Return purchases and loyal customers are essential trade secrets to long-standing businesses.
In fact, customer loyalty and retention form the cornerstone of many businesses' bottom line.
But are loyalty and retention rates two sides of the same coin?
Which one is more important in the long term?
And how do you maintain them in your own business?
Great questions- and they're ones we'll answer (and then some) in this article. So stay tuned, and we'll teach you exactly how these critical metrics play into your business in the broader scheme of things.
The short answer: No
The long answer:
They're similar ideas, and both vital for profitable businesses, but still different things for a business.
To explain the difference between loyalty and customer retention, let's take this example into the world of brick-and-mortar storefronts.
We'll use your local grocery store as an example.
The vast majority of customers there probably visit quite often, whether that's a weekly, biweekly, or monthly basis- the store can reliable expect that many of them will return and continue to do so.
That's what we call customer retention rate: The percentage of customers that return to make more purchases after their initial purchase.
Now, if the store closed and was replaced with another chain- how many of those customers would take the effort to search for a grocery store from the original brand?
And how many of the returning customers would go out of their way to recommend that grocery store to friends or colleagues?
This is what customer loyalty looks like.
Rather than return business, customer loyalty is primarily focused on customer tendencies- How often they'll advocate for a brand, seek it out, and engage positively with it.
Which is why there's a distinction between retention and loyalty.
While most loyal customers are also repeat customers, it doesn't necessarily play out the other way around. Often, repeat customers continue to return out of convenience rather than loyalty to any specific brand.
Repeat customers are a critical piece to any profitable business.
And while it'd certainly be nice, you can't realistically expect your entire audience to consist of loyal customers.
Which is why customer retention is a vital metric to improve as you grow your business.
But with that being said, repeat customers are a great stepping point on the customer journey. And if nurtured correctly, many of them can be converted to loyal advocates for your brand.
But before we get to that point, let's talk about how to calculate customer retention rate in the first place.
The formula to calculate customer retention rate is pretty simple:
Pick a period of time, subtract the number of new customers during that period from the total customers at the end of it, then divide that number by the total amount of customers from the beginning of the said period.
Multiply that number by 100, and you've got your customer retention rate.
Now, if that was a bit complex, here's a quick visual guide:
While customer retention rate varies from industry to industry, most industries consider a 20-25% retention rate over eight weeks excellent.
Though e-commerce and SaaS retention rates tend to sit higher, roughly 35% over an eight-week period is 35% over an eight-week period considered excellent in those industries.
If you find your customer retention sits lower than you'd like it to, here are a few tips to help boost it.
Customer support is one of the most significant determining factors for returning customers.
One bad experience with a customer support rep can mean someone never purchases from a brand again.
If you find your rate is low, consider reevaluating your customer care process to see if any kinks need to be ironed out.
Loyalty programs are simple yet highly-effective tools to generate return business.
They provide an incentive for customers to keep coming back and buying, and for many- a slight nudge such as a discount is all they need to return for more.
There's a reason brands as big as The North Face continue to use them: They work wonders.
If you don't have one implemented already, consider building a loyalty program for customers that continue to shop from your store.
Another significant factor in customer retention is your competitors.
In the same way that most customers only need a slight nudge to keep coming back to your store, they also only need a slight nudge to start shopping at competitor stores.
If your customer retention rate is low, take some time to look into your competitors' strategies. Are they implementing tactics that are pulling customers from your own brand?
How can you outperform them and give those customers a reason to choose your store over the rest?
And on that note, once you've figured out how to improve your retention, it's time to focus on the next step: Improving customer loyalty.
To understand customer loyalty, let's cover the 3 broad types of customers any store will see.
Loyal followers are the lifeblood of strong brands.
Upsell.com helps you increase AOV with targeted offers across the full shopping journey, from product and cart to checkout, post purchase, and beyond.
These are customers that continue to purchase, advocate for your brand to friends and colleagues, and tend to stick with the brand through rough periods or despite good offers from competitors.
Loyal followers are customers that have made it through the planned customer journey and should continue to be nurtured to maintain and grow a consistent brand following.
Repeat customers are consumers who continue to shop from your store but aren't necessarily "loyal."
They might continue to shop at your store because it has the best prices and offers, or they might continue to shop from multiple brands, but they're often quick to hop ships if a better offer arises or changes occur in your own brand.
Repeat customers will often make up a large portion of any businesses' revenue, but the goal should be to convert as many of them into loyal followers as possible.
Non-repeat customers are those who don't come back to your store to make purchases after the first.
There can be various reasons for this - Bad customer support experiences, unfriendly store layout, or they might not be happy with the product itself.
Non-repeat customers might seem like the customers with the least potential for a business, but they still bring invaluable insights if leveraged correctly. (we'll touch on that further down)
Social proof is as good as gold in the world of business.
And most loyal customers have no problem advocating for your products if they're happy with them.
Make sure to ask your happy customers to leave reviews or testimonials for your products, then leverage those reviews so you can increase consumer trust.
While non-repeat and unhappy customers might seem like losses for a business, they're also massive opportunities for improvement.
Every customer who's unhappy with your product or service is one more source of data for how you can improve in the future.
Always encourage feedback from these customers through surveys or direct requests. Then use the data points you collect overtime to highlight weak points in your business.
And on the same note, always respond to customer reviews when possible - both good and bad.
Unanswered negative reviews are just missed opportunities to show that your brand cares, so don't forget to reach out and attempt to correct the issues that caused those customers to be unhappy in the first place.
The customer journey doesn't end after the purchase; it's a process that continues long after the initial sale.
Continuing to nurture customers into loyal followers via content marketing, promotions, and loyalty programs are some of the best ways to grow your pool of brand advocates at a steady rate.
Growing a loyal brand following is just as much about what to do as it is what not to do. Here are some of the top mistakes ecommerce stores make that cost them potential long-term customers.
The customer experience is everything.
Whether or not your product is worth its salt, a bad experience with your brand can mean the end of your customer relationship.
To reduce customer churn, make sure that the customer experience (and your customer support section) stay at the top of your priority list.
A business without data to inform its approach is just as blind as a submarine without sonar to guide it through murky waters.
Make sure to collect data at every step of the customer journey. Use analytics tools like Shopify's dashboard Google Search Console, and collect data directly from customers through feedback and surveys as well.
Then you can use that data to adapt and optimize your approach going forward.
For many in the world of business, the story of Blockbuster vs. Netflix is a cautionary tale.
While Blockbuster sat comfortably as the king of home movie rentals, Netflix successfully usurped it by offering consumers a better service.
When consumers see that your competitors offer a significantly better product or service, many of them will be quick to switch over.
And eventually, even many of your loyal followers will hop ships if you don't take action to keep up with the competition.
To avoid a similar fate for your business, always look to stay ahead of the curve rather than in it.
Creating a business strategy that rewards loyal customers and increases your customer retention rate is one of the best things you can do for your store.
And hopefully, this guide helped you get a few steps closer to that goal.
If you found this post helpful, make sure to check out the other content on our blog.
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