Today we’re going to talk about how your repeat purchase rate is an excellent measure of your future success.
Repeat purchase rate shows you how loyal your customer base is. The more customers who come back and buy two, three, or even ten times, the more valuable each customer is.
With a high repeat purchase rate you’ll be getting more orders in the future than a competitor who has a lower rate. So, it makes sense that a higher repeat purchase rate would lead to a stronger company.
A high repeat purchase rate also gives your store some resilience. If 1/3 of your customers are re-ordering on a consistent basis and Google decides to make a change that kills your inbound traffic, you still have 1/3 of your business. It would still suck, but you wouldn’t have to close down at least!
At higher levels, your store could even survive completely on repeat customers.
Let’s look at the metrics behind what a repeat customer actually means.
If you can acquire a new customer for $10 and their order has a $15 margin, you’re doing quite well ($15 margin – $10 spend = $5 profit).
But if they come back for a second order, that entire margin is profit because you don’t have to spend any more to attract them ($15 margin – $0 spend = $15 profit).
And if they order a third, fourth, or fifth time… you get the picture.
What ends up happening is that your marketing and sales costs to acquire a customer get spread out over multiple orders, which means more profit that you can reinvest into acquiring more new customers (or into whatever else you want).
This is just one reason why your repeat purchase rate is a key metric. A 5% repeat purchase rate means you’re losing 19 of every 20 customers but a 30% repeat purchase rate means you’re only losing 14.
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