Customer Retention Rate

In today’s e-commerce landscape, cultivating repeat purchases is vital and should be a fundamental component of any robust business approach. It’s imperative to comprehend your customer retention rate, and devising an effective retention strategy is crucial to surpassing your business growth goals. How important is it for your business to have repeat customers? What strategies can you employ to increase repeat purchases from your customers? Read more in this article.

What is customer retention? 

Customer retention means encouraging existing customers to buy from a business again. It requires understanding customer preferences, nurturing relationships, and ensuring customers are satisfied with their experience. Retaining customers can reduce marketing costs and increase profits over time.

Achieving the highest possible retention rate would be the ultimate goal in a perfect world. However, what is considered a “good” percentage varies depending on the industry. Small businesses typically see a retention rate of around 20 percent as satisfactory. On the other hand, e-commerce businesses should aim for a retention rate of over 35 percent. 

Here is an overview of average retention rates across different industries.

customer retention
Source: Exploding Topics

Why is customer retention important?

Retaining customers is vital for a business because it helps create long-term relationships and loyalty. This, in turn, will lead to repeat purchases and higher customer lifetime value. Furthermore, retaining customers is also more cost-effective than attracting new ones.

Spending large amounts on marketing, advertising, or sales outreach only sometimes guarantees long-term success. Businesses are better off prioritizing their relationships with existing customers. Converting past customers into repeat buyers and nurturing these connections can boost profits, as they already trust the brand and may have formed bonds with the sales and support staff. 

Moreover, positive experiences increase the likelihood of customers promoting the brand within their community, generating free buzz. Customer service retention is crucial for business success due to cost savings, an improved bottom line, and increased customer loyalty.

Why is customer retention important

Key customer retention metrics to measure

Measuring customer retention is essential to identifying improvement areas and tracking progress. Some key metrics that can be used include:

Customer retention rate (CRR)

This metric measures the percentage of customers who continue to purchase from a business after they have made their first purchase. It indicates how many customers a company keeps during a specific period and shows the loyalty of existing customers within that time frame. 

For instance, if a business begins the year with 10 customers and loses two, the retention rate would be 80%

CRR = ((E-N)/S) x 100.

  • E = Number of customers at the end of the period.
  • N = Number of customers acquired during the period.
  • S = Number of customers at the start of the period.

Customer lifetime value (CLV)

Customer lifetime value (CLV) is a metric that estimates the total revenue a customer is likely to generate throughout their relationship with a business. It helps identify the most loyal customers, as those who remain with the company longer tend to have higher lifetime values. 

For instance, an individual who frequents their nearby coffee shop five times a week, spending $4 on each coffee, will amass a Customer Lifetime Value (CLV) of $10,400 within 10 years.

CLV = (Average purchase amount x Frequency of purchase) x Average customer lifespan.

Customer churn rate

Churn rate, also called attrition rate, refers to the rate at which customers discontinue their association with a company over a specific time frame. It can also apply to the number of subscribers who cancel or do not renew their subscriptions. A higher churn rate indicates that more customers are ceasing to buy from the business, while a lower churn rate means more customers are retained. Generally, a lower churn rate is considered better.

For instance, if company X started the month with 500 customers and ended with only 450 customers, its customer churn rate would be 10%.

Customer churn rate = (Customer beginning of the month – Customers end of the month) / Customers beginning of the month.

Repeat purchase rate (RPR)

The repeat purchase rate is a metric that calculates the percentage of customers who make return purchases from a specific brand within a given timeframe. It represents the percentage of customers who make multiple purchases from the company.

Suppose you had 100 customers who made purchases within four months; among them, 50 returned to make another purchase. Your repeat purchase rate for that specific period would be 50% in this scenario.

RPR = (The total number of repeat purchases / the total number of customers) x 100.

Purchase frequency (PF)

While repeat purchase rate determines how many of your customers are repeat buyers, purchase frequency determines the average number of purchases per customer. Although distinct, these two metrics are interconnected when evaluating a company’s ability to motivate customers to remain loyal and choose their brand over competitors.

In January, Home Decors received 274 unique orders from 203 customers. By dividing 274 by 203, they found the average number of orders per customer to be 1.34, indicating that, on average, each customer made only one purchase in January.

PF = Total number of orders / Number of unique customers.

The best strategies to retain customers 

Offer excellent customer service

Providing excellent customer service is essential for customer retention. This program includes promptly responding to customers’ queries and addressing their concerns. Further, you can also use surveys and feedback forms to gather insights into customer satisfaction levels.

The best strategies to retain customers 

Show appreciation

Showing appreciation to customers is an effective way to build relationships. This can include offering loyalty programs, discounts, or giveaways for frequent purchases. Additionally, sending out personalized emails or gifts is a great way to show appreciation and encourage repeat purchases.

Leverage personalization

Tailoring content and offers based on customer preferences helps create a more personalized customer experience. You can use customer data such as purchase history or website activity to create more targeted content and offers.

Build relationships

Building relationships with customers is essential for customer retention. This program can include engaging in conversations on social media, offering personalized advice, or providing helpful resources such as blog posts, webinars, and videos.

Listen to feedback

Listening to feedback from customers is also essential for customer retention. This can help you identify areas of improvement and provide better service to customers. You can use surveys or feedback forms to gather customer insights about their experience with your business.

Stay relevant

It’s important to stay current with the latest trends to remain competitive. This can include offering new services, launching campaigns, or creating content related to industry trends.

Provide consistent experiences

Providing consistent experiences across all touchpoints is essential for customer retention. This includes ensuring that the customer experience is seamless regardless of platform and offering a unified shopping experience across different channels.

Offer exclusive deals

Offering exclusive deals and promotions to loyal customers is also a great way to retain them. This includes offering discounts, free shipping, or early product access. Additionally, you can create loyalty programs that offer rewards for repeat purchases.

Customer retention examples

Sephora’s Beauty Insider Loyalty Program

Sephora’s Beauty Insider loyalty program offers rewards and exclusive deals to customers based on their purchase history. 

Sephora’s Beauty Insider Loyalty Program

Amazon Prime membership

Amazon Prime is a subscription service that offers members exclusive benefits such as free shipping and access to Prime Video.

Amazon Prime membership

Starbucks rewards

Starbucks Rewards is a loyalty program that offers members rewards such as free drinks or food items when they make purchases. 

Starbucks rewards

Target RedCard

Target’s RedCard is a credit card that offers customers exclusive benefits such as discounts, free shipping, and early product access. 

Lululemon loyalty program

Lululemon’s loyalty program offers members rewards such as free shipping and exclusive event access. 

Lululemon loyalty program

Nike membership

NikePlus is a membership program that offers members exclusive benefits such as unique product releases, discounts, and free shipping.

Nike membership


Establishing your firm’s credibility and loyal clientele is gradual, but commitment will bring you closer to gaining customer trust. Various methods can be employed to demonstrate your gratitude for their ongoing patronage, like introducing a referral initiative, offering loyalty rewards, and, overall, delivering optimal service.

IMP provides digital marketing services for global ecommerce companies. Our solutions help businesses increase their profits sustainably and reduce dependency on paid media.