After frantic days of communications and promotions for the year’s biggest impulse-buying period, now comes the hardest part: building loyalty and encouraging repeat purchases from our new customers.
Have you thought about how you’ll “win over” your existing customers? And above all, what return do you expect from each new customer in the medium term?
In this post on repeat purchases and loyalty, we want to give you the basics so you know where to put your resources to maximize your online sales results and make your digital business sustainable.
eCommerce user acquisition
It’s estimated that acquiring a new customer usually costs 8 to 10 times more than keeping an existing one loyal. That makes perfect sense: an existing customer has already had a previous, usually positive, experience with the brand, so closing a second sale should be a bit easier and, above all, require less investment.
To boost repeat purchases, the key is to start with the numbers. Do you know how much it costs to acquire a customer and what margin they bring you?
Here are 4 essential metrics that should underpin your online loyalty and repeat-purchase strategy!
eCommerce customer acquisition cost: how do we calculate it?
This is the first KPI we need to be clear on when setting up our repeat-purchase and loyalty plan. Cost per acquisition (CPA) can be assigned to winning a new sale or a lead, or it can be split into cost per lead (CPL) + the cost of turning that lead into a sale.
This acquisition cost should be adapted to the business model, and each acquisition source should be considered individually
Average repeat purchase rate
To set up a communication and acquisition strategy, as well as promotional actions, we need to be clear about our average repeat purchase rate. Don’t forget the timing of repeat purchases — how often customers buy from us. A simple calculation of purchases among active users (who have bought at least once in the last 12 months) gives us an annual repeat purchase rate.
If your eCommerce has a ratio of 1.30, you should work on increasing it, whereas if your rate is 9.5, you should invest in user acquisition and widen the top of your acquisition funnel.
Average eCommerce margin
Knowing the real profit from each sale gives us an idea of how profitable the online business is. We need to factor in every related operating cost. We should compare this figure with the acquisition cost to know whether our business is sustainable over time. It also shows how competitive we can afford to be with our pricing policy. Remember, customers almost always compare prices before the big moment: the purchase.
Although average margin is key, repeat purchases can change this figure significantly, so calculating Lifetime Value will help us make decisions.
Lifetime Value (LTV): what is it?
LTV = (average margin x repeat purchase rate). This metric captures the profit from a customer over a period of time, usually 12 months. Once we know the return an average customer will bring, we know how much we can invest in them while keeping the business profitable.
By now we’ll probably all reach the same conclusion. These are the figures any physical business considers when drawing up its business plan: building customer loyalty with controlled pricing and a reasonable margin so customers don’t defect to the competition. Indeed, it’s not so different from the offline world.
However, online business provides measurable data and tools that let us turn each indicator into business decisions, so our online store stays competitive and present in our customers’ decision-making process
At TLG Commerce we help several clients boost repeat purchases from their customers. An effective way is to build segmentation matrices tailored to each online business. This lets us offer personalized value propositions with a single goal: increasing customer engagement and loyalty.
eCommerce customer segmentation
The classic marketing idea of “one size fits all”, which also applied online, no longer makes sense in an increasingly complex and competitive environment like the digital channel. Rolling out a discount or promotion generically, without any criteria, can lead to lost revenue or create dynamics that hurt the business’s growth.
Discover some of the matrices that will help you boost repeat sales in your eCommerce!
Repeat customer segmentation matrix
One option worth exploring is a segmentation matrix crossing Lifetime Value with the repeat purchase rate of your customer base. This helps us understand why a user ends up buying from our online store and, above all, spot outputs that let us reach them in a personalized way, always aiming for repeat purchases in eCommerce.
Example of a repeat customer segmentation matrix
Let’s look in detail at each segment of the matrix
- Segment A: customers who bring a healthy margin but, at first glance, aren’t loyal. Highlighting a loyalty program or discounts on the next purchase can help move these users within the matrix.
