Ecommerce is abuzz with all things customer retention and customer lifetime value (LTV).
Why? In a word: profit.
In ten words, two acronyms, and one ratio:
Rising acquisition costs have gutted profitability, pressing CAC:LTV to the forefront.
In this article, we’re going to throw out old notions of LTV and customer retention rates for ecommerce growth.
Instead, our goal will be to extract profit and cash flow in the short-term, while valuing your customer’s long-term experience. Here’s how we’ll get there …
Why New Customer Acquisition Has to Be Rooted in Retention
How to Build Free & Paid Retention Strategies to Existing Customers
Who Your Long-Term Customer Retention Strategy Works Best For
But first … a brief warning about terms: sponsored by our CEO, Taylor Holiday.
To determine the monetary value of customer retention, most ecommerce brands use LTV.
Unfortunately, traditional LTV formulas major on the “L” (lifetime).
They reference a vague, variable timeline for latent revenue — despite the fact that steady cash flow is the core requirement for a healthy ecommerce business.
Instead, think of retention and LTV as a cash multiplier: 60-120 day payback windows set by your reorder, upsell, or cross-sell cycles.
Of course, it’s not enough to know your cash multiplier. You also have to have meaningful benchmarks to grow toward.
As a general principle, focus on the 30:100 ratio — aim to increase your brand’s customer LTV by 30% in 60 days and by 100% in a year.
If a customer’s LTV increased by 30% within 60 days, then you know your product quickly found a place on their shelf.
If their LTV went up by 100% within a year, then you know that you are pulling the right levers to continually provide value, far more than the initial amount of money that they paid you.
Most importantly, if you follow the rule of 30:100, the initial purchase will only be 50% of their total LTV. Over time, you’ll stack increasingly valuable cohorts on top of each other.
At Common Thread Collective, we carefully track cohorts through a proprietary tool we’ve developed in house:
Now, back to your regularly scheduled strategies.
Here’s a little known secret about retention: it starts with acquisition.
The promise you make at the top of the funnel — along with the products, price, and offer you win with — will dictate success.
Are you being strategic about the consumer’s frontline experience with your brand?
These first four customer retention strategies will ensure you are.
Acquisition doesn’t happen when you throw your story at people. It happens when you talk to them about their story.
Behind every social profile or email address is an actual human being. Speaking to them at an individual level about how your product will enrich their life will go a lot farther than being your own loudest hype-man.
But, how do you do this in a way that still sells?
Instead of talking about how awesome your product or brand are, lead with user-generated content, how-to videos, and founder stories.
These types of ad creative show people how your brand fits into their story while still motivating purchasing decisions.
As you film your founder videos, plan your how-to explainers, and solicit user-generated content, pay careful attention to your product line.
Which SKUs or set of SKUs provides the best initial experience with your brand?
For example, Bambu Earth’s ads highlight its hero product — a customized Bambu Earth Starter Kit — then sends prospects to their skin quiz landing page. Their Skin Quiz helps the brand match up the prospective customer with the best product for them.
With the quiz + starter kit lander, Bambu Earth delivers an enriching, value-filled experience even before the prospect spends anything on their Shopify site. The focus is on the user and creating a unique experience personal to them.
Imagine your email capture pop-up as your best salesperson. They walk up to every curious prospect who visits and asks, “Hi there! Would you like to stay in the loop as we roll out new products?”
It’s the start of a conversation. And it’s one of the earliest touchpoints with your brand.
Some argue that you shouldn’t give a discount immediately as doing so can devalue your brand. Approached strategically, this can be avoided.
Capture rates and revenue generated from welcome series emails are significantly higher when an incentive is present.
Just ensure you’re being conservative by offering free shipping or a nominal percentage off so as not to attract users who want a freebie; steep discounts might generate the first purchase, but it’s highly unlikely you’ll see those customers again.
Overall, the use of an incentive beyond newness is crucial to audience growth.
The key is to balance your promotional strategy with your brand: luxury retailers can lean on exclusivity, while lower price-point brands who are open to discounting can present a conservative incentive.
Also … consider where, how, and to whom.
Take Mott & Bow, for instance. Its homepage pop-up prompts visitors to identify the type of product — Men’s, Women’s, or Both — they’re shopping for. After that, the incentive.
The question at the outset has a clutch benefit of gathering data on the prospect for future retargeting and personalization.
However, take note: that initial pop-up disappears when shoppers enter the store through an ad.
That’s because the ads themselves are already gender-specific.
Only after selecting a product from a collection page — or, if a visitor shows exit intent during checkout when the ad leads straight to a PDP — does the pop-up appear.
This time the first step is simply accepting the offer; followed by the email field:
Once you have an email capture method in place, you’ll need to implement an email welcome flow to hit a subscriber’s inbox as soon as they give you their email.
This is the point at which their interest and purchase intent is highest; they’re probably still browsing your site.
