What Is Customer Acquisition and Customer Retention ?
This article is for e-commerce businesses who are just starting out or those who have been up and running for a while now, because having an online business (or basically any business) is all about customers, whether acquiring new ones or retaining the ones we have worked so hard (and invested a lot) to make. We’ll be talking about customer acquisition and customer retention meaning, how to calculate both, and the strategies marketers use for both acquisition and retention.
What Is Customer Acquisition?
Customer acquisition is persuading new customers to buy from your business (products/services) in a way that is not random, but measurable and repeatable.
Persuading a new customer to buy from you is called “converting” in the marketing language. That’s when a lead (someone in the awareness stage where he/she is only getting to know more about your business) becomes a prospect (where they consider buying from your business over your competitors), who is then converted into a customer (after purchase).
If you want to know more about the best practices to attract new qualified customers or prospects into your online store, read this article.
For an online store, customer acquisition has become easier with digital marketing, where a business owner can track how the store acquires new leads, discover new techniques, and optimize those for best results.
I can hear the voices in your head asking “okay, but this sure costs a lot!” 😊
Yes, acquiring a new customer costs you, but it’s all calculated and is part of the margin profit you put.
What Is Customer Acquisition Cost ( CAC ) and How to Calculate it?
CAC is “customer acquisition cost” of every new customer to your online store , based on the marketing effort and budget you put into acquiring them.
Customer acquisition cost is the cost of marketing divided by the number of new customers acquired, which can be put in the following equation:
Marketing spend / New customers = CAC
For example, let’s say that your Facebook page brings in 50 customers a month and you spend $500 creating content. How would you calculate your customer acquisition cost?
Yes, you’re right:
Marketing spend ($500) / New customers ($50) = CAC ($10 per customer).
But, are you wondering why do you need to calculate customer acquisition cost?
Why Do We Calculate Customer Acquisition Cost ?
Every business should calculate the cost of acquiring a new customer so that they can know precisely how much profit they make.
Your profit depends on how much a customer spends on average purchasing from your store, your gross margin profit, and the marketing budget you put into customer acquisition.
Average order value × Gross margin – Customer acquisition cost = Profit
By way of example, if each customer is spending $50 on average on their first purchase from your business, and your gross margin on each order is 50%, your profit would be $15 on each order.
Average order value ($50) × Gross margin (50%) – Customer acquisition cost ($10) = Profit ($15)
For new businesses and startups, customer acquisition is of utmost importance and it’s all what a starting business should think of and direct its budget to. But there is another technique that’s more important for a business that’s been up and running for a while: customer retention.
What Is Customer Retention?
Customer retention is the activities a business uses to increase the number of repeat customers and to increase the profitability of each existing customer.
Customer retention techniques makes you able to gain more from the existing customer base you’ve already worked so hard to build.
Maintain a profitable relationship with your customers depends on after-sales services, reliable customer care, and upgrading the products/services you provide. This way, your customers will turn to loyal customers where your retention efforts will maximize the profitability of each customer for as long as they’re satisfied and happy.
But is customer retention influenced by the size of your business?
Acquisition vs. Retention
For businesses that are just starting, getting customers and building a base of followers is what matters. That’s solely customer acquisition.
Growing on and gaining more traction, you can include retention strategies in your plan. You want to encourage the customers who have bought once from you to make another purchase. Here, you can send an email with a 20% offer or with some related items depending on user history with your store (we’ll talk about marketing campaigns tool from ExpandCart in a minute).
Now sales are growing and you’re making a consistent profit and traffic from your e-commerce website. It’s about time you start mixing in more retention with your acquisition efforts. Loyalty programs and reward points (available from your dashboard on ExpandCart) are excellent choices for such stage.
After your business is well established, with many successes and a wide base of customers, heavy focus on customer retention strategies will certainly pay off, where you can get customers to buy more often which increases their lifetime value.
That’s what it’s all about concerning where your store is in its lifecycle and how this influences your acquisition and retention strategies.
Worthy also to note that what you sell at your store has a huge impact on which strategy you should focus on.
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How Retention Fits Your Business
What your e-commerce website sells or offers for users has an impact on how much you gain from your retention strategy.
An online store that sells high-end products is going to be categorically different than a store selling inexpensive, moderately priced items.
The higher the item value is, the more the store gains from retaining customers, and the highest a customer lifetime value will be.
Customer lifetime value, or CLV, is a measurement of how valuable a customer is to your company, not just on a purchase-by-purchase basis but across the whole relationship.
Just remember that it’s all about finding a balance between both strategies of customer acquisition and retention that makes the most sense for your business.
And in order to improve your retention rate, you need to be able to measure this rate based on solid metrics.
