• Team Powerhouse91

A Complete Guide to Customer Retention for Indian eCommerce Brands

The eCommerce industry is growing at a breakneck pace ever since the onset of the pandemic. eCommerce has not only changed people's perspective towards shopping but also has become an invaluable aid for them in these difficult times. eCommerce helps people effortlessly compare, search, and find reviews about different products and seamlessly purchase them.


Here is an interesting fact that indicates the popularity of eCommerce in India: a study showed that in India, there were 330 million online buyers in 2020. The primary reason for this is the penetration of the Internet into rural areas. More and more people have started using eCommerce for their daily purchases.


As far as eCommerce business owners are concerned, we have good news for you too. The market value of the eCommerce industry is growing exponentially in India and is estimated to hit 84 billion USD in 2021. Such a promising market is attracting more and more sellers to the eCommerce sphere. The Indian Government eMarketplace (GeM) listed over 1 million sellers and service providers in 2020. However, this means increased competition.


As the competition is rising rapidly, it is becoming increasingly difficult for businesses to retain customers. Undoubtedly, customer retention is as important as new customer acquisition today. However, many businesses focus only on the latter, which affects their growth prospects in the long run.



This blog takes you through everything you need to know about customer retention, including tips and strategies to enhance your metrics in the coming days. Read on.


What is customer retention?


Before we talk about retention, let us talk about customer acquisition.


Customer acquisition is the most basic function of any business. Businesses work hard to acquire new customers and get them to their online store to make a purchase. It is also a continuous process for any online store as they run different campaigns and advertisements targeting initial customers to their store.


Now that you have put a lot of effort into acquiring customers, it is also your responsibility to retain them for as long as possible. This is the core idea of customer retention. Here is how customer retention can be defined:


“It is simply a collection of activities through which businesses try to provide more value and engage with existing customers.”


This would, in turn, build trust in your customers’ minds, and they will end up purchasing from you repeatedly. Most businesses handle customer retention by engaging with existing customers through social media, emails, and push notifications.


In summary, customer retention is all about building brand loyalty and improving the lifetime of your customers.


Why is customer retention important?


Customer retention is important for a business as it boosts sales and brings down its overall investment. Acquiring a new customer is not easy, and it takes time, money, and effort. It is even proven by research. According to a Harvard study, it is estimated that acquiring a new customer is 5 to 25 times more expensive than retaining your existing customers.


This is because, for customer retention, businesses need not spend a huge sum on advertising, marketing, and sales. Existing customers already trust your brand, and they will reach out to you to buy any new product. On the other hand, a new prospect needs much persuading and convincing in the initial stages to convert them into a paying customer. Think of it this way: most of us keep visiting Amazon for our regular purchases even when they don’t advertise their solutions to us. That’s the power of true loyalty customers.


The return on investment in customer retention is quite high. It is found that when you increase your customer retention rate by 5%, the revenue can increase anywhere between 25% and 95%. This is because existing customers tend to spend more and buy more often as they love your services and cherish the value you offer to them.


The growth prospects are also very high when you focus on customer retention. This is because loyal customers tend to speak more about your brand, and they will undertake word-of-mouth marketing for free. The good things about your brand start spreading through your loyal existing customers, leading to further sales growth.


In summary, customer retention helps businesses understand their brand value and how successful they are in satisfying existing customers through their products and services.


Metrics to evaluate customer retention

An eCommerce business can analyse and document its customer retention capabilities and the benefits accrued from retained customers through a few customer success metrics. You can easily boost your retention efforts by analysing this data. Here are some of the most useful retention customer metrics you need to evaluate today:


1. Customer Churn Rate (CCR)

This simple metric will help you understand the ratio of customers you failed to retain in your business over a certain period. In simple words, these customers stopped buying your products or services after initial purchases.


Losing customers is quite common in any business as customers often switch over to the competitors if they are not satisfied with your product. But for an enterprise, it is very important to reduce such instances as it can impact your business significantly.


So, keep the customer churn rate low and try to maintain it in the range of 5% to 7%. Anything above that would require you to make some serious changes in your client retention roadmap as you are failing to satisfy their needs.

You can calculate the churn rate at any stage of your business lifecycle. The only thing you need to keep in mind is the size of your customer base. If you have a relatively large customer base, it would be best to measure churn rates monthly. Companies with relatively smaller customer bases can measure their churn rate on a quarterly or annual basis as there will not be a significant fluctuation.


The formula for calculating the customer churn rate is:

Monthly Customer Churn Rate (CCR) = (Total number of customers at the beginning of the month – Total number of customers at the end of the month) / Total number of customers at the beginning of the month

For example, say, company XYZ had 1500 customers at the beginning of October. At the end of the month, they lost 100 customers.


Here the churn rate would be: (1500-1400) / 1500 = 6.6% at the end of the month.


2. Loyal Customer Rate (LCR)

This metric helps you identify the proportion of loyal customers you have in your company. It is estimated with the help of their repeat purchases within a specific time range. These are the customers who not only bring you sales but also help in your retention marketing efforts as they will share positive words about your business. Repeat purchases make only about 8% of your store traffic, typically, but 41% of the revenue is generated from these customers.


By determining the loyal customer rate, you can understand how good your customer experience is. Boost your LCR by providing personalised experiences to existing customers.


To calculate the LCR, first find out the number of customers you have in a month. Include both new and existing customers. Then find the number of customers who made additional purchases in the same month. Divide the same to get the Loyal Customer Rate.


