Measure your per-customer retention costs

With all the inflation talk there's a lot of attention getting paid to costs.

Reducing costs might not be the most efficient use of your time but that balance might change when times get rough. I've always been a fan of running lean with lower costs when possible.

Customer acquisition costs are a whole category of issues. They're most likely your top cost or at least in the top five costs.

Today I wanted to write about customer retention costs, a category that's rarely looked at.

Retention costs are what you need to spend to keep customers buying again and again. In other words, how much does it cost to have customers continue their current behavior?

What you're looking for is an average per customer so you know how much a single customer costs to retain.

Some costs sources will be per-customer and scale up and down depending on how many customers you have. Things like per-email charges, SMS fees, or remarketing. These you'll use the values directly (or divide your bills by the total customer count).

Others will be fixed costs and shared by all customers. Like the cost of your emailing platform, an analytics app like Repeat Customer Insights, or anything else that has a flat-rate. These you'll divide the cost by the total number of customers in each system.

Combine those costs and you'll get an idea how much retaining a single customer costs. It'll probably be much lower than your acquisition costs, sometimes even 1,000x lower.

That's the "it's cheaper to keep a customer than to find a new one" in action.

Most likely you'll learn two things from this:

  1. Retaining customers is way more efficient
  2. You can easily put more resources into retention to grow your sales

These reasons are why I write so often on customer retention and a big reason why my app exists. Retention doesn't get nearly as much visibility as finding new customers.

Eric Davis

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Topics: Customer retention Downturn

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