7 Customer Retention Strategies to Improve Loyalty Metrics

10 Min. Read

Customer acquisition costs (CAC) have been steadily rising year on year. From 2013 to 2018 the cost of acquiring customers went up 50% across both B2B and B2C businesses. This trend was exacerbated by the pandemic with exception of a small number of industries and therefore, generally speaking, CACs are still going up.  

If you only focus on acquiring new customers it can be an expensive strategy, especially if you’re conversion rates are low. An alternative to acquiring more customers is to focus on retaining the customers you already have. 

Adapting your strategy to focus on customer retention can improve your ROI, increase profits and it costs between 5-25x less than acquiring new customers depending on your industry. However, this is no easy feat as 93% of businesses agree that customers have higher expectations today than they did in the past.

Luckily for you, you’re in the right place because we are going to share 7 customer retention strategies that will help you to hold on to your shoppers and clients. 

Customer Retention Strategies - TOC

What is customer retention & why is it important?

Before we go any further, let’s be clear on exactly what we mean by customer retention. It’s a marketing strategy that focuses on developing a relationship with existing customers to encourage them to return to your business to buy more products or use your services again. 

Customer retention is a company’s ability (or lack of) to convert one-time buyers into repeat customers and to stop them from switching to a competitor.

It differs from lead generation or customer acquisition because you are dealing with people that have already bought from you at least once. The great thing about existing customers is that they are easier to sell to. Data from Invesp tells us that the probability of selling to an existing customer is 60-70% compared to only 5-20% when selling to a new lead.

Furthermore, an old piece of research from the Harvard Business School found that increasing customer retention rates by 5% can increase profit by 25% – 95%. Back in 1990 when that data was published, the cost of acquiring new customers was much lower than it is now. So, improving your customer retention rates by a few percentage points today could have an even bigger impact on your profits.

Customer retention metrics explained

We’ve already outlined that customer retention is relatively cheap, it can dramatically increase profits, and it’s much easier to sell to existing customers than new customers. So, I know you’re probably itching to find out about some strategies to help you improve your customer retention. I promise I’ll get to that very soon. 

However, if you’re serious about improving your customer retention then you’ll need to know how to measure it. You should work out how you score on the below metrics before implementing new strategies so that you can see the impact of the changes you make to your business. 

Here are five important customer retention metrics that you should know.

Customer Retention Rate

The customer retention rate refers to the rate at which customers return to a business within a specific time frame. To calculate your customer retention rate you will need to know:

  1. The number of customers at the start of a time period
  2. The number of customers at the end of that time period
  3. The number of new customers added during that time period

Once you have those figures you can then use this formula to work out your customer retention rate:

Repeat customer rate

The repeat customer rate measures the percentage of your total customer base that has returned to your business to buy again. Any customer that has made more than one purchase will be included in this data set. You can choose to narrow it down to a specific time frame or measure it across your entire purchase history.

To calculate your repeat customer rate use the following formula:

(No. of customers who have made <1 purchase / Total number of customers)
x 100
= Repeat customer rate

Quite simply, the closer your number is to 100%, the better your repeat customer rate is.

Purchase frequency

Understanding your purchase frequency helps you to evaluate how often your customers come back to you to make another purchase. It’s the number of times an average customer buys a product or service from a business within a specified timeframe.

To calculate purchase frequency use this formula:

Number of orders / Number of unique customers
= Purchase frequency

Average Order Value

The average order value (AOV) is the average amount each customer spends at each purchase event. Once you know this value, you can work on finding ways to increase the average order value for existing and new customers. Although your loyal customers will probably be the ones with higher-order values because they already trust you and your products.

To calculate AOV use this formula:

Total revenue / total number of orders
= Average order value

Customer Lifetime Value

Customer lifetime value helps you to understand the total revenue that you can expect from a customer over their lifetime. It helps you to discover your most loyal customers and to predict how much money you can expect from them if you can keep them from going to a competitor.