What Are Customer Retention Metrics?
Customer retention metrics are the standards or numbers that tell you how successful you are in retaining your store customers. There are various metrics, but the three most important ones are:
- Repeat customer rate
- Purchase frequency
- Average Order Value (AOV)
Let’s examine them in details and know how to calculate each one, so that you can build a customer retention strategy that has a significant and lasting impact on your store’s profitability.
What Is Repeat Customer Rate and How to Calculate it?
Repeat customer rate measures the percentage of customers willing to make a second purchase from you, which is an excellent way of evaluating how well your retention strategy is working. The higher repeat customer rate metric is, the more willing customers are to return to your store.
Calculating your e-commerce store’s repeat customer rate is fairly straightforward and only requires two pieces of information:
|Number of customers with more than one purchase||Number of unique customers|
|That is the number of customers who purchased from your store more than once over a specific period of time (a month for example).||That is the number of different customers who made purchases from your store in the same period of time.|
All you need to do is to divide both numbers by each other to get your repeat customer rate, in an equation that looks like this:
Number of customers with more than one purchase ÷ Number of unique customers
What Is Purchase Frequency and How to Calculate it?
Purchase frequency measures how often customers are coming back to buy from your store.
Calculating your store’s purchase frequency is not different than calculating repeat purchase rate. Divide your store’s total number of orders by the number of unique customers in a specific time frame (a month or an entire year for big brands), in an equation that looks like this:
Number of placed orders ÷ Number of unique customers
What Is Average Order Value and How to Calculate it?
Average order value is the amount of money a customer spends at your online store on each transaction.
To calculate your customer’s average order value, divide your yearly revenue by the number of orders your store processed in a specific time frame, in an equation that looks like this:
Total revenue earned / Number of placed orders
Now you’re all set and you have all the knowledge about customer acquisition and retention. What we need to cover now are the strategies that lead to a successful acquisition of new customers to your e-commerce store or retaining the customers that you have already got.
Fortunately, ExpandCart has got you covered!
If you’re a user on ExpandCart platform, you already have all the means that help you acquire and retain customers built in and accessible through your dashboard.
Customer Acquisition and Retention from ExpandCart Dashboard
Through your store’s dashboard on ExpandCart, you are able to navigate your way through multiple ways and techniques that will help you greatly with customer acquisition and retention.
Facebook and Snapchat Pixels
Your store on ExpandCart is integrated with the powerful tool known and used by every marketer out there: Pixels.
Available for Facebook and Snapchat, the most used applications in the Middle East, pixels enable you to track leads and prospects who have visited your store without making a purchase, who have abandoned their cart, who added an item to their cart, and many more tracked actions, so that you can contact them again and try to persuade them to become customers (customer acquisition).
Google Analytics and AdWords
From the same tab, your store is integrated with the two most powerful tools from Google: Google Analytics and Google AdWords.
Tools like those are essential for marketing, whether to acquire new leads and prospects and convert them into paying customers, or to retain your store’s existing customers and extract more value from them.
Track your e-commerce website’s users’ actions and retarget them based on these actions and personal history. Track leads who have viewed a product’s content or prospects who have added an item to their basket and reach them in a trial to convert them into customers.
It’s doable and super easy, all from a single dashboard!
Email Marketing Campaigns
Target new customers or re-target your existing ones with automated email campaigns based on personal history and type of action with your website.
Segment your audience, customize different emails depending on each category’s specifications, and set your emails to be sent automatically on certain events or times.
Email marketing delivers the best return on investment among other marketing channels, and the Econsultancy / Adestra 2019 Email Marketing Census confirms this, with 73% of company respondents ranking the channel as excellent, compared to 72% for SEO and 67% for paid search.
Advanced Reward Points
Maintain your customers loyalty by using advanced reward points system that works on every action they take, which is a marketing technique that works wonders in customer retention and convincing an existing customer to buy again from your e-commerce store.
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To Sum Up,,,
The online competition has become fierce, and survival is now harder than ever, so you’d better be ready.
For starting online businesses, acquiring new customers and gaining traction is what matters; that’s why customer acquisition is the key player.
For well-established e-commerce businesses, heavy customer retention is what will make a huge impact on their revenue and sales.
Calculating customer acquisition and retention rates is not hard, once you have all the numbers ready from your reports.
Choosing the right e-commerce platform to create your online store on is what makes your life easier and influences your success in the online world.
ExpandCart offers its users, merchants, and retailers with all the marketing tools, services, and applications that help them acquire and retain customers easily, all from a single dashboard.
There’s much more to be said, so if we’ve inspired you in any way and you’d like to talk, we’ll be here to listen 😊.