5 Ways to Increase Ecommerce Customer Retention with Email and Segmentation

The Internet has something to learn from dentists. Every dentist I’ve ever been to is a master of getting me to come back. They send me notes in the mail, call me, give me little gifts as a I leave their office with their phone numbers on them, and their staff usually know my name.

When I buy something online, it’s different. Most of the time, I don’t hear anything from the store – whether it’s a thank you for purchasing, an email letting me know new products have come out that are similar to what I bought, or a discount or free gift for coming back. The thing is, financially, one of your most valuable assets as an Ecommerce store is your community of existing customers.

Once you’ve already paid to acquire customers, getting them to come back is way easier (and way more profitable) than acquiring customers initially; however, amidst efforts to grow sales and traffic, the value of customer retention is often ignored. Perhaps because people don’t really like going, dentists are one step ahead.

Using Segmentation to Understand Retention

The first step for most stores is to understand what your customer retention currently looks like. We recommend segmenting your customers in 3 ways:

  • Purchasers: Everyone who made their first purchase 6-12 months ago.
  • Next, you’ll create two subsets of that list:
    • One-time purchasers: Everyone who made their first purchase 6-12 months ago and have only bought once ever.
    • Return purchasers: Everyone who made their first purchase 6-12 months ago and have bought at least two times in the last year (but didn’t buy before the last 12 months)
  • You can also calculate this by subtracting the one-time purchasers from the overall number of first-time purchasers.

I chose the 6-12 month time period because for most stores, this is long enough for people to have come back and made a second purchase (And if they haven’t come back, they are unlikely to).  Based on what you’re selling, adjust this time period – but exclude recent customers.

If you’re a Klaviyo user, we’ll be adding resources in the Academy for you to help get started with customer retention.

Analyzing Ecommerce Customer Retention

At this point, you have what you need to calculate retention rate:

Return purchasers / Overall number of purchasers

This number serves two purposes:

  • It’s what you’re trying to increase. Focusing on increasing this number helps you understand how retention is changing over time.
  • It indicates the opportunity.  Say you doubled this percentage. Would that materially impact your business?  (A simple back of the envelope way to calculate this is to take the number of return purchasers and multiply it by your average order size.).

The remarkable thing about this retention rate is that these customers are significantly more profitable than typical customers. Imagine your cost of getting a new customer was $10 and the average purchase had gross margin of $15.  In this hypothetical model, one-time purchasers would generate $5 of profit, while return purchasers would generate $20 of profit – 4 times greater than a one-time buyer.

While most Ecommerce stores do have major opportunities to increase retention, there are certain types of business where retention will always be lower – for example, stores that sell products someone only buys once that also have a limited product range (think wedding invitations (for the most part) or stores that sell a single item that lasts forever). That said, even those stores have a major opportunity to encourage past customers to refer friends.

5 Ways to Increase Customer Retention with Email 

1.) Use targeted win-back campaigns

Setup 2-3 emails that go out to customers who bought once over all time but haven’t come back.  A few pointers:

  • Keep them short and simple.  These emails are meant to stand out from the typical emails you send customers.  For this reason, many companies use either text emails or a very basic template.
  • Use discounts (but somewhat sparingly). For customers who you believe aren’t coming back, this can be a perfect time to give a discount.
  • Be Personal. Unlike a newsletter, each customer won’t get more than a handful of emails like this from.  Given this, it’s a good opportunity to be a bit more personal than you might normally be. You can do this by sending it from a person, by including pictures of what they bought, or by just using a personal tone.

For Klaviyo users, you’ll see a set of pre-made win-back campaigns on the Ideas tab.

2.) Send a newsletter consistently

Newsletters keep your newest products in front of your customers and keep you top of mind. Too often, customers don’t come back and buy because they don’t even think to revisit your store. For most stores, one of the most effective steps is to send a newsletter weekly.

3.) Referral programs

Once you’ve identified customers who have bought more than once, use them as a way to market to new customers. By sending a targeted campaign that gives them a discount or some reward, while encouraging them to recommend a friend, you can turn these customers into advocates.

4.) Recognize your Loyal Customers

Full-scale loyalty programs like SLoyalty are great, but you can also use email to take an initial step. Once a customer buys for the first time, automate a thank you message.  Once they buy a second time, send a message calling out how much you appreciate them.
Going forward, you may even want to consider sending special campaigns or offers to those customers first.

5.) Get to Know your Best Customers

In addition to marketing campaigns, you can also use your most loyal customers as a community to learn from and to support.  One idea is to send a survey to these customers asking about new products they’d like, asking for ideas, or holding targeted events. If you ran an off-line business, you’d naturally get to know these customers – but there’s no reason you can’t use email to build the same types of relationships with them.

Next Steps

If you’re a new store or a very small store, start by focusing on your newsletter. A few resources that might be helpful:

For stores that are farther along, the targeted win-back campaign is often the biggest opportunity. On a dollars made per email sent basis, this is consistently the highest value email we see stores send.

Regardless, the key step you can take is understanding how retention affects your business and taking the first steps to bring customers back (Sending a campaign, automating a series of emails, etc).

Have you been able to increase your customer retention? Tell us more in the comments.

 

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