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The Complete Guide To Calculating Loyalty & Retention Metrics
The Complete Guide To Calculating Loyalty & Retention Metrics
loyalty &
retention
metrics.
Table of Contents
01. Maximizing Revenue from Existing Customers .................. 2
Average Order Value (AOV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Profitability Per Order(PPO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Hypothetically, every online business will reach a point where they can
no longer grow by acquiring new customers. There are only a finite
number of people in the world that can potentially buy your products,
and acquiring new customers is getting expensive!
This book will focus on showing you the metrics you need to track
when adopting a customer retention strategy, while also showing
you how to measure customer loyalty online.
READ HERE
1
Maximizing
Revenue from
Existing
Customers
This calculation shows you how much revenue the average purchase on
your site generates for you. This is important to know because it tells
you how much you can afford to spend to acquire a new customer.
Unfortunately, it is often more expensive to acquire a customer than
your average order value. This means you have to choose whether to
retain this customer or increase your average order value.
While you can try to retain this customer, we’ll cover that later.
Here are a few tips to increase your average order value.
3
1. Free Shipping Thresholds
This is one of the easiest ways to increase average order value: simple
set a threshold that a customer must spend in order to receive free
shipping. According to UPS, 61% of shoppers abandon their cart if they
can’t get free shipping. This can turn into a positive when you set a free
shipping threshold.
The fact that the majority of shoppers will leave your site if they can’t
get free shipping also means that they will actively pursue it. You can
motivate them to spend a little more in order to receive free shipping.
The important thing here is to make the threshold obtainable.
Find your AOV and make a threshold that is 15%-20% above that. If you
set it too high, shoppers will see it as a hassle rather than a
benefit. Setting your threshold too high is one of the most common
mistakes according to Entrepreneur.com.
4
2. Use Cross-Sells
Cross-selling is presenting additional items that a shopper might see
as valuable. Usually this is done by looking at what they have put
in their basket and recommending products that complement that
item. Let me explain with an example.
5
Bodybuilding.com uses a system to automatically present cross-sells,
but you don’t have to be that high-tech. Smaller merchants can
simply place a static recommendation on a product listing. This could
be putting a recommendation to jelly on all peanut butter listings or
toothpaste on all tooth brush listings.
Cross-sells are a great way to boost average order size because they
remind your customer of products they may have forgotten, or didn’t
realize they needed.
You provide them with additional value and they provide you with
additional order value. It is a win-win!
READ HERE
6
Profitability Per
Order (PP0)
To Calculate:
While average order value is a great benchmark, it does not tell the
whole story. If you are only selling low margin items, your AOV is not a
great benchmark. Your profitability per order, on the hand hand, shows
you how much profit you are brining in on the average order.
You can increase PPO in similar ways to your AOV - you just need to be
sure you are pushing your highest margin items. Use a Related Items
section that only shows your 8 highest margin items such as your house
brands.
You can also give incentives for purchasing high margin items. This
works great when combined with a points-based loyalty program.
Simply reward extra points for your high margin items, or only offer
points on your house brands. This is particularly effective in the
supplements industry.
7
Bringing More
Customers
Back to Shop
Again
Here are a few tips and tricks you can use to get your customers
to shop with your more frequently.
9
1. Retention Emails
These are emails that are sent out to existing customers (aka those who
have made a purchase before). They can range in complexity from a
simple “we miss you” email to a tailored email based on previous
purchase information.
The goal of these emails is to inspire them to come back and make
another purchase from your store.
10
The key to any retention email is offer personalization, relatable offers,
and an incentive. The personalization can be as simple as addressing the
customer by name or by offering them something related to what they
purchased before - in this case, ties.
Finally, you need to give the shopper a reason to return. In the tie
example it is with a coupon code they can use. But you can employ other
incentives like points in a rewards program.
2. Rewards Programs
A rewards program can actually help with both average order value and
purchase frequency. The enrolment in a rewards program encourages
a customer to shop with you again instead of choosing a competitor.
Once a shopper is enrolled, you can use points to motivate them to
shop more frequently.
You can also team up your email marketing and rewards program to
increase purchase frequency (as mentioned before). You can use points
in your emails as an incentive to get customers to return. Show them
the point balance they have, and what they can spend those points
on. You could also give extra points on certain days to encourage
customers to buy now.
11
Points are a great incentive because you can show a customer’s current
balance instead of discounting the purchase further.
