January 27, 2022

What is the Average Retention Rate for a New E-commerce Business?

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For any e-commerce business, retaining existing customers is as crucial as acquiring new ones. It is proven that retaining customers gets more revenue for your business. But retaining new customers isn’t easy and more than 75% fail to return after the first day of using the app or buying from it. For instance, you may have 100,000 downloads of your e-commerce mobile app, but how many people are actually active and use it to buy products? Here is where the retention rate metric comes in handy.

Your marketing strategy has to be a healthy mix of customer acquisition and retention. Customer retention rate is a key metric of how loyal your customers are. It measures the percentage of customers who continue to keep buying from your online e-commerce store over a given time period.

The customer retention rate is the inverse of the churn rate. Retention rate measures the customers who stayed while churn rate measures the customers lost.

Why is customer retention rate crucial for an e-commerce business?

Let’s get into some hard truths about customer retention to understand why it is important for online businesses to concentrate on this key metric.

  • A brand’s profit can increase anywhere between 25 to 95% even by a 5% increase in customer retention.
  • It costs around five times as much to acquire new consumers as it does to keep existing ones.
  • Existing customers are 50% more likely to try new products when compared to new customers.
  • Existing customers are likely to spend 31% more than new customers.
  • It is easier to sell a product to an existing customer than to a new customer.
  • About 70% of the brands agree that it is cost-effective to retain a customer than acquire a new one.

When your relationship with the existing customer grows, most of your business will come from them. Your marketing strategy has to involve satisfying customers after they place their first order because they tend to be loyal only right up until the second somebody offers them a better service. Every dollar you invest in acquiring one new customer can contribute to delivering ten or more repeat sales if you focus on customer retention too.

How to calculate customer retention rate in e-commerce?

You can interpret a retained customer in many ways. Who is a retained customer? Is it the one who has purchased an item in the last 6 months? Is it someone who has generated revenue? You have to predefine the segments that you need to calculate the retention rate. It may be using real purchases or a certain revenue threshold. Segment the customers based on-

Marketing channels

Where did your customers come from? Was it through referrals, affiliate links, email marketing, social platforms, or directly through Google search? Segmenting users based on marketing channels also helps you to measure the return on marketing investment.

Product categories

What product did your customers purchase? Was it based on a brand or a collection? Segmenting users based on products purchased helps you to see which products sell the most and in creating an effective loyalty program.

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Demographics

What is the average age of your customers? Segmenting users based on age, gender, and location can help you to study how your brand appeals to various groups.

Once the segmenting is done, now you can decide to calculate the customer retention rate based on these cohorts. A cohort is a group of people who share the same experiences or characteristics. Cohort analysis is putting customers into groups by a common trait and then tracking their retention rate. Segmenting helps you see which set of customers brings more value to your business. For instance, customers through email marketing or between 30-35 years of age might have better retention rates compared to others. So, analyzing customer retention by cohorts helps you better understand user behavior and keep a watch on significant changes or trends.

Now, the next step is to identify the time period of the customer retention rate. You may want to calculate it for a year, quarter, or month. New e-commerce businesses can calculate it for a 30-day or 90-day period. It is a time when they have just acquired new customers or are in the process, so calculating the retention rates for this time period helps them in their marketing strategies. Next, it also depends on what products you sell. For fast-moving products such as apparel and food products, the user base changes rapidly and they have shorter buying frequencies. For items such as furniture or electronics, the purchase frequency is slow.

One simple way to calculate the retention rate is-

Customer Retention Rate (CRR) = Customers retained at the end of time period / Customers at the start of the time period

But it is a rough estimate and doesn’t take the new customers acquired in between the time period. Another method is to take into consideration the new customers added in between. For this, you collect three important data from your user sales analytics:

1. The number of customers at the start of the time period

2. The number of customers at the end of the time period

3. The number of new customers in the time period.

Now, calculate the retention rate as-

Customer Retention Rate (CRR)= [(Total Customers at the end- New customers) / Customers at the start] * 100

This way, you calculate the customer retention rate across various cohorts or segments. It gives you an idea of where you need to focus and how you can improve your marketing strategies.

Here is a table of customer retention rates across different e-commerce verticals as per a survey by Metrilo

Category Average Customer Retention Rate Avg Revenue Share From Retained Customers Avg Time Between Orders (Days) Avg Orders/ Customer Avg Customer Lifetime Value ($)
Apparel 26% 59.1% 115 1.8 218
Coffee 29.6% 64.1% 148 2.3 169
Cosmetics 25.9% 63% 126 1.7 190
Hign-perfomance sports clothing 33% 64% 71 2.0 161
Meal Deliveries 29% 51% 41 1.6 63
Food Products 24.5% 47.3% 94 1.6 118
Pet Stuff 31.5% 67.9% 127 2.1 107
Supplements 29.1% 58.1% 75 1.7 94
Tea 20.9% 48.4% 132 1.5 55

Many surveys suggest that the average customer retention rate for online e-commerce stores has to hover between 25 to 30%. The above table also suggests the same.

For mobile apps, the average retention rate for 30 days is 42% and 25% for a 90-day period. It ranges from 27% to 43% for various industries. For higher-performing apps, it ranges from 32% to 66%.

Here is the user retention rate for different verticals in the mobile app segment as per a survey by Geckoboard

Mobile App Industry Average retention rate for 30 days Average retention rate for 90 days
Media & Entertainment 43% 24%
E-commerce & Retail 37% 18%
Travel & LifeStyle 36% 18%
Technology 33% 19%
Gaming 27% 10%

The average retention rate for a 90-day period is somewhere at around 20%. Aim for 25% depending on your product or service.

Wrapping Up

If customer retention is the key to your e-commerce growth, then how do you retain customers? The answer is by providing a personalized customer experience. Transitioning from websites to engaging mobile apps is the best way to deliver tailor-made shopping experiences. If you are a startup and shying away from creating a mobile app from scratch due to the high costs involved, you can now simply build a mobile app from your existing online e-commerce store. Swipecart utilizes a powerful e-commerce store builder tool to help you convert your website into a mobile app easily, fast, and for an unbelievable price. With an interactive mobile app, you can give plenty of reasons for your customers to return and keep buying!