Businesses love new customers, but repeat buyers generate more revenue and cost less to service.
Customers need a reason to return. It could involve marketing, outstanding service, or superior product quality. Regardless, the long-term viability of most ecommerce shops requires folks who purchase more than once.
Here’s why.
Higher Lifetime Value
A repeat customer has a higher lifetime value than one who makes a single purchase.
Say the average order for an online shop is $75. A shopper who buys once and never returns generates $75 versus $225 for a three-time buyer.
Now say the online shop has 100 customers per quarter at $75 per transaction. If just 10 shoppers buy a second time at, again, $75, total revenue is $8,250, or $82.50 each. If 20 shoppers return, revenue is $9,000, or $90 each on average.
Repeat customers are really happy.
Better Advertising
Return on advertising spend — ROAS — measures a campaign’s effectiveness. To calculate, divide the revenue generated from the ads by the cost. This measure is often shown as a ratio, such as 4:1.
A shop generating $4 in sales for every ad dollar has a 4:1 ROAS. Thus a business with a $75 customer lifetime value aiming for a 4:1 ROAS could invest $18.75 in advertising to get a single sale.
But $18.75 would drive few customers if competitors spend $21.
That’s when shopper retention and CLV come in. If the store could get 15% of its customers to buy a second time at $75 per purchase, CLV would increase from $75 to $86. An average CLV of $86 with a 4:1 ROAS target means the shop can invest $22 to acquire a customer. The shop is now competitive in an industry with an average acquisition cost of $21, and it can keep new customers rolling in.
Lower CAC
Customer acquisition cost stems from several factors. Competition is one. Ad quality and the channel matter, too.
A new business typically depends on established ad platforms such as Meta, Google, Pinterest, X, and TikTok. The business bids on placements and pays the going rate. Lowering CACs on these platforms requires above-average conversion rates from, say, excellent ad creative or on-site checkout flows.
The scenario differs for a merchant with loyal and presumably engaged customers. These businesses have other options to drive revenue, such as word-of-mouth, social proof, events, and contest marketing. All could have significantly lower CACs.
Reduced Customer Service
Repeat shoppers usually have fewer queries and service interactions. Folks who have purchased a t-shirt are confident about fit, quality, and washing instructions, for example.
These repeat buyers are less likely to return an item — or chat, email, or call a customer service department.
Higher Revenue
Imagine three ecommerce businesses. Each acquires 100 customers per month at $75 per average order. But each has a different customer retention rate.
Shop A retains 10% of its customers each month — 100 total customers in month one and 110 in month two. Shops B and C have a 15% and 20% monthly retention rates, respectively.
Twelve months out, Shop A will have $21,398.38 in sales from 285 shoppers —100 are new and 185 are repeat.
In contrast, Shop B will have 465 shoppers in month 12 —100 new and 365 repeat — for $34,892.94 in sales.
Shop C is the big winner. Retaining 20% of its customers monthly would result in 743 customers in a year and $55,725.63 in sales.
To be sure, retaining 20% of new shoppers is an ambitious goal. Nonetheless, the example shows the compound effects of customer retention on revenue.
| Month | Shop A: 10% | Shop B: 15% | Shop C: 20% | |||
|---|---|---|---|---|---|---|
| Customers | Revenue | Customers | Revenue | Customers | Revenue | |
| 0 | 100 | $7,500.00 | 100 | $7,500.00 | 100 | $7,500.00 |
| 1 | 110 | $8,250.00 | 115 | $8,625.00 | 120 | $9,000.00 |
| 2 | 121 | $9,075.00 | 132 | $9,918.75 | 144 | $10,800.00 |
| 3 | 133 | $9,982.50 | 152 | $11,406.56 | 173 | $12,960.00 |
| 4 | 146 | $10,980.75 | 175 | $13,117.55 | 207 | $15,552.00 |
| 5 | 161 | $12,078.83 | 201 | $15,085.18 | 249 | $18,662.40 |
| 6 | 177 | $13,286.71 | 231 | $17,347.96 | 299 | $22,394.88 |
| 7 | 195 | $14,615.38 | 266 | $19,950.15 | 358 | $26,873.86 |
| 8 | 214 | $16,076.92 | 306 | $22,942.67 | 430 | $32,248.63 |
| 9 | 236 | $17,684.61 | 352 | $26,384.07 | 516 | $38,698.35 |
| 10 | 259 | $19,453.07 | 405 | $30,341.68 | 619 | $46,438.02 |
| 11 | 285 | $21,398.38 | 465 | $34,892.94 | 743 | $55,725.63 |
via https://www.aiupnow.com
Armando Roggio, Khareem Sudlow