There are a few ways you can calculate the customer lifetime value and it’s one of the more difficult metrics to work out because you are trying to accurately predict the behavior of your customers in the future. However, using the below formulas is the simplest way to work it out.

First, you need to work out the customer value using this formula:

Average order value x Purchase frequency
= Customer value

Next, work out the average customer lifespan by working out the average number of days between the first order date and the last order date of all your customers. You can use this formula:

Average 1st order date – Average last order date
= Average customer lifespan

Then, once you have the customer value figure and the average customer lifespan figure, use this formula to work out the customer lifetime value:

Customer value x Average customer lifespan
= Customer lifetime value

Track & analyze customer feedback for the best customer retention strategy

It’s hard to know what your customer retention strategy should focus on if you have no idea how your customers feel about your business. So, the first step in retaining your customers is to track and analyze their feedback. This will allow you to create a customer retention strategy that directly responds to the pain points that your customers are experiencing. 

Send out surveys, analyze product reviews, and collate information from support tickets to find out exactly what your customers are looking for when they’re purchasing from you. This way you’ll know whether to start with improving customer service channels or providing bigger discounts for existing customers.

7 of the best customer retention strategies

You now know how to work out your customer retention rate and other important metrics. The good news is that even if you scored low numbers, you’re about to find out seven of the best strategies to improve your repeat custom. Bear in mind that you need to think about what your customers actually want and if your type of business is suitable for the strategy.

Start a loyalty program

Loyalty programs are a great way to keep customers returning for more because you’re giving them something a little extra for coming back which they won’t get from going somewhere new. Loyalty programs work so well that some research found that 84% of loyalty program members redeem the loyalty offers given to them. While not all of your customers will sign up for your loyalty program, the ones that do are extremely likely to use the discount and offers given to them for repeat purchases.

Loyalty programs can be as simple as a physical or digital punch card that awards discounts or free products on the 5th order or something more complex like a gamified points-based program where customers level up to unlock new benefits. Check out this example from Starbucks…

Onboarding programs

Running an onboarding session that teaches new customers how to use a product or get the most out of your service will help to reduce the churn of new customers. This is a great strategy for software products, products that require technical ability, and service-led businesses. 

The aim of your onboarding program should be to make your customers understand the value of your product by showing them how it can help them achieve their goals, needs, or wants better and faster than any other product. You can use video tutorials, guided tours, and onboarding flows as formats for your onboarding content.

The example below from Slack shows new customers all of the basic features necessary to start using the platform right off the bat. With this information, customers are less likely to get lost and frustrated with the product and therefore are much more likely to continue paying the monthly fees.

Offer post-purchase discounts for future orders

Order confirmation emails are your first chance to incentivize your customers to become repeat purchasers. Offering a discount coupon, free shipping code, or a small freebie with future orders is a surprise and delight moment that shows your customers that you care about their business.

Shoppers are significantly more likely to come back to you for the product or service you sell rather than a competitor because they can get 15% off, free shipping, or a free coffee if they buy from you. Roughly 20% of customers will redeem post-purchase offers so don’t miss out on this opportunity to drive repeat custom.

Adopt customer service tools

As your business scales and your sales increase, this will inevitably lead to the need for more customer support. Hiring more people to manage your inbox is one method but it can be expensive and unless you have overstaffed, it’s still possible for the team to get overwhelmed when sales and complaints spike.

Maintaining great customer service as your business grows is a key ingredient to having a high customer retention rate. It will also help you to boost your average order value with 42% of customers saying that they bought more after a good customer service experience. 

Adopting customer services tools like a chatbot for immediate responses and a CRM to manage and create customer support tickets will help you to organize and provide better customer service without having to hire any additional staff.

