Let’s cut to the chase: customer retention is really tricky. Especially if you’re an eCom store selling a single brand in a single category. And especially if you’re selling something that isn’t consumable.
We’re probably heading into a recession soon, so you can expect the cost of acquiring a new customer to increase. It’s worth taking a second look at retention, if only to help you set realistic expectations about what retention can do for your business.
Hate to be a doom-poster but…
…it gets even more expensive to acquire customers in a recession.
Tweaking your ad campaign settings or installing another Shopify app are not going to fix that.
A 🧵 on what you should focus on instead:
— Alex (@heyitsalexP) May 9, 2022
In the average mono-brand, mono-category eCom business, only 20-35 of the new customers you acquire will ever come back and buy from you again. If your retention rate is higher than that, you should pat yourself on the back. But no matter what your retention rate is, you should keep on reading.
There are factors that have nothing to do with digital marketing that put a ceiling on your potential to retain customers:
Your Product: Is it actually good, and do your customers feel that they got what they were expecting based on what they saw in your marketing and on your website?
Your Category: Consumable products have higher baseline retention rates than things you only need to purchase once. There are other nuances here too, but I’ll save those for the next edition of the newsletter.
Your Price: The higher your price point, the fewer people can afford to purchase from you multiple times. More on this one in the next newsletter too.
Your Distribution: The more convenient it is to purchase from you, the more often people will do it. If your website sells one product, you charge $9.95 to ship an order, and it takes your warehouse three days to get an order out…someone really needs to like your product to order it again.
But putting all those factors aside, there are still ways you can use marketing to make some incremental improvement in your retention rate. Unfortunately, most of the advice you’ll receive on retention marketing will have you spinning your wheels. And that’s because…
Your Customer File Is Not A Monolith
Traditional retention marketing advice treats all of your existing customers as if they behave exactly the same. And that’s because most retention marketing advice is channel-centric. And that’s because most retention advice is developed by software companies, not marketers.
When you read about retention online, you’ll see a lot of advice that boils down to “make sure you have email and SMS and an app and then use those channels to send your customers a promo code.”
When you send all of your customers the same marketing message, you’re ignoring one critical fact: some of your customers are more “bought in” than others. A person who purchased from you once is going to need more persuasion and reassurance than someone who purchased from you five times. But most of the messaging we send existing customers assumes that the entire audience cares deeply about our brand.
If you analyze your customer file, you’ll find that most of your customers don’t become “loyal” until their fourth or fifth purchase. I am defining “loyal” in purely mathematical terms: this is the point where a customer has greater than a 50% probability of purchasing again within a year.
Side note: ask a marketer how they define a “loyal” customer and you’ll receive a different answer every time. Many of those answers will be something nearly impossible to measure; see this thread.
How do you define a "loyal" customer?
I'll share my answer as a reply in a bit.
— Alex (@heyitsalexP) March 29, 2022
As a customer’s lifetime order count increases, so does their probability of returning to order again. But, as we covered in the intro, less than a third of the customers you acquire will ever return to make a second purchase.
Getting a new customer to purchase a second time is the largest, most meaningful retention challenge any mono-brand eCommerce business will face. When compared to the “one and done” problem, efforts that focus on your VIP customers are almost inconsequential. You need customers to cross that second order chasm if you want them to become VIPs.
This is why breaking the customer lifecycle into acquisition and retention is flawed. It’s like calling two pieces of bread a sandwich. You need to put something in the middle.
The Customer Lifecycle Sandwich
The customer journey actually has three phases:
- Acquisition: converting a net new customer.
- Nurture: getting a customer from purchase one to purchase three or four, with emphasis on converting new customers to a second purchase.
- Loyalty: winning incremental spend from customers who have reached purchase four or five. This could be incremental orders or an increase in dollars spent per order.
Let’s break down the differences between Nurture and Loyalty:
The Nurture Phase
The Audience: Customers who have made between one and three (or four for some brands) purchases with you, and have purchased in the last 12 months.
