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Two Very Simple Reasons why Customer Retention is Important for Online Businesses

We founded Swell Rewards in part because we feel that there are too many “acquisition-focused” tools out there today (SEM, SEO, ads on social media, etc.), and not enough that help online businesses bring their customers back to their stores.

But underlying that notion is a simple question: why do businesses need to make a distinction between repeat customers and new customers in the first place? After all, as long as traditional e-commerce metrics, such as click through rates, page visits, average time spent on site, conversion rates and more are healthy, then does distinguishing between customer types really make a difference?

Given what Swell Rewards is all about, you probably won’t be surprised to learn that the answer is a resounding “Yes!” While it’s of course important to successfully convert first-time visitors, earning more revenue from your existing customers can help take your business to the next level. Let’s take a look at two simple reasons to help understand just how important customer retention is to online businesses.

Reason #1: Customers are expensive to acquire, so you might as well keep them around.

If it didn’t cost anything to get a customer to come to your site the first time, then customer retention wouldn’t be quite so critical. According to a study done by MarketingSherpa on behalf of Magento, the median cost to acquire a customer is approximately $20, but the average can be over $100 for some businesses!

(By the way, it’s always good to keep tabs on how much you’re spending to acquire each of your new customers. To do so in a quick and dirty fashion, simply take your total marketing spend over a given time and period and divide it by the number of new customers that came to your store. You can use your Swell Rewards dashboard to determine how many new customers you had in the period).

Reason #2: Repeat customers spend more.

The exact statistic varies from study to study (and from one business to the next), but repeat customers spend anywhere from 3 – 10x as much per transaction compared to first-time visitors. Let’s use a simple example to illustrate just how powerful this statistic can be for your business. Let’s say that the average new customer spends $10 per order, but the average repeat customer spends $50 per order twice per year. If that were the case, you’d need TEN new customers just to obtain the revenue that one loyal customer provides each year!

The math makes it easy to understand not only why customer retention is important, but why it’s also worth devoting some time and attention to your existing customer base as well. Taking just a little bit of the money you spend on driving traffic to your site and putting it towards creating loyal, repeat customers can have a significant impact on the trajectory of your business.

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Josh Enzer • June 7, 2015


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Comments

  1. Susan Stillman June 15, 2015 - 10:25 pm Reply

    Your blog is interesting. I didn’t realize that returning customers spend much more typically than a new customer. It makes a lot of sense to encourage the loyalty of existing customers after spending a significant amount of money to attract new consumers. I look forward to reading more of your blogs.

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