Businesses love new customers, but repeat buyers generate more revenue and cost less to service.
Customers need a reason to come back. This may involve marketing, exceptional service, or superior product quality. Regardless, the long-term viability of most e-commerce stores requires people who buy more than once.
Here’s why.
Higher lifetime value
A repeat customer has a higher lifetime value than one who makes a single purchase.
Let’s say the average order for an online store is $75. A buyer who buys once and never returns generates $75 compared to $225 for a buyer three times.
Now let’s assume the online store has 100 customers per quarter at $75 per transaction. If only 10 buyers buy a second time at $75, the total revenue is $8,250, or $82.50 each. If 20 buyers return, the revenue is $9,000, or $90 each on average.
![Smiling female buyer with many delivery boxes. Smiling female buyer with many delivery boxes.](https://www.practicalecommerce.com/wp-content/uploads/2024/01/011324-repeat-shopper-v2-570x380.jpg)
Loyal customers are truly satisfied.
Best advertising
Return on ad spend (ROAS) measures the effectiveness of a campaign. To calculate, divide the ad revenue by the cost. This measurement is often presented as a ratio, such as 4:1.
A store generating $4 in sales for every dollar of advertising has an ROAS of 4:1. So a business with a customer lifetime value of $75 and aiming for an ROAS of 4:1 could invest $18.75 in advertising to achieve only one sale.
But $18.75 would attract few customers if competitors spent $21.
This is where buyer retention and CLV come into play. If the store could get 15% of its customers to purchase a second time at $75 per purchase, CLV would increase from $75 to $86 . An average CLV of $86 with a 4:1 ROAS goal means the store can invest $22 to acquire a customer. The store is now competitive in an industry with an average acquisition cost of $21, and it can retain new customers.
Lower CAC
Customer acquisition cost arises from several factors. Competition is one. The quality of the ad and the channel also matter.
A new business usually depends on established advertising platforms such as Meta, Google, Pinterest, X and TikTok. The company bids on the locations and pays the going rate. Reducing CACs on these platforms requires above-average conversion rates, such as through excellent ad creative or on-site checkout flows.
The scenario is different for a merchant whose customers are loyal and likely engaged. These businesses have other options for generating revenue, such as word-of-mouth, social proof, events, and contest marketing. All of them could have significantly lower CACs.
Reduced customer service
Repeat buyers generally have fewer queries and interactions with the service. People who have purchased a t-shirt trust its fit, quality and washing instructions, for example.
These repeat buyers are less likely to return an item – or chat, email or call customer service.
Higher income
Imagine three e-commerce businesses. Each acquires 100 customers per month at $75 per average order. But everyone has a different customer retention rate.
Store A retains 10% of its customers each month – 100 customers in total in the first month and 110 in the second month. Stores B and C have monthly retention rates of 15% and 20%, respectively.
In twelve months, store A will have $21,398.38 in sales from 285 buyers: 100 are new and 185 are regulars.
On the other hand, store B will have 465 buyers in month 12: 100 new and 365 regular customers, for a turnover of $34,892.94.
Store C is the big winner. Retaining 20% of its customers monthly would result in 743 customers in a year and $55,725.63 in sales.
Certainly, retaining 20% of new buyers is an ambitious goal. Nonetheless, the example shows the compounding effects of customer loyalty on revenue.
Month | Shop A: 10% | Shop B: 15% | Shop C: 20% | |||
---|---|---|---|---|---|---|
Clients | Income | Clients | Income | Clients | Income | |
0 | 100 | $7,500.00 | 100 | $7,500.00 | 100 | $7,500.00 |
1 | 110 | $8,250.00 | 115 | $8,625.00 | 120 | $9,000.00 |
2 | 121 | $9,075.00 | 132 | $9,918.75 | 144 | $10,800.00 |
3 | 133 | $9,982.50 | 152 | $11,406.56 | 173 | $12,960.00 |
4 | 146 | $10,980.75 | 175 | $13,117.55 | 207 | $15,552.00 |
5 | 161 | $12,078.83 | 201 | $15,085.18 | 249 | $18,662.40 |
6 | 177 | $13,286.71 | 231 | $17,347.96 | 299 | $22,394.88 |
7 | 195 | $14,615.38 | 266 | $19,950.15 | 358 | $26,873.86 |
8 | 214 | $16,076.92 | 306 | $22,942.67 | 430 | $32,248.63 |
9 | 236 | $17,684.61 | 352 | $26,384.07 | 516 | $38,698.35 |
ten | 259 | $19,453.07 | 405 | $30,341.68 | 619 | $46,438.02 |
11 | 285 | $21,398.38 | 465 | $34,892.94 | 743 | $55,725.63 |