Customer Retention Strategies

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Malomo Staff


What is Customer Retention + How to Do it Right

Ask professionals in any industry, and they'll all agree—your best customer is the one you already have. Your customer retention strategy is an integral part of increasing your ecommerce sales. But what is customer retention, why is it important, and how do you go about it? Let's get into it.

What Is Customer Retention?

Customer retention is the ability of a company to retain its customers over a specified period. If a company has high customer retention, that means its customers continue to rebuy the same products, to resubscribe to the same services, or in some other way, continue buying from that company.

Why is Customer Retention Important?

Customer retention is vital for two reasons. First, even if you are adding new business, you can't grow your company if you are simultaneously losing business. The second reason is incredibly black and white: it's always more expensive to acquire a new customer than it is to keep your current customers and sell more to them. Shopify experts know this and plan their retention strategy for the whole year year, and especially during Black Friday/Cyber Monday (BFCM).

Customer Acquisition Is Expensive

Repeat business costs less to maintain. A fact is a fact. Even though the value of brand loyalty is almost impossible to quantify, marquee brands like Coca-Cola, Disney, and American Airlines understand it's easier and less expensive to foster repeat customers through retention marketing than it is to convince a new customer to make their first purchase with your company. Your existing customer base already recognizes your brand and has decided to trust it. New leads cost more to acquire their contact information and nurture them through the entire sales funnel because they haven't yet bought into (both figuratively and literally) your product.

Calculating Customer Lifetime Value

Need more proof? Calculating your Customer Lifetime Value (or CLV) and comparing it to the cost of customer acquisition (CAC) will show you how long it takes to recoup a lost customer's value. To calculate CLV, calculate the average purchase value, then multiply that average by the average purchase frequency rate. This number will be your customer value. Then calculate your average customer lifespan and multiply it by the customer value to finally find the CLV.

Metrics for Monitoring Customer Retention

So now that we agree customer retention is an essential leg of your overall marketing strategy, how do you know if you're doing a good job, and what metrics should you be monitoring to develop actionable insights? Many subscription-based product companies and SaaS companies monitor their customer retention rate, customer churn rate, and customer loyalty.

What is customer churn?

Customer Churn refers to the number of customers or subscribers who stop buying or using your product or a surface during a specific time. Many marketing experts agree that customer retention and customer churn rates are a good indicator of a company's growth rate–or decline.

Why does customer churn matter?

Customer retention's foil is customer churn. They are two sides of the same coin. A company with a high customer retention rate will invariably have a low customer churn rate.

Calculating customer retention

First, decide on your time period. If you are calculating customer retention in the last quarter, subtract the number of customers acquired during the quarter from the number of customers with which you ended the quarter. Second, divide that number by the number of customers at the beginning of the quarter. Then multiply by 100 to express the retention rate as a percentage. Be sure to keep your time period consistent throughout the whole calculation.

Calculating customer churn

Churn can be expressed in both terms of lost revenue and lost customers. The easiest way to calculate church is to divide the number of users you lost in a period (again, say a quarter) from the number of customers with which you started the quarter. Then express it as a percentage.

Using NPS to Measure Customer Loyalty

Measuring customer loyalty is another effective way to monitor positive and negative changes in customer experience. Typically, customer loyalty is measured by a metric called Net Promoter Score (NPS). A high NPS directly correlates to lower customer churn.

Choosing Your North Star Metric

There are several metrics a business can calculate and monitor to understand its health; however, for small companies that do not have dedicated data analysis teams, choosing a singular North Star Metric may be a good idea. A North Star metric is a singular number a company can monitor as an indicator of its growth. For Spotify, that metric might be the time users spend listening.

Proponents of the North Star Metric believe if your company brings more value to your customers, then the growth of your company must increase as well. The assumption is that if your customers receive significant value, they will stay longer, buy more of your product, and refer more friends to your company. So how do you bring value to your customers?

Building Good Customer Experiences - Delight Them

Delighting your customers through better customer experience leads to higher user engagement and overall higher customer satisfaction and growth.

Set customer expectations

Deliver what you promise. Most customers are understanding and empathetic as long as you are upfront about your limitations. For example, communicating to customers that there are shipping delays to their country related to Covid-19 sets the proper expectations.

Build trust through relationships

Building strong customer relationships is critical, especially in B2B industries, where purchases often require a higher degree of consideration and more interactions between team members. Tactics like buying your customers lunch or offering incentives or a thank you gift following a meeting are known to strengthen customer relationships over time. For ecommerce stores, going the extra mile by including a handwritten note or including free shipping with the order can elevate the user experience and create a fleet of loyal customers. We know starting an ecommerce brand can be difficult, but we have faith in you!

