Reading through customer retention statistics makes it clear that dedicating time and resources to your existing customer base is more profitable than constantly trying to acquire new customers.
After all, it’s up to 5x cheaper to retain a customer than acquire one - and returning customers spend more than new ones. But how do you know if you’re doing a good job of customer retention or not? Simple - you need to track customer retention KPIs.
You might already be keeping a close eye on some of the most important KPIs for customer retention, like customer retention rate, repeat purchase rate, or customer lifetime value (LTV). There are plenty of others worth tracking, though. These include:
- Monthly Recurring Revenue (MRR)
- Product Stickiness
- Time Between Purchases
- Customer Satisfaction Score (CSAT)
- Net Promoter Score (NPS)
- Customer Effort Score (CES)
- Customer Churn Rate
We’ll show you what each of these metrics tells you and why it’s important. You’ll also gain tips on improving these KPIs to start driving more profitable growth for your Shopify business!
What is a Customer Retention KPI?
Businesses constantly grapple between focusing on customer acquisition vs retention. Each has its place, and we’re not here to act like customer acquisition isn’t worth investing in as well. After all, you can’t retain customers you don’t have!
That being said, we see so many Shopify sellers spinning their tires, never able to push through a plateau because they’re constantly chasing new customers. Shifting your focus to serve existing customers is not only easier, but more profitable.
So what is a customer retention KPI? KPI stands for key performance indicator, and in this case, it’s a measurable value indicating how well you’re retaining customers over time.
Various KPIs give you insight into customer loyalty, satisfaction, and long-term value, helping you get a better grasp of your relationship with your audience.
Why is Tracking KPIs for Customer Retention Important?
It’s been said that a brand’s most powerful resources aren’t funding or IP, contrary to popular belief - it’s data. How could you possibly make strategic decisions if you don’t have numbers to back them up?
This is why tracking customer retention KPIs is essential. You can make better use of your marketing budget, in turn building a more predictable revenue stream.
The customer acquisition journey is convoluted and costly, so why not take steps to keep those customers coming back for more rather than dealing with the endless cycle of trying to grow through acquisition alone?
This is also how you forecast growth, especially for subscription-based models or recurring purchases. Moreover, some KPIs can serve as early warning signs that you have a leak somewhere in your customer loyalty strategy.
For instance, rising churn rates or declining repeat purchase rates suggest it might be time to adjust pricing, refine products, or improve customer service.
You can learn more about customer loyalty analytics in our blog, but let’s narrow our focus today to just the most important customer retention KPIs - specifically unpacking what they tell you and how to improve them.
10 Customer Retention KPIs You Need to Track
It’s easy to get overwhelmed trying to keep a close eye on so many KPIs, which is why we encourage you to pick a few from this list below and zero in on them.
This way you won’t get stuck in analysis paralysis trying to make sense of so many different data points. If you’re not sure where to start, begin with the most straightforward customer retention KPI - customer retention rate.
Customer Retention Rate
The customer retention rate looks at how many of your customers continue to do business with you over a specific period of time. It’s a percentage that more or less assesses how well you foster loyalty and long-term relationships. Here’s the customer retention rate formula:
(Customers at End of Period - New Customers Acquired) / Customers at Start of Period x 100
So if you start the quarter with 1,000 customers, bring in 200 new ones, and close the quarter with 950 customers, you have a retention rate of 75%. Is that good, though? You’ll need to compare it to industry benchmarks to know for sure.
The retention rate speaks directly to how satisfied customers are with your brand. It’s a key indicator of the health and sustainability of your business.
High retention rates mean you’re consistently meeting expectations, while low rates suggest issues in product quality, customer service, or loyalty programs. If you’re not satisfied with your brand’s customer retention rate, there are plenty of strategies you can try to right the ship:
- Enhance Onboarding: First impressions matter. Set the tone for long-term loyalty by providing an excellent first experience.
- Personalized Experiences: Use purchase history and preferences to tailor communications. You’re 60% more likely to get a customer to come back if you do this.
- Proactive Support: Solve customer issues before they escalate by tracking engagement trends and responding to problems in a timely manner.
Of course, just about all customer retention KPIs can be improved by continuing to offer new, exciting products to your audience. You need to remain top of mind as well with ongoing engagement campaigns, too.