The Mindset: These customers liked your brand enough to give it a try, but they aren’t completely won over. A bad experience with order fulfillment or the product itself could lose them for good. You probably don’t have a ton of their mindshare, so they may forget you exist if your product is average or your post-purchase marketing is irrelevant.
Marketing Focus: Your primary objective? Do not make the customer angry. Deliver on the promises in your marketing. Set clear expectations around fulfillment and shipping times, and communicate proactively if something goes wrong. Make it easy to get in touch with customer support. If your product is complicated, make sure they know how to use it.
Your secondary objective? Win a second purchase within 90 days of the first. Ideally within 30 days. Your brand’s mental availability is highest during the period when the customer is waiting for their order. If you run the numbers, most of your highest value customers made a second purchase within 90 days of their first.
Product Focus: You want to reduce as much friction as possible in order to win the tricky second purchase. Avoid “big asks” like subscription programs or high AUR items. Cross-sells can work if they’re relevant to your brand. Best sellers are some of your lowest-friction items. Featuring products from the same category as the first purchase is a safe bet.
The Loyalty Phase
The Audience: Customers who made at least four (or five for some brands) purchases with you, and have purchased in the last 12 months.
The Mindset: If someone has come back to an eCom store four or more times, they’re bought in. This customer is starting to associate your brand with your category: “When I need more X I go to Brand Y first.” However, very few brands acknowledge this fact. You can find ways to make these customers feel special, even if they’re not in your top 10% (although they probably are).
Marketing Focus: The fact that these customers are loyal actually makes it harder to market to them in any meaningful way. If the customer’s default action is to turn to your brand when they need your category, it’s hard to drive incremental spend unless you (A.) make them need you more frequently or (B.) win incremental spend each time they convert.
All loyalty marketing should focus on one of those two objectives. Your secondary mission: identifying each customer’s preferred frequency. Some loyal customers want an email 2x/day, every day. Others want an email once per month. Get this wrong and some of your best customers may tune you out and walk away.
Product Focus: This is the phase when you can start to explore upsells and cross-category selling. If you sell something consumable, this is also when you’ll be the most successful in getting customers to subscribe. And if you have a “special edition” product, these are the customers most likely to care.
But My Email List/SMS Campaigns/Etc. Are Doing Sick Numbers
Maybe your email and SMS strategies are crushing it. Or maybe you are falling for retention marketing’s biggest, dirtiest secret: most of it doesn’t actually do anything.
Chart the growth of your Email and SMS revenue against the growth in your overall revenue. If your channel revenue is growing much faster than the total, one of two things are happening:
- Your retention strategies are cannibalizing other channels.
- The attribution you’re using to measure these programs is biased towards email and SMS. This happens WAYYY more often than you think, and it’s the “strategic” pillar of scammy email agency wantrepreneurs and their ~sick~ twitter threads.
This doesn’t become a problem until you’re unable to consistently hit your sales targets. If you follow the strategies outlined in this post, that is less likely to happen. But the choice is yours.
This Sounds Hard, I Only Want To Make One Creative Version Per Campaign
I hear this, especially if you’re working on a team that sends out multiple emails per day and/or has limited creative resources. In fact, one of the biggest roadblocks to implementing the lifecycle sandwich is the extra creative lift it requires. There are a few ways to address this:
- Make sure that nurture and loyalty are both represented in your email and SMS content planning. This way, even if you need to email everyone every day, both audiences will see relevant content.
- Don’t email your entire list every day. Plan out seven days of content–three for loyal customers and four for new customer nurture. Alternate email content and audiences each day.
- Build out dynamic email templates that don’t require Photoshop and slicing to build out. The first email requires a designer to create a layout in photoshop and slice the image into pieces, and a coder to build that email in HTML and link each slice. To build the second email, the designer can build the whole thing in a WYSIWYG editor, no coding required. This makes it easier to develop multiple versions of an email.
You should also take a cold, hard look at your creative approval process. If your team requires a four week lead time to develop SMS copy, there is something deeply wrong with your organization. I’m sure that call-out applies to less than 1% of you reading this, but it needs to be said.