The Loyalty Ladder : Customer Retention 101

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The pressures felt when initially launching a new business are heavily weighed in converting customers into loyal brand advocates. There are many stages in between that first interest in your product to seeing repeated sales. By using customer retention strategies, you can guide your customers up The Loyalty Ladder.

What is customer retention?

Customer retention is the strategy that is put in place when looking to engage and encourage current customers to purchase again. Focusing on building loyalty with an existing customer will be much less expensive  than acquiring a new one. Your goal is to guide a new customer to climb The Loyalty Ladder and become your brand champion - the ultimate advocate for your business.

Climbing The Loyalty Ladder

The loyalty ladder outlines the various levels of commitment a new customer can attain within your thriving business. Let’s climb the ladder together.

The Prospect

Anyone who visits your website or comes across an advertisement or social media post with a generic level of interest is considered a prospect for your business. It is said that a product can be viewed up to 100 times before 1 purchase is made. This is why crafting a compelling Call to Action in your marketing strategy will bring a prospect up the ladder.

The Customer

A customer is someone who made the decision to purchase from your store. They are now a first-time purchaser and can be considered a successful acquisition. Engaging with your customer through customized notifications or personalized newsletter tools will encourage them to keep an eye on your business.

The Client

The Customer who purchases from your store a second time is now “The Client” - a repeat customer. This is a crucial step up the loyalty ladder as the trust battery they have with your business is growing. When customers are turning into clients, it is a good time to consider loyalty programs or special discounts to bring them to the next level.

The Supporter

At this stage, when The Client continues to purchase new products and seeks out more information about upcoming launches, you have a supporter on your hands. There is a critical transition needed so The Supporter does not remain at this level of the ladder. Consider reaching out to them directly to request product reviews and offer incentives for sharing your products on their social media pages. 

The Advocate

The top of the loyalty ladder holds a space for your advocates. Those who will openly share stories about your company online or seek out new ways to promote your business are considered your brand advocates. Consider collaborating with The Advocate by using Influencer Marketing strategies. A true win for your company moving forward.

Metrics for building customer retention strategies

As your business grows, you will find that drafting customer retention strategies will be crucial in maintaining a loyal customer base. To kick start this planning process, it will be important to evaluate certain key metrics to get a big picture of where your business stands with customer retention.

Repeat purchase rate

This metric indicates the rate in which customers are making a second purchase and becoming clients to your business. To calculate this rate, you will need to locate two key pieces of information using your Shopify Analytics.

Note: These two metrics can only be pulled from reports if you are on the Shopify Plan or higher. 

1. The number of customers with more than one purchase (Returning Customer report)

• This number relates to the amount of times a single customer has made more than one purchase in a given amount of time. You can look at your entire year, or simply a quarter. The bigger the picture, the better.

2. The number of unique customers (Customers Over Time report)

• This number refers to the number of different customers who have purchased from you. You can draw this report using the same timeframe from the previous point.

With these two pieces of information, you can determine the Repeat purchase rate using this equation:

# of Customers That Purchased More Than Once / # Unique Customers = Repeat Purchase Rate

Purchase frequency

This metric will show you how often customers are returning to your store to purchase. Using the time timeframe from the “Repeat purchase rate” metrics, you will take your store's total number of orders for that same timeframe and divide it by the unique customer rate. The calculation looks like this:

# of Orders Placed / # Unique Customers = Purchase Frequency

Average order value

This metric will give you an idea of how much these purchases are worth. You will calculate this value by generating your yearly revenue and divide it by the number of orders placed.

Total Revenue Earned / # Orders Placed = Average Order Value

Customer value

Last but not least, calculating customer value is the best starting point to improve your metrics and increase gains from climbing The Loyalty Ladder. The calculation is as follows:

Purchase Frequency x Average Order Value = Customer Value

With all these incredible metrics, you can start to work on your customer retention strategies  with The Loyalty Ladder in mind.

Growing your sales through existing customers will bring great value to your business and set you up for success long term. The data may come in slowly but it is important to stay ahead of it by using The Loyalty Ladder. Prepare yourself with that first call to action to motivate Prospects to become Customers and set yourself up with a marketing plan for the next steps of the ladder. You now have all the tools you need to retain customers and watch your business prosper.