Incentivize email sign-ups

Email subscriber lists are old but gold. 56% of marketers think that email marketing is the most effective method of retaining customers. Showing up in your existing customer’s inbox from time to time will help to keep your business front of mind, and when done correctly, email marketing can nurture and strengthen customer relationships. But don’t overdo it! Nothing will get you into the spam folder quicker than too many promotional emails.

You could:

  • Communicate what your business is doing that’s inspiring and exciting 
  • Create a welcome email series that describes your business and products in detail
  • Offer personalized discounts
  • Share your most recent blog posts
  • Showcase new product releases
  • Remind customers of upcoming events or webinars
  • Send out personalized one-to-one emails to customers with the top 1-5% average order value
  • Share customer stories and testimonials

The key is to strike a balance between promotional emails that directly drive sales and emails that brighten your customer’s day with valuable and entertaining information. What’s right for your business will be unique to you but between 1-3 emails a week depending on how much you have to talk about is a good starting point. Just make sure to monitor your metrics to see if your customers are enjoying your emails or not. If your open rate suddenly drops off, reduce the frequency a bit.

Create a subscription model

Subscription models are great for customer retention because they give your business predictable and regular income. It’s a growing market with almost 50% of online shoppers signed up for a subscription service of some sort with 15% of the subscriptions being for physical goods.

The best thing about subscriptions is that once you’ve gained a new customer, neither party has to do much to maintain the relationship. In fact, it’s more effort for the customer to terminate the relationship than to continue. So, as long as you keep delivering a high-quality product or service, it’s likely that you will gain customers with a huge lifetime value.

Some of the most successful businesses that operate with a subscription model include Spotify, Dollar Shave Club, and Blue Apron. They span the three types of subscriptions which are:

  • Access subscribers pay a monthly fee to get lower prices or members-only perks. For example, Spotify Premium members don’t have to listen to ads in between songs.
  • Replenishment subscribers automate the purchase of commodities they use on a regular basis. For example razors, make-up, cleaning products, and deodorant are products that work well for replenishment subscriptions.


  • Curation subscriptions offer highly personalized experiences or new products to their subscribers. Curation subscriptions include the beauty box trend and meal boxes that tailor menus to dietary requirements. 

If your product lends itself to regular purchases make sure you offer a subscription option. If you sell products that are one-time purchases, ask yourself if you can list complimentary products that are sold via subscription. For example, if you sell glasses, you could sell lens cleaner via subscription. 

Refer a friend program

A referral program that gets your most loyal customers to recruit new customers is also a great way to improve your retention rates. The give $10 off, get $10 off model not only attracts new customers but encourages your existing customers to redeem their discount with you. 

Word of mouth marketing has always been a powerful tool if you know how to use it with 84% of people believing that referrals are the most trustworthy and influentials form of advertising. Also, a referred customer is 18% more loyal than a customer acquired by other methods. So a referral program is a great long-term strategy to improve your retention rates.

The below example from Ruggable shows their give 15% off, get 15% off referral program. All they require is your email address and then you have a unique code that you can share with friends via email or share on social media with the ‘Share on FB’ button.

Final thoughts on 7 of the best customer retention strategies

Switching your focus from acquiring new customers to retaining and improving the relationship with your existing customers is the best long-term strategy for your business. By just increasing your customer retention rate by a few percent, you’ll spend a lot less and considerably boost your profits. 

You now have the formulas you need to calculate your current customer retention metrics and several strategies that you can use to start retaining more of your customers. Have fun with it and enjoy growing a loyal customer base that will provide lifetime value for your business.

Marketing and Profit Analytics for Shopify and WooCommerce Stores

Skyrocket your online store without losing control! Know what brings your true profit! 📈

Create a Forever Free Account Now


Jake is a digital marketing specialist, head of content marketing at Website Builder Ninja, and a contributing writer for a variety of marketing-focused online publications. Website Builder Ninja reviews the world’s leading DIY website builders to help you to find the right platform to grow your online business.

Award winning analytics solution

Exit mobile version