It’s the end of the quarter, we are checking trends of the last months, and we notice that our customer retention rate has decreased. Initially, this is not alarming and the trend does not have a huge impact on the overall revenue yet, but you have to keep in mind that retention is stealthy.
Shrinking customer cohorts can go unnoticed for weeks, maybe months, but over time a low retention rate can kill your business. Your acquisition costs will need to increase just to maintain an acceptable customer base, and you risk reaching the point when you will feel like you are trying to get water with a leaky bucket.
“If you are crushing it on acquisition, but your retention is horrible, you are living on borrowed time” – Kip Knight, senior advisor at Drake Star Partners.
This applies to every industry, but especially to fashion, where competition increases year over year, and it’s getting harder for brands to position their unique voice. In this article, we will try to understand what can cause a decrease in retention rates in your e-commerce shop, and what you can do to limit the damage and get back on track.
What is a good customer retention rate?
But first things first: what is a good customer retention rate anyway? This can vary wildly depending on market, industry, brand et cetera. Fashion, especially when it comes to fast fashion, tends to generate less loyalty than other products in customers, who are more prone to jump on new trends and switch brands easily. According to the latest data, the average customer retention rate in apparel is somewhere between 9.7% and 11.6%, not even close to the average values in industries such as automotive or media for example.
However, this should be taken with a grain of salt. When evaluating retention rates in your e-commerce, the element you have to take in consideration is not retention rate per se, but the proportion between cost per acquisition and Lifetime value (LTV). As a rule of thumb, the rate should be around 1:3. Meaning that to afford a cost per acquisition of 50USD, you need to make sure the LTV stays around 150USD.
What are the benefits of customer retention?
Increased retention rates mean:
1. Lower costs per acquisition
The longer your customer stays with you, the more likely they are to act as Brand Ambassadors and generate referrals. Competitors are multiplying, and advertising real-estate is getting busier and busier. As a consequence, CPCs and CPMs have been skyrocketing in the last few years. Are you sure you can afford to give up on the multiplying effect of a happy customer?
2. Profit increase
As shown in a research by Bain & Company, a 5% increase in customer retention rates can boost profits by as much as 95%. Loyal customers spend more, more often, and for a longer time. Worth keeping them around!
What causes low customer retention?
The reasons behind a low customer retention rate vary, and can range from imprecise product descriptions to sizing issues – and everything in between. In the following section we will be trying to identify the main reasons why our customer retention rate has decreased.
1. Lack of brand identity
We thought shopping was a fun, relaxing activity perfect to take our minds off things. And then Millennials and GenZers came along. New generations shop, but do it in a very different way. They want brands to stand for something, to mean something, to have a purpose. Just launching a fashion ecommerce store and hope for the best won’t cut it anymore. You need first to define who you are. Which values do you represent? Who are you talking to?
If your customers do not feel represented by your brand, if they don’t feel any emotional attachment to it, they will not stick around, it’s just as simple as that.
2. Customer support not up to the challenge
Often overlooked, the customer support team is nevertheless a fundamental part of the retention strategies of every ecommerce. It is often the only human touchpoint between customer and your brand, and excellent customer experience should always be a priority. Check your response time, keep a low resolution time, but above all make sure the communication is friendly, professional and empathetic.
3. Not asking for feedback
Many fashion ecommerce avoid including customer reviews altogether, fearing negative reviews could be detrimental for the brand. But that’s a mistake. Shop owners should not fear negative feedback, but see it as an opportunity to improve, and above all as an opportunity to show potential shoppers how their brand reacts to an unhappy customer. Killing them with kindness, that is. According to a study published by Pew Research, 77% of shoppers confirm that it’s important for them to be able to read product reviews from other customers before purchasing.
4. Sizing issues
Nothing worse than purchasing a beautiful dress for a party, waiting 2 weeks for the delivery and then realizing that…it doesn’t fit! Sizing is still a massive issue for fashion, and a common reason behind decreasing retention rates.
“We discovered that almost all participants considered the freight aspect a real barrier. This concern was mainly related to the risk of having to return the purchased garments” – Hallberg et al. / Eurasian Journal of Social Sciences, 5(3), 2017.
But luckily enough, there’s an easy fix. The next generation of sizing solutions for apparel solves the problem at its source, right during the purchase process. By providing accurate size recommendations based on the shopper inputs, artificial intelligenceI and machine learning are finally solving sizing, and bringing online shopping one step closer to the “real life” experience.
As you can see, there are several reasons why your customer retention rate might have decreased, with sizing-related issues being one of the most important ones. If you are running a Shopify apparel ecommerce, take a look at our reviews of the best Shopify Apps for clothing stores.