Don't Lose Your Best Customers: Customer Retention Metrics

I'm sure you're wondering why customer retention metrics are important, and why they should be a metric that any company is measuring. I'll tell you: if your business has high rates of customer retention, it will see more revenue than a company with low or average rates of customer retention. That's because repeat customers will buy more often when they get to know your brand better. And each additional purchase means higher profits for your business!

The key is identifying which areas need attention first so that resources are spent efficiently. What can Retailers do? Use these metrics:

Repeat Customer Rate

Repeat customers are a core component of customer retention best used for evaluating how well your personal strategy is working. A high number has been said to indicate success in retention strategies, so keeping this statistic up-to-date will help you continuously evaluate the health of your business. This refers to how many times someone has returned as opposed to how many times they have made a purchase.

The repeat Customer rate is calculated by dividing the number of repeat customers by the total customer base. For example, if a company had 100 total customers and 60 repeat customers, the RCR would be 0.60 (60/100).

Some companies take this one step further by looking at their customer base as a ratio of first-time buyers to returning buyers. 

For example, if they have 1000 visitors in year one and 200 return for year two, then the CRR is 20% ((200/1000) x 100%). 

This metric tells you how many people are coming back after the initial purchase versus those who are not returning for subsequent purchases.

This also used to determine the number of times someone has returned over all visits made to your store or website divided by the total number of visitors to that store or website during that same time period.

The higher this number is, the more engaged your customers are with your company. The higher the rate, the better your business is retaining its best customers!

Purchase Frequency

It's important to note, repeat customer rate alone isn't always the best metric for measuring your success. For example, if you're focusing on conversion rates without paying attention to retention metrics such as return customers or average order size, then it will be difficult for you (or anyone) to tell whether your marketing strategies are successful.

Purchase Frequency: The number of purchases that people make in one year, usually measured as the average frequency per person or household. 

For example, if someone buys once every six months on average, then their Purchase Frequency is 0.17 purchases/year (note that this metric only applies to those who buy at least twice).

Compare this with Average Order Value (AOV) and you can see how much customers are spending overall – because even though there's only one order each time, it’s more likely to be expensive!

Average Order Value (AOV)

While Average Order Values may vary between industries or businesses within a given industry, understanding these numbers provides valuable insight into customer spending. Understanding your average order value will help you as a retailer determine where to spend more or less time and effort in order to increase sales, profitability, and customer satisfaction for the long-term success of your business.

AOV (Average Order Value) calculates the total purchase amount per order, including taxes and shipping charges. An example computation is below:

Purchases: $100 + $200 = 300 total purchases with a purchase price of ($300 * 100% =) $300 each, excluding tax and shipping charges.
Tax: (50% in this example), Shipping Cost: ($0*$150).
Total cost for all items purchased is calculated as follows: $450.
Average order value would be the following calculation: [(($450 ÷ 300) × 100%)] or AOV=$14 per order on average.

The bottom line? When it comes to your customers’ shopping habits, understanding what constitutes an "average" can help guide you towards more profitable solutions! AOV will show you how much your customers are spending on average each time they place an order. Repeat Customers Rate measures customer loyalty based on one-time purchases while Average Order Value takes into account repeat purchases over a specific period of time such as a year or three years depending on what metric is chosen for analysis.