Deliver consistent communication points

Like setting customer expectations, delivering valuable content to your customer and prospect base keeps your brand top of mind. Email marketing is the backbone of customer engagement. Setting up regular nurture streams that communicate consistently to your customer keeps leads engaged until they are ready to make their next purchase.

The Importance of Excellent Customer Service

Excellent customer service at every communication point is critical to establishing customer loyalty. A single poor customer service experience can sour even a long-term customer relationship and overshadow all previous great experiences. Remember, trust is hard to gain but easy to lose, especially when shoppers have many retail options online. Mistakes will happen. No system is fool-proof. Having an efficient and friendly customer service experience is ensures your customer experience never tarnishes.

Phenomenal customer support

Offering flawless customer service is essential at all times but especially when rectifying a mistake or solving a customer problem. How your customer support team handles this customer problem will determine how that customer feels about your company, possibly forever. Studies show that improving customer service KPIs, like response time, can significantly improve customer satisfaction. Tools like offering live chat on your website can streamline your buyer's experience and make them more likely to purchase.

Live chat availability on your website also allows a real human to intervene and address any purchasing objections during the checkout process. During off-hours, most live chat applications act as lead generation tools as well by collecting a potential buyer's contact information.

Customer Retention Programs

Building a customer loyalty program such as a rewards program or a referral program may be a good option for some D2C retail-focused businesses. They can reward your most loyal customers for making a repeat purchase and increase your word-of-mouth referrals, which are often some of your best-qualified leads.

Loyalty programs

Most loyalty programs award purchase points, which can be redeemed for discount coupons or other products. Brands like Sephora have demonstrated that loyalty programs can dramatically promote customer retention. Loyalty programs cultivate repeat business and customer referrals. There's no sales tool more effective than the social proof of a personal recommendation.

Shipment tracking

Did you know customers check their shipment tracking an average of 4.6 times for each online purchase, illustrating the significant opportunity to drive more sales during the post-purchase stage? With the advent of new ecommerce applications, it can be easy to create custom tracking page experiences that drive more sales.

Automating for the Best User Experience

To scale a business, it's critical to automate specific processes. Automation reduces the number of human-led tasks, thereby reducing the potential for error. For your business to proliferate while also offering the best possible user experience, many tools can make it easier.

Address customer complaints on time

Research support ticket software. By now, customers expect automated responses when they contact customer support to confirm their ticket has been received. These automated emails also allow the business to set correct expectations regarding what to expect next and when.

Improve KPIs around customer service

By tracking support tickets with software, you can prioritize support requests, set SLAs with your support team, and track your customer support metrics over time to ensure your support standards remain high.

Leverage customer feedback surveys

Additionally, you can use a host of customer feedback survey tools to collect information on your customer. By aggregating customer feedback and analyzing patterns in responses, you can unlock valuable insights into your buyer's mind. Product marketers often use customer surveys to research customer desires when launching new products. Nothing can replace hearing your customer's thoughts in their own words. This type of data is invaluable if you can incentivize your customer to take the time to provide it.

Collecting NPS data

Several tools collect and measure NPS feedback. Popular options include Delighted,, and SurveySparrow. These tools make it easy to measure customer satisfaction and loyalty programmatically. Think of NPS as a regular health check-up for your business.

Marketing automation software

No marketing tech stack is complete without marketing automation software. Marketing automation software can track your customers' journeys across your digital properties so that you can determine your most effective communication channels. It can also handle your email marketing to both your customer and prospect base—in fact, a good marketing automation software will help you segment your audiences, so you can target each audience with the best messaging and content to help them through the purchasing funnel.

Lessons Learned

Customer retention and customer retention marketing comprise a critical element that needs to be considered when growing your business. Retaining customers is always easier and more cost-effective than acquiring new prospects. While recent customer acquisition is vital for lead generation and any business's health, for companies with smaller marketing budgets who need to triage their priorities, focusing on customer retention can provide greater bang for your buck.

While there are many metrics you can use to measure and monitor customer retention, it's most important to find a North Star Metric that accurately represents growth for your specific company. Using a North Star Metric can simplify your growth metrics when you don't have enough resources for more in-depth data monitoring.

Finally, the key to good customer retention isn't rocket science. Building beautiful customer experiences that are easy and pleasant is the number one thing you can do to get customers to return and continue to do so over time. By concentrating on good customer service, excellent customer support, fast and consistent communication cadences, and selecting the right tools to help you automate these processes are all key to building a viable customer retention strategy. If you'd like to continue learning more about customer retention, you should read our complete retention guide for D2C brands!

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