What is Customer retention cost?

In the E-commerce business, while acquiring a new customer is essential for growth, retaining the existing ones is equally important for long-term sustainability. The cost involved in keeping the existing customers engaged with the brand or business is broadly referred to as Customer Retention Cost. It encompasses a range of activities like customer support, loyalty programs, re-engagement campaigns, remarketing, personalized discounts, and other promotional initiatives targeted at the existing customer base.

Formula

Customer retention cost CRC = Total Retention Marketing Cost / Total Retained Customers

Example

To illustrate, if an E-commerce company spends $20,000 per month on various customer retention initiatives and manages to retain 4000 customers over that period, their Customer Retention Cost is $5 per customer.

Why is CRC important?

Understanding the Customer Retention Cost is crucial since it helps evaluate the effectiveness of your customer loyalty measures. If your CRC is increasing, it may indicate that your retention strategies are not working effectively, or you’re spending too much on inefficient methods. A healthy CRC significantly contributes to high Customer Lifetime Value (CLV) by optimizing customer loyalty investments.

Which factors impact CRC?

• Customer satisfaction level
• Quality of products and delivery
• Cost and quality of customer support
• Value provided to the customer
• Competitor strategies and market dynamism

How can CRC be improved?

• Segment customers and create personalized strategies.
• Enhance customer experience with responsive support and easy navigation.
• Focus on product quality and service to ensure customer satisfaction.
• Offer value through loyalty points, special discounts, and unique deals for repeat customers.
• Build a strong relationship through regular communication and newsletters.

What is CRC’s relationship with other metrics?

Customer retention cost CRC shares an inverse relation with the Customer Lifetime Value (CLV). Higher the CRC, lower tends to be the CLV and vice versa. It also has an indirect correlation with Customer Acquisition Cost (CAC). A good retention strategy could lead to word-of-mouth publicity reducing CAC. Furthermore, a lower CRC might translate into a higher Profit Margin per Customer.