Your welcome follow-up will be among most valuable email automations in terms of the overall revenue generated (typically second only to a cart abandonment series).
Start with a simple “Thank You” email, introducing them to your community and your brand. Make good on any sign-up incentives promised in your pop-up, and be sure to leverage any data collected in the sign sign process (like gender in the Mott & Bow example above) to tailor the experience based on what little you might know about the prospect at this point.
As with any email, be sure to include a clear call to action to get the user back to the site to continue shopping.
Utilize follow-up emails to expand on the brand story, highlighting your UVP, best-sellers, and complimentary products.
For retailers, a 3-4 email welcome series is typically the sweet spot for maximum conversions and engagement, but keep an eye on your open and click rates throughout.
If at any time they begin to drop dramatically, revisit the timing, cadence, and content to optimize your series. Or, simply shorten the sequence and allow those contacts to fall into your marketing list for new product drops and promotions.
If some unsubscribe, don’t feel bad about it. They’re probably not going to be the ones who will buy your product anyway.
Even though a well-performing email marketing program has the potential to drive upwards of 30% of your total revenue, aim to have 20% to 25% of your revenue coming from email marketing.
What do you do after someone buys from you?
Harkening back to the rule of 30:100, how do you increase their LTV by 30% within the first 60 days?
Before paying for retargeting campaigns, take advantage of your free channels first.
At this point, the customer has already given you their money and it’s your job to make sure they enjoy the experience with your brand.
In many cases your transactional emails (order confirmation, shipping confirmation, etc.) will be triggered from a separate system than your marketing emails.
It’s vitally important that you consider how transactional and post-purchase marketing messages are working together to build excitement about the pending delivery.
When I say please send educational, relationship-building emails between purchase and delivery I mean PLEASE SEND EDUCATIONAL, RELATIONSHIP-BUILDING EMAILS BETWEEN PURCHASE AND DELIVERY.— Val Geisler 🖤🏳️🌈💌 (@lovevalgeisler) July 7, 2020
Ffs. This is such low-hanging fruit you’ll get 376 gold stars for a 3-5 email sequence. Go.
The first post-purchase email should hit their inbox as soon as a visitor or a new customer places the order to instill confidence in the customer that their order went through without a hitch.
Most brands send an order confirmation and leave it at that.
But in a retention-focused post-purchase marketing email flow, there’s no such thing as a purely transactional email.
Every email has to either add value or add emotion … or add both.
Keep in mind that transactional emails have average open rates upwards of 80%. Don’t waste this opportunity to deepen the relationship with a new customer when they are at their most engaged.
Making a customer feel confident in their purchase decision is key to developing a positive sentiment toward your brand before the product even arrives.
Open up the doors for them to treat you as a consultant for your own product. Let them know they can email, text, or follow you if they have any problems with the product.
Stay in active communication between the order confirmation email and when the package arrives at their doorstep.
These emails are arguably the most underrated in any ecommerce retailer’s post-purchase follow-up flow.
Building up tension, hype, and excitement before they get that box increases the likelihood that they’ll enjoy opening, using, and sharing your product.
The one part of the customer experience that has a 100% open rate is the package that arrives at their doorstep.
Your unboxing experience is the only marketing channel with a 100% open rate.— Taylor Holiday (@TaylorHoliday) July 7, 2020
The unboxing moment itself is an experience. Here’s how to use that as an additional a touchpoint to dazzle your customer:
If you do your packaging and unboxing well, the customer will have an overwhelmingly positive experience with your brand; they might even photograph or film the unboxing to share with their friends online.
They will then have an equally positive response to any upsells or cross sells you send via email.
Does your brand standard hold up in success and support interactions?
Even if your marketing tone is friendly, personable, and conversational, this might not translate directly to your CS team.
For starters, stay on top of any ad engagement, Instagram comments, or Twitter responses in a way that is on-brand and fitting for the customer journey.
This might mean helping your customer with a problem they need solved, or simply responding with an emoji after a customer gushes about how much they love your product.
Capitalize on these opportunities to add a personal and human touch; it costs next to nothing for your brand to manage, but generates a great return in the perception of care for your customers.
Then, think about how to build customer success into your customer journey.
Instead of having your team put out fires only when customers ask for help, train and encourage your team to help orchestrate your customer’s success.
Make sure your post-purchase email, SMS, or Messenger flows cover when they use your product for the first time, up until the moment they have to reorder.
Triggering personalized emails specific to their past purchase behavior is likewise a great way to stay top of mind throughout their customer journey as well as:
Ultimately, this is how you grow your customer LTV or cash multiplier by 30% within the first 60 days of their first purchase.
We all know it’s significantly more cost-effective to retain an existing customer or subscriber than it is to bring in a new one. We also know repeat buyers spend more, on average, than new customers.
While these reasons build a case for you to allocate a portion of your remarketing budget towards retention and encouraging repeat purchases, only pay to remarket or retarget your list after …
Even then, we recommend using only up to ~10% of your paid budget on remarketing.
