Why retaining more customers might be hurting your growth

There’s a piece of advice we’ve all heard so often that it’s almost a law of nature: “It costs 5x more to acquire a new customer than to keep an existing one.”

It’s the kind of statement that sounds so right, no one stops to ask if it’s actually true.

But in our new study of over 1.7 million customers and $1.2 billion of spend across dozens of ecommerce retailers in Australia and New Zealand, we did stop and ask.

What we found turns that old wisdom on its head. 

The paradox of retention

For years, ecommerce brands have doubled down on retention strategies. Loyalty programmes. Discounts for repeat buyers. CRM flows designed to win back straying customers. The assumption has always been that higher retention = higher growth.

But when we compared brands with higher-than-average customer retention to those with lower-than-average retention, the growth numbers told a very different story.

The brands with the lowest retention rates were growing significantly faster than those with the highest retention. In fact, brands that retained fewer customers—but increased those customers’ spend—were growing at more than 3x the rate of brands that retained more but failed to increase spend.

Let that sink in. The companies losing more customers were growing faster.

Not all retained customers are good for you

This isn’t as paradoxical as it sounds. When you look closer, it becomes clear: retention doesn’t equal growth unless you’re retaining the right customers—the ones who increase their spend with you over time.

One retailer in our study had a solid 39% retention rate. But those customers spent 46% less in 2024 than they had in 2023. The result? A 14% decline in overall revenue.

Another brand had just a 14% retention rate. But their retained customers spent 14% more—and the company’s revenue grew by 130% in the same period.

Same strategy—very different outcomes.

“The nuance around retaining the right customers—those who spend more and align with the brand—really resonates,” says Brenden Rawson, founder and CEO at customer journey agency Andzen. “We’ve seen this in our own agency work, where tailored loyalty strategies that deliver real value and reflect brand identity consistently outperform generic programs.”

It turns out that “retaining customers” is too blunt a metric. What matters is whether the customers you keep are worth keeping. 

The myth of the loyalty programme

We also looked at loyalty programmes—those beloved staples of ecommerce marketing.

Yes, they increase retention. Retailers using them averaged a 30% retention rate vs. 20% for those without. But here’s the kicker: the brands without loyalty programmes grew at more than 3x the rate of those with them.

Again, the problem isn’t retention—it’s what happens after retention.

A loyalty programme that locks in low-value customers isn’t helping your business grow. One that drives higher spend from your best customers? Now you’re talking.

The emotional multiplier

So how do you increase spend from the customers you keep?

Simple: make them feel something.

Our survey of 500 consumers found that emotional connection is the key to increasing customer spend. This echoes previous research by Motista: emotionally connected customers don’t just stay—they spend. Often twice as much as customers who are merely satisfied.

And the No. 1 driver of emotional positivity in ecommerce?

Customer service, according to our consumer survey.

Forget flashy branding and clever ads (well, don’t forget them, but put them in perspective). The biggest emotional driver is whether you’re easy to deal with when something goes wrong.

Respond quickly. Be human. Avoid the black hole of “we’ll get back to you soon.” If a customer wants to talk to a real person, let them. These moments build (or destroy) the emotional capital that drives spending.

So what should you do?

Our research points to a new north star for ecommerce growth: retained customer revenue expansion.

“Focusing marketing and customer experience efforts on deepening engagement and encouraging greater spending among a core group of customers is far more impactful than simply pursuing high retention rates through paid advertising and generic loyalty programs,” says Paul Pritchard, Group CEO at digital commerce consultancy Overdose.

“Recognising your customers personally through consistently great service and relevant product and price offering continues to be the point of difference for successful growing brands,” Pritchard adds. 

Start tracking how much more (or less) your retained customers are spending over time. Focus on increasing emotional positivity. Don’t obsess over how many customers you’re keeping—obsess over how valuable they are becoming.

And if you want a platform that helps you see and act on this shift, Klaviyo is purpose-built to do just that.

Klaviyo gives you a unified view of every customer, lets you track how service and marketing interactions impact revenue growth, and helps you personalise messages to drive greater spend from the people who already like you.

Because at the end of the day, it’s not how many customers you retain—it’s what you do with them that matters.

Download the full study to see the data behind these findings, and learn why ecommerce retailers should shift focus from keeping customers to growing them. You’ll never look at your retention dashboard the same way again.