In an era of increasing digital ad costs, customer retention is of critical importance for small ecommerce brands looking to use their spend efficiently. While studies range on the exact number, the cost of retaining an existing customer is anywhere from 5-25 times cheaper than acquiring a new one. That means that optimizing your ecommerce website and customer experience can be a significantly more efficient way to grow your revenue than increasing your top-of-funnel digital ad budget.


What does customer retention mean? 

Customer retention refers to a brand’s ability to keep a customer over time, and quantifies customer loyalty. Customer retention is a very useful concept that can help analyze and predict future shopping behavior, the resonance of brand messaging, and brand engagement. 

What metrics measure customer retention? 

The classic measure of customer retention is Customer Retention Rate. This metric uses three inputs:

  • The number of customers in a customer base at the beginning of the period of measurement (B)
  • The number of customers in a customer base at the end of the period of measurement (E)
  • The number of new customers acquired over the period of measurement (N)

To calculate customer retention rate, use the formula: CRR = ((E - N)/B) x 100.

The customer retention rate formula

While Customer Retention Rate is the main measure of customer retention, other metrics may be leading indicators of positive or negative change in your customer retention rate. For example, if your LTV shrinks, it is likely that your customer retention rate is also decreasing because LTV measures the total revenue driven by a customer over the course of their relationship with a brand. Similarly, a high NPS score or repeat purchase rate is a great indicator that your customer retention efforts are working. Less direct metrics like engagement with your brand on social media platforms like Instagram can also be indicative of good customer retention. 

Why is customer retention important? 

Without putting effort into customer retention, a brand is likely to lose out on potential purchases. The impact of poor retention is not just monetary (i.e. having to spend money to acquire a new customer rather than re-engage an old one) but also reputational. Poor customer retention can negatively impact public perception, which harms your brand equity and makes it more difficult to persuade new customers to make a new purchase. 

6 scrappy strategies to improve your customer retention 

Up-level your customer service

Customers remain loyal to brands that offer them a positive experience from the moment they land on the site. While pre-purchase experience is important, brands must pay attention to their customer service program, too! A negative customer service experience can be a huge reason why customers choose not to make a repeat purchase. Invest in high-quality CX tools, and empower your CX representatives to go above and beyond to keep your customers satisfied. 

Offer targeted recommendations

Customers are more likely to make additional purchases from your brand if your brand offers a variety of products that meet their needs! You can surface these products using post-purchase recommendations targeted to their behavior. Be sure you use your customer data to inform product recommendations so they feel personal and highly useful to your customers.

Build a compelling community 

It’s human nature to want to belong to a community, which makes community building a powerful tool for customer retention. Investing in community programming and events can give your customers great reasons to come back to your brand again and again. The more organic and on-brand touchpoints you can create with your customers, the more likely they are to stay loyal.

Incentivize brand engagement

Rewards programs are a powerful way to build and incentivize loyalty. A rewards structure makes it worthwhile for your most loyal customers to spread the word about your brand, and offer customers additional ways to engage with your brand. Offering your most loyal customers small discounts, special access, or exclusive products can make them feel highly valued.

Provide constant inspiration

Data shows that customers make purchases during the search for inspiration, which is why platforms like Instagram and Pinterest are excellent places to advertise. However, your brand can provide inspiration outside of the classic social media channels. Create compelling editorial content, offer lifestyle imagery on your product pages, and re-engage your customers with storytelling on your site and through your email and SMS channels to inspire your existing customers to make additional purchases. 

Surprise and delight

Surprise and delight is a marketing strategy that empowers your customer-facing staff to use their discretion to offer personal gifts or discounts to your customers. For example, Chewy is famous for sending flowers when a subscription customer contacts customer service because their pet has died. Going the extra mile to help or create joy with your customers can inspire excellent word-of-mouth marketing and translate to long-term loyalty.

Looking to improve your customer retention rate? With Canal, you can access high-quality, trusted products to add to your assortment that your customers will love. Use Canal to power the engaging product drops, brand collaborations, and shop-able content that drives return purchases. Learn more.

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