retain an existing customer.
Of course, you cannot retain customers until they are on board, but the average e-commerce store spends more than 80% of the marketing budget on acquisition, allowing retention to take the back seat. This budget could be must better invested in customer retention though as a 5% retention boost can worth between 25% to 95% in profit.
This article discusses ways of generating customer loyalty & repeat business for your e-commerce store and locking in the additional profit that comes with it.
Customer Lifetime Value (LTV)
The lifetime value of a customer is the average amount they will spend during an entire relationship with your business. For example, if someone spends £100 per year on your products and continues to do so for ten years, the lifetime value is £1,000 minus any spend to acquire them in the first place. If you spend £20 to acquire them, that’s a net customer lifetime value of £980.
The best business models will have a ratio of greater than 3.0 between LTV and customer acquisition cost (CAC).
How to encourage repeat business
New customers are fickle. If there is any product glitch, delivery takes longer than expected, or service is not up to scratch, you will probably never hear from them again. In fact, 27% of first-time buyers will never return to an e-commerce store. However, after the second or third purchase, the chance of them coming back doubles.
The first step to ensuring customer loyalty and repeat business might seem obvious, but it is critical to offer exceptional products and services. The product that a customer sees in your store should be representative of what they receive.
Although the image below is an example from the fast food industry, you can see how a disappointing product experience like this can quickly lose you customers customers.
Also, it is essential that you provide great customer service and make sure you always do what you say you will. For example, don’t offer next day delivery if you cannot fulfill the order that quickly. Customers won’t return to companies that over-promise and then cannot deliver.
There are three great ways to help encourage repeat business once you are confident in your products and services;
- Automating repeat business with subscription models
- Customer loyalty programs with incentives to return
- Staying in touch with email marketing
Lets look at each in more detail.
Subscription models are the holy grail of ecommerce! You make the sale once and get regular, predictable, recurring income.
Research from 2019 found that the e-commerce subscription market has experienced annual growth of 17.33% in the last five years. Consumers like subscriptions as they can lower monthly costs versus a one-time payment and also allow them to engage with a brand.
During the Covid-19 lockdown, subscription box comparison site AllSubscriptionboxes.co.uk, achieved 173% more UK visitors compared to the same period the previous year. With physical stores closing, people are looking for ways to get the things they need without putting their safety at risk.
The Amazon Prime model dominates the subscription market. As soon as someone signs up to Prime, the subscription model offers free or discounted shipping for an annual fee, and they are locked in as an Amazon customer. They get several perks and are encouraged to buy everything they need from Amazon. A Prime member spends somewhere between two and four times the amount of a Non-Prime buyer.
Furthermore, once someone has had the Prime benefits, they are reluctant to relinquish them after a year of the service. 73% of 30-day trial members convert to Prime customers, and 91% of those renew the following year.
Subscription packages work best with products that consumers buy regularly. To start your own subscription plan take a look at products you currently sell that have the most repeat purchases. Consumable products such as food, coffee, vitamins, pet food, beauty products, and razor blades are perfect for monthly subscription models.
Simply Cook offers their subscribers the option to pick their meals from an extensive range. For a monthly fee, subscribers choose four meal options that are delivered to their door.
The Simply Cook model’s beauty is not just a convenient subscription and excellent product; subscribers can even personalize what they receive.
Customer Loyalty Programs
52% of American consumers say they will join a customer loyalty program of brands they make frequent purchases from. Loyalty programs are a way of giving customers rewards for shopping with your business. This could include offers, discounts, loyalty points, free gifts, exclusive access to products, or extra benefits like free shipping and returns.
Starbucks offers a tiered rewards loyalty program for their customers. The use of tiers encourages them to spend more to get to the next level.
The program is run via a mobile app, making it convenient for customers, and they must pay via the app to earn more stars. For Starbucks, this provides a goldmine of information on customer behaviours and preferences. For example, they can see where people buy, the products they enjoy, and how frequently they visit Starbucks. All of these factors will help the brand to present the right offers that drive customer lifetime value.
In the UK, supermarket chains are in a constant battle to offer the best loyalty schemes. The Nectar program from Sainsbury’s is perhaps the most heavily subscribed. Subscribers receive one point for every pound they spend, which can later be redeemed for various offers. The offers are related to your previous transactions, encouraging people to keep going back to Sainsbury’s and get more points.
Working towards a goal of points or stars makes customers feel more loyal towards a brand. Loyal customers spend 67% more on average than new ones.
An email list is one of your most valuable assets. You own it, and there is no need to pay third party gatekeepers to access it. Ecommerce email marketing is a cornerstone in encouraging repeat business by allowing you to maintain customer relationships and keep your store or site at the forefront of their minds. The best email campaigns include relevant, personal messages and reach the customer at the time they are likely to need it.
Email campaigns should follow a logical pattern to encourage repeat purchases. The 3 most common types of emails to send your email subscribers are:
- A welcome email sequence for new subscribers – introduce them to your business & possibly include reward for signing up
- Promotional emails – segment subscribers based on their purchase history and send them targeted content and promotions based on their tastes
- Abandoned Cart Retargeting emails – lure back lapsed customers with discounts
Monday.com starts with a welcome email with an explainer video that immediately helps new customers.
Straight away, there is a friendly and conversational tone, referring to the customer by name. Using a video within an email is the perfect way to tell a story without having to make customers read through pages of text documents.
Segmented & personalised content & offers
As soon as somebody makes a purchase, you know something about them. There is an opportunity to segment subscribers based on their transactions and offer targeted content and promotions based on their tastes. Segmented campaigns to email subscribers can drive up to a 760% increase in revenue.
OpenTable is a service that helps subscribers find and book restaurants. However, it also remembers user’s favourite places and helps them discover new ones based on their behaviours. They do this by using email to encourage reviews, with personalized messaging relevant to the subscriber.
Spotify combines its subscription model with excellent email marketing. The brand frames content so users feel like they are being rewarded for using the service. Coupled with this are offers that are relevant to their listening tastes, providing a sense of exclusivity.
Despite offering great products and a great customer experience, even loyal repeat customers may eventually stop shopping with you. Your email journey should include a re-engagement strategy that acts as a last ditch attempt to win those customers back. Typically this will be an automated email that will trigger after an existing customer hasn’t purchased from your store for a certain number of weeks. They generally include an offer or discount that encourages the customer to try you out again. Birchbox provide a great example of re-engagement done well.
As long as emails are relevant to a customer, they don’t remind receiving them. If people sign up for subscriptions and loyalty programs, they have indicated that they advocate your brand. It is essential to use that to your advantage with smart communications that maintain a long-term relationship.
- 41% of e-commerce revenue is driven by only 8% of repeat customers showing how important they are for profitability
- Aim for an LTV/CAC ratio of 3:1 for a steady profit
- Subscription models are the holy grail of ecommerce, delivering predictable, recurring revenue.
- Customer loyalty programs are a great way to encourage repeat business – loyal customers spend 67% more on average than new ones
- An email list is one of your most valuable assets
- Segmented email campaigns to subscribers can generate a 760% increase in revenue