Here is the retention rate formula to calculator the ratio of loyal customers:


Loyal Customer Rate = Number of Repeat Customers / Total Customers


3. Revenue Churn Rate (RCR)

This is another valuable metric that helps you find the percentage of revenue your business lost from its existing customers over a timeframe. The RCR, like any other metric in this list, will let you know how good your customer retention strategies have been and if any changes are needed. If you sense a high RCR in your business, then there is a high probability of customers leaving your business in the coming days. So, you must act fast to prevent it from happening.

The RCR is typically calculated on a monthly basis. To calculate it, you should first subtract the Monthly Recurring Revenue (MRR) at the beginning of the month and Monthly Recurring Revenue (MRR) at the end of the month. Next, subtract the revenue accrued from upselling to existing customers. Finally, divide the whole with the MRR at the beginning of the month. If the value is negative, your profits outweigh your losses.


Note: MRR is the total number of customers multiplied by the average order value.

Here is the final formula to calculate RCR:


RCR = ((MRR at the beginning of the month – MRR at the end of the month) – MRR upselling during) / MRR at the beginning of the month


4. Product Return Rate (PRR)

This is a very important metric that is specific to the eCommerce industry. The Product Return Rate helps you understand how good your product and shipping services are. You typically calculate this by determining how many products have been returned by customers.


In a B2C eCommerce ecosystem, there is an average return rate of 20%. Return of products can cause huge problems to your business as you will incur both additional shipping costs and product costs (if they are broken or damaged).

If the PRR is high, then you should identify the reasons for it. Is it the product quality or the shipping process? Make changes based on your findings.


PRR has an important role to play in customer retention. A lower PRR means your customers are happy with your products and services and will remain with you for an extended period.


The formula to calculate the PRR is:


Product Return Rate = Number of units returned after being sold / Total number of sold units.


5. Customer Lifetime Value (CLV)

We’ve saved the most important metric for the end. Customer lifetime value can be used to determine the revenue generated through an average customer over a timeframe and what is their relationship with your brand. This value is based on the previous purchases made by the customer.

This metric will also help you understand how much you should spend on your customer acquisition process. If the CLV is high, then that means more customers are staying with your brand, and you can spend less on customer acquisition.

To calculate the CLV, you need the help of two variables. One is the annual customer value, and the second is how long the customers will remain active in your store (in years). Most experts say that this time will be around 1 to 3 years.

Thus,


Customer Lifetime Value = Annual Customer Value X Stores Average Lifespan (1-3 years)


Strategies to improve customer retention

Now that you understand the importance of customer retention, your business can employ a few customer retention strategies to keep your hard-earned customers close to you. These strategies will help build consumer loyalty and make your customers fit effortlessly into your business ecosystem. Some of them are described below.


1. Offer world-class customer service

Customer service has a very important role to play in building customer relationships. Your customer service team is made up of those people who stay in maximum contact with the customer after a sale is completed as they help solve any after-purchase problems. Hence, having a strong customer service team will be very helpful for your business.


At the same time, a small or medium business cannot afford so many people and is often restricted to a handful of employees for customer service. This is where technology can help. To keep up with the rising customer needs, businesses have to embrace the latest customer service tools to supplement their existing team and make the process smoother.


Tools to record customer interaction and create tickets can be adopted right away to keep the process organised and improve the response time. As the customer base grows, you can use more powerful and advanced tools to automate some of the core aspects of your team’s daily workflow.


2. Offer coupons and gifts

People always like it when you make them feel special and appreciate them with rewards. Try sending a discount coupon on their special days like anniversary and birthday. You can even offer a special discount on a product that the customer purchases frequently. Along with the offer and gift, you can leave a warm message conveying the discount is in return for their consistent loyalty towards the brand that has helped it reach its current heights.


Send special gifts once in a while, such as a custom branded t-shirt or any other branded goodies. Most eCommerce stores do not do this; hence, you will get a good competitive advantage. Such gestures will be definitely spoken about on social media and ensure tremendous publicity for your brand.


3. Give importance to feedback

Customer feedback will help you understand what they think about your brand and what changes they expect from you. Surveys may seem like a very unproductive tool to get customer feedback. However, it is quite useful, especially when things are going wrong for a customer. Most customers will be interested in sharing a negative experience with a brand as it is a way to express their disappointment. A business should focus on the feedback and make amends before the customer leaves for good.


Don’t forget to close the loop by replying to the customer with a personalised message thanking them for their feedback. Let them know you have heard their feedback and are working on correcting it.


4. Apologise when you make a mistake

This is a very simple rule, but often ignored by most. Humans make mistakes all the time, and this is very common in businesses, too. It could be a severe data leak or a small billing error. Whatever be it, it is your responsibility to respond to these errors quickly and solve the problem at the earliest. But more importantly, you need to first apologise to the customer for the mistake. It helps to gain the trust of your customers. Most customers would come back to you even if you make a serious mistake but apologise immediately.


Conclusion


India is one of the fastest-growing eCommerce markets in the world and is estimated to surpass the US to become the second-largest market by 2034. India’s huge customer base and ever-increasing internet penetration pose a great opportunity for many businesses to enter this industry. However, with greater opportunities comes more competition. The only way to survive the competition in the coming years is by retaining customers. The strategies given in this post can certainly help in improving your customer retention metrics.


However, managing an eCommerce business on your own can be daunting. It can prevent you from chasing bigger goals in your professional and personal lives. This is where Powerhouse91 can help. We acquire and operate eCommerce brands and help them scale up to their full potential. We have over 30 years of experience in eCommerce and have enhanced the capabilities of multiple brands since our inception.


To know more, contact us now.


32 views0 comments