As an eCommerce business, you probably already know how important customer relationships are. What you might not know is that just a 5% increase in retention could increase your profits by as much as 95%. Here’s something else you need to understand—email marketing is a great tool to strengthen your customer relationships. In fact, 49% of consumers admitted that they would like to receive promotional emails from their favorite brands on a weekly basis. But here’s the thing—there’s such a thing as churn rate, and it’s the bane of all business owners. Can email marketing help with this? How can it help in reducing churn rate?
How Do I Calculate Churn rate?
Customer churn rate is simply defined as the percentage of customers that stop being customers over a set period of time. Typically, it is calculated by month or year—it has nothing to do with butter or churning.
For eCommerce businesses, this simply means someone that doesn’t buy from you again during that time.
Your annual churn rate would be the percentage of the total number of customers that bought something in January but didn’t buy anything else before the end of the year.
The length of time you should use to calculate this depends on the products you sell. If you sell consumables, like makeup, you should expect returning customers to purchase again within three months.
If you sell clothes or shoes, the natural replacement timing is much longer. So you might be better off calculating it by a year or even two years.
If you have data on returning customers, like a report from Shopify or BigCommerce, you should also get an idea of your customer lifetime value (LTV). The lifetime value of a customer will give you an image of the potential earnings by reducing your churn rate.
In Shopify, you can open the “Returning customers” report to get an idea of this.
Divide the “Total spent to date” column by the number of customers to get the average lifetime value of a returning customer. That is the earnings potential of getting a single one-time purchaser back for a second time.
Divide the spend by the average period of time, for example, four years, and you have an estimate of how much losing a loyal customer will cost you per year.
The average order value is already there. The AOV shows you how much extra money you could make by merely getting an existing customer to come back for one more purchase.
What Is a Good Churn Rate?
The best churn rate is obviously 0%, but that is an unrealistic goal.
It 100% depends on your industry, business model, and customers. Online stores will inherently have a higher churn rate than a social media platform or SaaS models.
Online retail stores have, on average, an annual churn rate of 22%. This statistic is likely kept low by industry giants with high levels of customer loyalty.
That said, you can still retain a lot of your customers by giving shoppers a reason to come back. Amazon Prime is a great example. It gives shoppers an extra incentive to always choose Amazon for their online shopping.
If you keep giving existing customers a reason to choose you, you can beat the average and get 80% of your customers to buy a second time.
What Causes Churn?
A variety of factors can cause churn. We’ve listed the main reasons below:
- Bad shopping experience (slow delivery, the product was damaged, etc.)
- Bad customer service
- The real product differs from the promised experience
- Lack of engagement (no follow-up communications)
- Competitor expansion (price-cutting, better marketing, etc.)
- Short attention spans
What Is Retention Email and Why Does it Reduce Churn?
The first key to retaining customers is delivering an excellent shopping experience. Keep your promises when it comes to the shopping experience, the product itself, and customer service. Optimize the UX of your store so it’s easy to navigate.
Retention emails are designed to tackle every other issue. They keep your customers engaged so that they can relate to you and your brand. Through this relationship, you can overcome competitor marketing, lack of engagement, and the goldfish-level attention spans of modern consumers.
Basically, retention email marketing campaigns are designed to be the perfect tool to reduce customer churn.
Churn rate is such a pressing issue for eCommerce stores worldwide. Sure, you can always double your customer acquisition efforts. But wouldn’t it be awesome to have loyal customers you can always count on? It’s not just the quality of your product that will keep them coming back—the way you connect with them is also a bigger factor.
So if you’re not doing any sort of retention email marketing now, or you’re currently experiencing an increase in churn rate, talk to an email marketing expert. Schedule your free call now, and discover what you need to do to reduce your churn rate.