A couple of months ago, we did some benchmark research on ecommerce growth that pinpointed retention as a defining characteristic of best-in-class companies. After just three years in business, the fastest-growing companies see a majority of their revenue coming from repeat purchases. How do they do it?
The secret to success lies in those first 30 days. In our latest benchmark research, we dug deep into what drives retention in the ecommerce world, focusing on the most important metric for understanding buyer behavior: Customer Lifetime Value (CLV). What we found should light a fire under any ecommerce marketing team:
- Only a small percentage of customers make a second purchase within 12 months
- The window of opportunity to secure that second purchase is 30 days...or less
Most Customers Aren’t Looking for a Relationship
Our research found a massive drop-off in the percentage of customers who purchase more than one time. Only 32% go on to make second purchase.
Kevin Hillstrom, a 30-year retail and ecommerce veteran, said this about the finding:
"This finding is absolutely true for more than eighty percent of brands, and runs contrary to the industry narrative of easily harvesting unlimited profit from loyal customers. In reality, the majority of customers who purchase for a first time are in the process of filling a need, and are not interested in a long-term engaging relationship with a brand."
But, in spite of these challenges to turning first-time buyers into loyal customers, we know that top-performing companies are generating more than 50% of their revenue from repeat purchases. How do they do this?
The answer is by focusing on acquiring (and keeping!) customers that come back again and again. We found that for the 32% of customers who do make a second purchase, the likelihood of a third purchase jumps past 50%.
And with each purchase after, the likelihood of an additional purchase increases. What you end up with is a small group of customers that are worth dramatically more than your average customer. We found that the top 1% of customers is worth 18 times more than the average customer!
Companies who use their data to identify this small percentage of people and engage with them, set themselves up to take advantage of a huge opportunity.
Those First 30 Days are Make or Break
Now, let’s go back to that short repurchase window -- the first 30 days. We mapped customer lifetime value out over 365 days, and the data show that ecommerce customers spend 69% of their first year’s spend within the first 30 days.
After those first 30 days, the customer’s value grows only minimally, inching up to 79% by the three month mark.
But look how this plays out for top quartile customers:
Out of the gate, top customers are spending over 2x as much! And while behavior in the bottom quartiles doesn’t change much at all, those flat lines indicate almost no repeat purchases. Top customers continue to spend over the course of the next 365 days. By the end of their first year with a company, their lifetime value has nearly doubled.
This data provides clear guidance for companies looking to grow their revenue from repeat purchases. Most of your customers aren’t looking for a long-term relationship with you, but it’s surprisingly easy to spot the ones that are, and they represent an enormous amount of value.
A CLV-Focus Brings a Retention Advantage
Throughout this study, we used CLV as a lens to help us understand buyer behavior. You can see by looking at some of these charts how effective it is at getting to actionable insights. But the beauty of CLV as a metric isn’t news, 75% of senior executives agree that CLV is an extremely important indicator for success. Of course, 42% of these same executives admit they don’t regularly calculate CLV for their own companies. The top three excuses… err… reasons for not tracking this important metric are:
- Inaccurate data
- Inflexible technology or processes
- Not knowing what to include in calculations
If you’re facing any of these issues, we would love to talk to you. RJMetrics is designed to solve just these types of problems. Having access to accurate, up-to-date CLV data is like having a secret playbook on how to turn first-time buyers into loyal customers. Our benchmark analysis makes this very clear: companies who get serious about data-driven retention efforts have a clear competitive advantage over those who don’t.