Repeat Purchase Rate
This KPI tracks the percentage of customers who make more than one purchase, indicating how well you convert one-time buyers into repeat customers. These are the customers that matter most to your business, given the increasing customer acquisition cost across industries.
Repeat purchase rate = (Repeat Customers / Total Customers) x 100
So if only 500 out of 2,000 customers ever make more than 1 purchase, your repeat purchase rate would be 25%. It’s worth investing heavily to bump this higher since each of these sales is more profitable than first-time customers.
Improving repeat purchase rate has a snowball effect on other customer retention KPIs as well, such as customer lifetime value (LTV) - more on that one in just a moment. How do you improve repeat purchase rate, though?
- Loyalty Rewards: Look into loyalty segmentation and offer points or discounts for repeat purchases.
- Subscription Programs: Encourage auto-renewals with perks like free shipping or bonus items.
- Timely Follow-Ups: Use email campaigns or retargeting ads to re-engage customers soon after their first purchase.
Monthly Recurring Revenue (MRR)
E-commerce businesses that work on a subscription model should make sure they’re keeping an extra close eye on monthly recurring revenue, or MRR. This gauges how much predictable revenue you’re bringing in monthly.
MRR = Total Number of Subscribers x Average Revenue Per User (ARPU)
So if you have 1,000 subscribers paying $30/month, your MRR is $30,000. This metric matters because it speaks to stability and growth. It helps you forecast and identify trends in other areas of retention as well. Here are some strategies to optimize MRR:
- Upsell Opportunities: Offer premium tiers or add-ons.
- Churn Reduction: Address cancellations through exit surveys and win-back campaigns.
- Incentives: Provide discounts for annual billing to lock in customers longer.
Customer Lifetime Value (LTV)
You’ll hear customer lifetime value (LTV) discussed heavily because it impacts how much you can spend to acquire a customer while remaining profitable in the long run. We talk about this more in our comparison of customer lifetime value vs customer acquisition cost.
Imagine you spend $100 to acquire a customer, and their first order is only $50. At first glance you’re losing money - but what if that customer makes 5 more $50 orders over the next 2 years? That initial $100 in advertising brings in a total of $300! Here’s how LTV is calculated:
LTV = Average Purchase Value x Purchase Frequency x Customer Lifespan
If a customer spends $50 per purchase, buys 4 times a year, and stays with your brand for 3 years, their LTV is $600. Pretty simple - and boosting LTV is straightforward, too. All you need to do is improve one of the three “levers” affecting LTV:
- Increase AOV: Encourage larger cart sizes through bundling or discounts. For example, if your products all cost $20, you might consider offering free shipping at $50 - you’ll start seeing more $60 carts!
- Boost Purchase Frequency: Use email reminders or subscriptions. You need to stay top of mind with your customers to keep them coming back for more. Don’t just assume they’ll come to you when they’re ready to make a purchase.
- Extend Lifespan: Deliver exceptional support and regular value-adds. Again, staying top of mind with customers through regular engagement campaigns goes a long way.
If you can increase all three of these, even better!
Product Stickiness
Stickiness assesses how valuable your product or service is by measuring the rate at which users continue using it. The name is fitting because it gauges how much your audience sticks by you and what you offer.
Stickiness = [Monthly Active Users (MAU) / Daily Active Users (DAU)] x 100
Thus, a service with 2,000 MAU and only 500 DAU would have a stickiness of 25%. That’s fairly low and speaks to an issue with engagement or dependence on your product. In other words, your product might not be as useful as it could be. Low stickiness can be addressed with:
- Product Education: Offer tutorials, webinars, and FAQs to maximize usability.
- Regular Updates: Add new features to keep customers engaged.
- Community Building: Create user forums or groups for shared experiences.
Time Between Purchases
This is among the most self-explanatory customer retention KPIs - it gauges how long it takes for a customer to come back and make another purchase.
There’s no fancy formula, just subtract the date of a customer’s first purchase from their next purchase and average this across your customer base. Shorter times between purchases indicate strong customer loyalty and alignment with their needs.
So how can you address an excessively lengthy time between purchases across your brand? Here are some methods we’ve seen work well for Shopify sellers:
- Automated Reminders: Send replenishment emails for consumables. Sometimes customers forget they’re running low and will be grateful your reminded them.
