Understanding E-commerce Customer Retention: How to Calculate it, Why It Matters, And Ways to Improve It

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Customer retention is a crucial metric influencing a company’s growth and profitability. Many e-commerce businesses focus on attracting new customers, but retaining existing customers is equally important.

In this blog post, we’ll discuss customers retention, how to calculate it, and why it’s important for your business. We’ll also provide tips to help you increase your customer retention rate.

What is the Customer Retention Rate?

Simply put, customer retention rate is a simple metric that businesses use to track and measure the percentage of customers a company retains over a specific period. A high retention rate indicates that customers are satisfied with the product or service and are likely to continue using it.

On the other hand, a low retention rate indicates that customers are leaving and may be dissatisfied with the product or service.

Why is Customer Retention Rate Important?

Customer retention rate is crucial for e-commerce sellers as it impacts their growth and profitability. Retaining existing customers is more cost-effective than acquiring new ones, and loyal customers are more likely to make repeat purchases and refer others. 

Customers retention rate also provides insights into the effectiveness of products or services in meeting customer needs, allowing e-commerce sellers to make necessary improvements. 

How to Calculate Customer Retention Rate

Calculating the customers retention rate goes as this:

If you had 100 customers at the beginning of the month, gained 20 new customers during that month, and ended with 80 customers, then the customers retention rate would be: 60%

((80 – 20) / 100) x 100 = 60%

Thus the formula used is:

Customer Retention Rate = ((CE – CN) / CS)) x 100


CE = Number of customers at the end of the period

CN = Number of new customers acquired during the period

CS = Number of customers at the start of the period

As the average CRR is 30% in e-commerce, if your customer retention score is above this level, it can be good.  However, it can vary depending on factors such as product category, industry, scale of your business, and previous performance in the market. It is important to set a benchmark specific to your business and compare your performance against it. 

To know all about Customer Acquisition, Read Blog: Customer Acquisition in E-commerce: Top Tips.

How to Improve Customer Retention Score?

To boost customers retention, it’s crucial to start with exceptional customer service. Customers like businesses that are responsive, empathetic, and quick to resolve issues. Personalization is another key element. Tailoring your communication and offerings to individual customer preferences creates a stronger bond.

 Boosting your customers retention is super important for your business’s growth. Nowadays, customers have many options, so if they aren’t happy with you, they can quickly go elsewhere. Here are three simple ways to make your customers stick around:

First things first, make sure your customer service is awesome. When customers feel well-treated and have a positive experience with your company, they’re more likely to stay.

Second, keep your products or services up to date. If you’re selling something new, keep it exciting and fresh. Customers like new things, so if your offerings stay interesting, they’ll keep coming back.

Third, find ways to give back to your loyal customers. You could offer them discounts, free shipping, or other goodies when they shop with you regularly. 

We have explained in detail about ways to help you improve the customer retention rate: 

What is Customer Retention: Improve it with The Top 7 Ways 

Remember that it’s not just about following an ‘N’ number of strategies. It’s also about the overall customer journey, like your website should be easy to use, and customers should be able to reach you easily if they have questions or concerns. By caring for your customers and keeping things interesting, you can easily encourage your customers to keep coming back. 

Final Thoughts

On a final note, customers retention rate is a critical factor that impacts the growth and profitability of e-commerce businesses. Improving customers retention requires a nuanced approach that goes beyond just these factors. It requires constant evaluation and improvement of its retention strategies based on customer feedback and data analysis to establish itself as a trusted and reliable brand that fosters long-term customer loyalty.

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