- Segment B: these are our brand ambassadors. Highly loyal customers who keep coming back to our online store. They’d never stop buying — and we should make the most of it! Prepare targeted, exclusive sales for them and use them as brand ambassadors. MGM (Member get Member) campaigns can be among the most attractive options for them and for future customers. What better way to win a new customer than word of mouth from a super-loyal user?
- Segment C: usually price-sensitive customers who take advantage of discounts to buy. Moving this segment is, at first glance, a tough task. Working to raise this segment’s margin through average order value, with incentives for buying several items or bundles, shouldn’t leave them indifferent.
- Segment D: we already have them in the fold — they buy regularly — but their average margin could be better. Study the channel and acquisition cost, as well as the main incentives that led to a transaction, to optimize repeat purchases in this particular segment.
From there, draw up a specific plan to increase margin. Owned channels such as email marketing can be a good way to reduce CPA (cost per acquisition)
TLG tip: customer segmentation should be adapted to each sector and the specifics of selling the product we offer. Within each segment we can consider several criteria, such as average order value or seasonality. Our recommendation is to start simple and organized, with 4 defined segments, and then act based on the data gathered and analyzed.
In parallel, calculating the percentage of new versus repeat customers can be a starting point for measuring repeat purchases over a specific period.
RFM matrix
Another way to work on repeat purchases and loyalty is a more advanced analysis of our customer base, based on 3 key KPIs for any eCommerce.
– Recency: the last time they bought
– Frequency: how many times they bought in a given period, usually 12 months
– Monetary: how much they spent (low, medium or high)
Working with this matrix gives us distinctive insight into our database. For example, we can identify:
– The percentage of inactive customers, in terms of conversion and sales, whom we need to re-engage to increase their purchase frequency
– Customers above average in terms of margin, whose future purchases we can incentivize
– Customers sensitive to promotions or discounts, as their average order value is below average
Example of an RFM matrix
Where do I start building my RFM matrix?
To set up an RFM matrix, it’s important to take time to define the 3 segmentation levels for each KPI. Remember, the goal is simply to get as many customers as possible into the green segment.
From there, there are several assumptions to keep in mind:
– Customers who buy more regularly are more likely to buy again
– Customers who bought more recently are more likely to buy again
– Customers who bring more value to our eCommerce can bring even more
– Customers who spend the most are the ones willing to buy again
Once our segmentation is clear, we need to personalize each action we plan. So we’ll consider actions such as:
– More or less aggressive discounts depending on the customer’s segment
– Access to exclusive offers
– Second-purchase discounts
– Prize draws
– Product samples
– Satisfaction surveys by segment
Working with customer segmentation may seem complicated and hard to manage at first. That’s why it’s important to focus on the segment that brings the company the most value, be clear on the matrix’s 3 key KPIs — recency, frequency and monetary value — and try to improve them over time.
Don’t forget loyalty best practices!
Our expertise in helping online businesses has allowed us to identify some best practices that help connect the buyer persona with our online business. In short, we suggest:
– Ensure excellent customer service through direct, instant communication channels (chat or WhatsApp) that answer questions during the buying process
– Logistics: track shipping and delivery, and make returns easy for your customers. Poor delivery service can hurt future purchases.
– Customer reviews: encourage existing customers to leave reviews on our online store. It helps new customers feel confident in their first purchases. Remember, positive reviews from your customers matter far more than anything you can say about your own brand.
– Key dates: nothing is more special than remembering your customer’s important dates. Besides appreciating it, they might treat themselves on their birthday. Why not from your online store?!
– Personalized promotions: making customers feel unique and special will only bring good results. Simply personalizing a promotion by email could be the start of a beautiful relationship!
– We miss you: use automation tools to remind your customers that you miss them! An accompanying incentive can improve your repeat purchase rate.
– Blog: besides helping you rank and reach new customers, it encourages customers to read distinctive content and share it with other potential customers.
Let’s be honest: working on repeat purchases takes dedicated effort, sometimes requiring specific actions for each segment. There are several tools on the market today that let us automate recurring communications.
At TLG Commerce, our eMarketing department is here to help you define your strategy and the resulting actions to build customer loyalty. We’ll be glad to help!
