This article is a guest post from Rael Cline, founder of Nozzle.ai.
Amazon has become a really tough environment to succeed. Thousands of new sellers join the platform every day. CPCs are rising by as much as 50% year-on-year. Amazon’s FBA fulfilment fees have increased by 5% as the platform deals with rising fuel prices and inflation. Traditional methods of selling on Amazon are no longer as effective. You need new and innovative seller strategies, such as Customer Retention.
To succeed on Amazon, you need to do more than merely sell your products. You need to build a brand. Not only does increased Customer Retention lead to a sustainable increase in profits, it also helps you to enhance customer trust, drive customer satisfaction and deepen customer engagement.
In this article we explore why Customer Retention matters and how it can help your business build a brand on Amazon.
Master eCommerce with the 99-point Brand Growth Checklist
Impact on Profits
Naturally, customers returning to buy from you again would lead to an increase in profits for your Amazon business. But what if I told you that increasing Customer Retention between the first and second purchase by 1 percentage point can result in up to a 7% increase in actual profits within 12 months. That’s a 7x multiplier simply by focusing on the customers you already have access to.
We’ve crunched the numbers and discovered that increasing customer retention has a much larger impact than previously thought. If a customer comes back to buy from you a second time, the likelihood of them coming back for a third time is significantly increased. Customer retention rates increase with each purchase, as customer loyalty and trust plays its part.
We can see this in the example below. From the first to the second order, the retention rate is 32% (of the 587,648 customers who bought from the brand, 186,613 customers made a second order). However, the retention rate from the second to the third order jumps to 48%.
Image source: Nozzle Tool. Demonstrating increasing retention rate (%) with each purchase.
Customer Lifetime Value (CLV)
Focusing on customer retention also fosters more value from individual customers – this is known as increasing Customer Lifetime Value (CLV).
Otherwise known as profit per customer, CLV can be defined as the total value per single customer to a business over the whole period of their relationship.
Understanding the average CLV associated with each of your different products allows you to think more strategically, with longer-term trajectories, about Customer Acquisition Costs (CAC). Amazon PPC is really expensive. If you know that a customer will buy from you multiple times, you can budget for this appropriately when thinking about advertising. You can afford to make a loss on the first purchase if you know you will break-even and then make a profit further down the line. This allows you to bid more competitively and keep up with the rising costs of CPCs. Ultimately, you can outsmart and outperform your competitors on Amazon.
Not only does increasing customer retention bring a direct rise in profits. Increasing customer retention works hand-in-hand with boosting customer lifetime value (CLV). This has a significant impact on how you can budget ads and remain competitive on Amazon.
Image source: Nozzle Tool
Building a Brand
To remain competitive on Amazon these days, you need to do more than focus on profits. Because increasing customer retention helps build loyalty and trust among your customers, this can help you build a brand.
If your customers enjoy a positive experience with you – starting with a good product – they are much more likely to order from you again. This process can be improved by creating effective remarketing campaigns. If you understand your customers, using metrics such as Customer Lifetime Value (CLV) or Purchase Intervals, you can make sure you are presenting relevant and enticing ads at the time they are most likely to order. The more they order from you, the more they trust you. The more they trust you, the more likely they are to recommend you to their friends, family and colleagues. This is effectively free marketing. The cycle goes on.
Focusing on customer retention and fostering a positive customer experience is key to building this customer trust and ultimately building your brand on Amazon.
If you only think about your business as if your customers will purchase from you one time, you are missing out on a really key element of brand-building.
You need to focus on customer retention and building your brand to keep up with the competitive marketplace that is Amazon.
Nozzle’s Customer Analytics tool now features a brand new Customer Retention dashboard.
Try it for free with our 14-day free trial, to gain a deeper understanding of your customers and stay ahead of the competition.