How to calculate your customer retention rate in Shopify

Along with measuring your Shopify’s store conversion and traffic, success also depends on customer retention in order to complete the wider picture.

You may be able to get attention and convert visitors into buyers; however, are you able to retain them so that they can make a second, fourth, or even tenth purchase? Or are they leaving after one transaction or experience?

You will only know the answer if you have a method for calculating the CRR (customer retention rate), also called repeat purchase rate or re-order rate.

For those unfamiliar with this term, the CRR measures the percentage of customers who come back to your store for another purchase.

How do you calculate it?

Calculating your customer purchase rate in Shopify is quite easy. First, you need to specify the period in which you measure repeat purchases. Is it a quarter? A month? A year?
Once you determine the period, find the total number of customers who:

• Have purchased something from the store in that period. Let’s suppose you have had 200 customers.
• Made a repeat order in that period. Suppose you have had 40 of those customers.

Now divide the total number of repeat customers (40) by the number of customers (200) and multiply by 100 in order to get the percentage.

In this instance, 40\200 * 100 = 20%

Your Shopify customer retention rate will range from 0% – 100% with the higher the percentage, the better. A rate of 100% definitely means each customer made another purchase. A rate of 0% means none of your clients came back.

Also, remember that every industry usually has different levels of ‘great’ rates. This means that every store will be a little different depending on the item mix, as well as which client segments you are targeting.

That said, the customer retention rate from around 20% to 40% is a great range to be.

Customer retention rate impact on your revenue

You should know that the customer retention rate is usually a compounding metric.

The example above will help you only to get the overall rate of your store. However, some of those clients purchased twice or even multiple times.

A customer who orders three times is more valuable than one who orders twice. Right? What happens is that the customer retention rate applies for clients who are placing their second, third, fourth, fifth-order and more, as well. And that means, if you have a 20% rate for every 200 customers, you will have:

First orders – 200
Second orders – 20 (100 * 20%)
Third orders – 4 (20 * 20%)
Fourth orders – 1 (4 * 20%, rounded down)

That is 225 orders from 200 customers, five more than what the basic first-order customer retention rate predicted because the higher the rate and the more customers the store has, the more orders they make over their lifetime, resulting in more revenue.

In conclusion, it is crucial to track and measure your customer retention rate as it will allow you to make more powerful decisions around your Shopify store’s promotion and marketing.

 

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