For example, for new product and collection launches for existing customers, email the people on your list to promote the launch 24-48 hours before your brand launches a paid campaign. Email is not only more cost-effective, but it gives you more real estate to showcase the product features and benefits.
Let’s say 95% of repeat customers typically reorder within 60 days of their initial purchase.
Only start paying for remarketing on Day 61 when the likelihood of reactivation is beginning to diminish.
People who haven’t purchased after your typical purchase window are called lapsed or, as Shopify likes to call them, “at-risk customers.”
Knowing this, you can speak to them strategically. How?
Hone in on the barriers your customers have to re-purchasing.
For example, Love Wellness’ lapsed point is about 51 days. Therefore, it serves these ads to a custom audience of lapsed customers.
Let’s break down why these remarketing ads are so effective:
Finally, if you’re strapped for time, resources, or assets, simply reuse your best-performing prospecting ads in your remarketing ad sets. Show them your founder or brand mission video again. Show how-to videos and user-generated lifestyle creative.
Of course, we still recommend that you execute an underlying strategy in your remarketing ads to cater them to your customer’s experience, based on where they are in your funnel.
What do you do after you’ve built systems that grow your customer LTV by 30% in the first 60 days? How do you continue to provide value for your returning customers to double their first purchase AOV within a year?
Returning customers who make repeat purchases are wildly different from first-time customers.
Whether or not a customer buys the first time can be attributed to your acquisition efforts. Whether or not they come back is wholly dependent on their growing relationship with your brand.
A customer who buys from you two or more times is no longer average. They’re loyal.
Communicate with them in a more personalized way. Most importantly, give your VIPs the tools to spread your brand message through word-of-mouth.
During the purchase-to-delivery window, don’t ask for a review, a referral, or a customer testimonial.
Not only is that far too soon for a meaningful rating, but it’s also momentum murder to customer retention and evangelism.
If you take nothing else from this guide …
Go right now either to set up or delay your review request until after someone’s had time to receive, use, enjoy, and love your product.
Better still, don’t treat all review emails the same.
If you ask for reviews after the first purchase, you don’t know who will give you a 1-star review or a 5-star review (if they leave a review at all). But if you ask a repeat customer, there’s a much better chance that they are going to give you a 5-star review.
Bambu Earth, for example, has a variety of product-review plus cross-sell emails scattered throughout its post-purchase flows.
Some are standalone, sent 14-days after fulfillment to first-time customers. Others are sent only to repeat customers. While the last one shown below holds a secret …
Ask and coach your most loyal customers for a video testimonial.
The “$50 Gift Card for You!” email kicks off a Gorgias macro that does exactly that. First, laying out the terms. Second, guiding the customer through UGC video production. And third, giving them tips and feedback along the way.
Test it, yourself.
Run a campaign for everyone who’s bought from you at least twice. Ask them to send an unboxing or customer testimonial video in exchange for a gift card.
Alternatively, run a contest for those video testimonials or simply go the route of professional creation:
Attempting to gather UGC piecemeal can be exhausting, and paying influencers to create it can come off as inauthentic. Rewarding your already loyal customers for their reviews in an automated flow solves both of these problems easily.
Fifty-four percent of consumers said they would do more business with a brand if the company offered a loyalty program. So why doesn’t every brand use one?
Loyalty programs can quickly become a money pit if they’re based on transactions alone.
Rewarding shoppers with points based on the value of their purchases is great, but it might simply be giving away margin to already loyal customers who would’ve shopped with you whether or not the program existed at all.
If you’re going to launch a loyalty program, be sure to reward brand advocacy — in addition, to repeat purchases — to turn your best customers into your best brand ambassadors.
Award points or discounts for friend referral, social follows or shares, product reviews, or UGC content like the examples above.
Adding rewards for brand advocacy alongside transactional incentives will quickly turn your loyalty program into a new customer acquisition machine.
If you want your retention efforts to fuel the growth of your business, focus on the short-term value of each customer while keeping the long-term personal experience in mind.
The best way to do this:
Invest in your ecommerce brand’s shopping experience, each step of the customer journey.
The first step in retaining a customer is making good on the promises made when you acquired them. Motivate purchases by connecting shoppers to your product or brand story on a personal level.
Next, thoughtfully nurture that new relationship from fulfillment to unboxing and beyond.
Once a customer has shown you loyalty, respond in kind with a more personalized experience and rewards for ongoing support and advocacy.
This full-funnel approach will keep customers excited about your brand every step of the way, keeping you top of mind when they’re ready to repurchase (and even motivating a repeat purchase sooner than they’d planned).
Last, if you haven’t grabbed the full guide: get it here.
Mandi Moshay is the Director of Retention at Common Thread Collective. She’s been managing retention marketing campaigns on the both the brand side and at agencies for over a decade. Connect with Mandi on Twitter or LinkedIn to talk about email and SMS marketing or, better yet, to share a picture of your dog.