Why Repurchase Rates Don't Matter

There is a lot to uncover when it comes to retention.

In today’s Thought, we'll speak about:

Why you should not worry about customers who churn, and focus on increasing revenue from those who stay.

And tactics to grow revenue from repeat customers.

Let's get started 👇

Focus on Recurring Revenue, Not Recurring Customers

Many marketers speak about repurchase rates, and often ask for benchmarks.

Over the years, I found:

What matters is not retaining customers; but revenue.

Hot take:

From a macro perspective, repurchase rates are irrelevant.

We’ll dive into the why, and the how.

The good news upfront:

Despite your customers churning, you can drive more revenue from the ones who stay.

What Repurchase Rates Won’t Tell You

Repurchase rates (or, often called retention rates), are about how many customers purchased again within a specific timeframe.

E.g. 40% repurchase within 12 months after their first purchase.

However, retention rates ignore the amount of revenue or contribution margin of your repeat customers.

The Difference In Numbers

In the example below, out of 100 customers that placed their first order in January, 20 placed another order in the following month (Month 2).

The repurchase rate is 20%:

However, the same customer segment could have generated $5000 in the first month, and another $1400 in the following month (Month 2).

That’s 28% of additional revenue:

Drive More Revenue From Fewer Customers

How can you increase revenue from your repeat customers, despite customers churning over time?

There are two metrics you can influence and to look out for:

AOV (average order value):

How much do your repeat customers spend per order.

And purchase frequency:

How often do they place orders (and reduce the time between orders).

In plain English: Make customers purchase more ($) and more often.

Tactics to Grow Revenue From Repeat Customers

There are more tactics than we can cover in this week’s Thought. However, here are a few to consider:

Loyalty programs, memberships and subscriptions reduce time between orders and make customers buy more regularly.

Smart up-selling & cross-selling boost AOVs. Offers on the order confirmation page can provide 4-8% additional revenue without risking a drop in conversion rates.

Launch complementary products (not substitute products)–read more about this topic in this post.

Run regular campaigns. Valuable content is a good alternative to heavy discounts. Staying top-of-mind is in many cases all it takes.

The Ultimate Goal of Retention

Whenever you manage to increase revenue within a naturally declining customer cohort, you managed to build an extremely stable ecommerce business.

Even when you lose customers overall as a business, you still gain revenue.

Takeaways

Focus on retaining revenue over retaining customers.

Implement tactics to make your repeat customers purchase more ($) and more often.

When you grow revenue faster than you loose customers, you’ve unlocked ultimate growth in your business.