READ HERE
12
Time Between
Purchases
To Calculate:
Your purchase frequency shows you how many times a year a customer
is buying. This is helpful to see if retention marketing efforts are
working, but it is not the most actionable metric. Time between
purchases turns purchase frequency into a more useable metric.
Time between purchases shows you how long a typical customer goes
before making a repeat purchase. This is a good metric to know because
it allows you to tailor email marketing campaigns. If you know the
average customer goes 7 weeks between purchases, you can start
sending promotions during week 6 to get them back a little sooner than
they normally would. Time between purchases will vary significantly
between industries. If you are selling furniture you will see a longer time
between purchases than if you are selling coffee.
The best practice is to try and find another merchant in your industry
that you can compare to. If you can’t find a comparable merchant just
use your current frequency and continue to try to improve from there.
13
Tracking
Retention
Efforts
Your repeat customers are now spending more per order, and you are
getting them to come back more often. You are in an amazing place!
Now you will need some metrics to track the overall performance of
retention marketing.
Repeat Customer
Rate
To Calculate:
Your repeat customer rate is the percentage of your customer base that
are repeat purchasers. The average repeat purchase rate in ecommerce
fluctuates between 10% and 20% depending on the industry. If your
store falls in or below this range, you could benefit from a retention
marketing strategy.
There are many ways to boost your retention efforts including loyalty
rewards programs, retention email campaigns, and a customer relation
management software. These are strategies may require a long term
commitment, but they will also get you amazing results. The best way to
measure the long term effects of these retention strategies is to take a
look at the change in your repeat customer rate. Measure where you are
now, then start a customer loyalty program and watch your repeat
customer rate increase.
15
Customer Lifetime
Value (CLV)
To Calculate:
Customer lifetime value is the one metric to rule them all in customer
retention. It is a measure of how much an average customer is worth to
your store over the course of their entire shopping life. The problem is
that calculating it can be very complex.
While you can try to retain this customer, we’ll cover that later.
Here are a few tips to increase your average order value.
16
While these are the most accurate ways to calculate CLV, they are far
from the easiest. These types of equations are overkill for most online
businesses. The calculation on the previous page is a much simpler way
to get a workable CLV figure.
READ HERE
17
Measuring
Customer
Loyalty Online
This metric shows you what percentage of the points you are issuing are
actually being redeemed on a reward. Your rewards members see real
value in your program when they are able to redeem points on a reward,
not necessarily when they are earning the points.
This metric shows you whether your program members are engaged and
loyal, or just sitting in your program idly. A good rule of thumb is that
you should see a 20% redemption rate in your program after 6 months.
Your program needs time to catch on. Looking at your redemption rate
after a month or two will not give you an accurate depiction of how well
your program is performing. If after 6 months you still see a redemption
rate of less than 20% you should look into your program for changes to
boost member engagement and participation. A low redemption rate
does not mean a loyalty program won’t work, but rather shows you have
not found the right structure for your customers.
19
Loyal Customer Rate
To Calculate:
This metric is similar to your repeat customer rate with one main
difference: this metric looks at customers you can classify as loyal rather
than just repeat.
Your loyal customer rate shows the percentage of your customer base
that you can classify as loyal. This will obviously be less than your repeat
customer rate, but these customers are worth even more. The beauty of
this loyalty measurement is that you do not need a rewards program to
calculate it.
20
Retention
Metric Best
Practices
Retention marketing and the associated metrics are much different than
standard ecommerce metrics, and are not as simple as opening up
Google Analytics. Because retention marketing is a long term solution,
you need to keep on top of your metrics for proper reporting.
Benchmark Your
Metrics
Retention marketing is a long term ecommerce strategy. If you want to
measure performance, you need to know where you started and how far
you have come. That is why we recommend measuring the metrics in
this book now so you can see where you currently stand.
Once you start to introduce more tactics you can look back and see how
much of an impact they have had. It is easy to make small steps towards
big results, and tracking this progress allows you to truly see how far you
have come.
22
Check Metrics
Monthly
Retention metrics will not change drastically overnight. Like a good
marinade, they need some time to take effect. This is why you should
continually check in on how your retention and loyalty metrics are
doing. You should look at these metrics at least once a month to
compare where you started to where you are now.
You will not be able to make changes to your strategy if you are not
tracking what is working and what might have been a costly misstep.
23
Use a Rewards
Program as a Hub
Trying to keep tabs on all of your retention marketing tools and tactics
can be difficult. That is why we recommend using a rewards program as
a hub for retention marketing (since we do make and sell them).
24
Contact
Information.
sales@smile.io
1-855-699-9322
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