- Personalized Offers: Encourage faster repeat purchases with timely discounts. Remember, personalized offers outperform their generic counterparts.
- Seasonal Promotions: Leverage holidays or special events to prompt purchases. Get creative with how you promote your products.
Customer Satisfaction Score (CSAT)
Customer satisfaction score, or CAST, is as pure a measure of customer happiness as you’ll find. It ranks satisfaction based on brand interactions and will require surveying your audience.
CSAT = Total Responses / Positive Responses x 100
So if you poll 100 of your customers and 80 respond positively, your CSAT would be 80%. That’s pretty good! But if it falls much lower than that, it might be time to look into where you’re missing the mark. You can do this through:
- Follow-Up Surveys: Ask customers to rate recent experiences and address issues. Pinpoint where you have the most room for improvement, be it the product itself or your checkout process.
- Prompt Resolutions: Quickly resolve customer complaints, even if it means losing money on a sale. You’ll make it up with a better LTV.
- Exceed Expectations: Surprise customers with unexpected perks or gestures. Even if it’s something little like a discount on their birthday, showing you’re thinking of them humanizes your brand.
Net Promoter Score (NPS)
Net promoter score (NPS) is used fairly similarly to CSAT in that it involves polling your audience, but it looks less at their satisfaction and more at their willingness to recommend others to your brand.
It can be as simple as this - ask customers, how likely are you to recommend us to others on a scale of 0−10? From there, you’d subtract the percentage of detractors (0-6) from promoters (9-10).
A higher NPS correlates with stronger word-of-mouth marketing and customer advocacy. After all, this remains one of the most powerful ways to grow a business organically. Here’s how to improve NPS:
- Act on Feedback: Address pain points raised by detractors.
- Reward Advocacy: Incentivize promoters with exclusive rewards.
- Engage Passives: Convert neutral customers into promoters by offering additional value.
Our blog has more tips on turning your most loyal customers into brand advocates who bring their friends, family, and colleagues to your doorstep. Read our guide, how does a referral program work?
Customer Effort Score (CES)
One of the biggest culprits behind poor customer retention is friction. Customer effort score (CES) measures how seamlessly customers can interact with your brand, be it to resolve an issue or complete a purchase.
This is another one of the many KPIs for customer retention that involves surveying your audience. You can simply ask them - on a scale of 0-10 (10 being effortless), how easy is it to….
- Make a purchase
- Resolve an issue
- Use our product
Tally up the scores and average them to determine your CES. But even if you find you have a really high CES, it’s still worth looking for ways to reduce friction at every step of the funnel. You can do this by:
- Simplifying Processes: Streamline navigation, checkout, and support channels.
- Empowering Support Teams: Train teams to resolve issues efficiently.
- Investing in Self-Service Tools: Offer FAQs, chatbots, or community forums.
Customer Churn Rate
Last but not least on our list of customer retention KPIs, we have one of the most important - customer churn rate. This tracks the percentage of customers who stop engaging with your brand over a set period.
Churn Rate = (Total Customers at Start / Customers Lost in Period) x 100
So if you start a period with 1,000 customers and lose 50, you have a churn rate of 5%. Just like customer retention rate, benchmarks should be industry-specific. There are plenty of ways you can address churn issues:
- Proactive Outreach: Identify at-risk customers and offer incentives to stay.
- Feedback Loops: Address complaints and friction points.
- Improve Onboarding: Make sure customers fully understand and enjoy your product.
Final Words on the Most Important KPIs for Customer Retention
Customer retention is the foundation of sustainable business growth, and tracking these KPIs will help you get a sense of where you’re leaving money on the table. Focus on the ones that are most relevant to your business and get in the habit of checking them regularly.
Remember, loyalty is earned through data-driven decisions and proactive engagement. Now’s the time to put these customer retention KPIs to work for your business. Get your analytics set up to start tracking these KPIs for customer retention.
From there, you can take steps to improve whichever KPIs matter most to you - be it MRR or customer retention rate. There are plenty of ways you can go about it, including a Shopify loyalty program or Shopify referral program.
Rivo gives you everything you need to build a branded loyalty and referral program for your business. Explore some of the most powerful customer retention examples we’ve facilitated and get started rewarding customer loyalty to improve retention. See how our solution compares:
