By Jake Meador | 30 Mar 2020
Almost every successful business thrives because it has returning customers. In fact, one study found that on average 40% of a business’s revenue comes from returning customers.
True, there are a few industries that sell such high-priced items that they are not as reliant on repeat purchases—car dealerships, for instance.
But most businesses need recurring customers or they don’t last; there simply isn’t a large enough pool of potential customers to permanently sustain them on one-time purchases.
You need your customers to be loyal, or at least to visit you semi-often.
How do you make that happen?
In this post, we’ll walk you through how to drive more repeat purchases via SMS marketing. We’ll also talk about how to measure repeat purchases and assess the success of your various efforts to produce more repeat purchases.
This graph from Shopify tells the story well:
In this chart, the smaller line marked 5% at the end indicates a business that retained 5% of its customers after starting with 100 customers buying one $10 product each month. The second line, marked 10%, indicates a business that retained 10% of its customers after starting with 100 customers buying a $10 product per month. As you can see, their growth curves are similar at the beginning, but simply by retaining a larger share of their customers, the second business experiences significantly faster, greater growth than the first. That is why customer retention matters. It helps you to grow your customer base faster which means growing your business faster.
There are some very simple mathematical formulas you can use to assess how your customer retention efforts are going.
Repeat Customers 🔁
The first equation shows you the percentage of your customers who buy more than once.
This is calculated simply by taking your number of repeat customers divided by your total number of customers.
So if you had 100 customers this month and 75 made multiple purchases, your customer retention rate would be 75%.
The second equation you can use will help you understand how often people are coming to your store to make a purchase. This is called ‘purchase frequency.’ It refers to how many times your average customer visited your store in a given period.
This is useful information because once a customer begins shopping with you more often, they start spending more with every individual purchase. One study from Bain and Company laid this out quite clearly:
In our study, the longer their relationship with an online retailer, the more customers spent in a given period of time. In apparel, the average repeat customer spent 67 percent more in months 31-36 of his or her shopping relationship than in months zero to-six. (Figure 2) And in groceries, customers spent 23 percent more in months 31-36 than in months zero-to-six. Higher spending levels were due in part to more frequent shopping and in part to larger transactions. For instance, in apparel, a shopper's fifth purchase was 40 percent larger than the first, and the tenth purchase was nearly 80 percent larger than the first. This aids retailer profitability, because in e-commerce, where transaction costs are largely fixed, larger transactions equal more profitable transactions.
This is why you want to not only retain customers, but you want them to visit your store regularly.
To calculate purchase frequency, use this formula: Number of Purchases / Number of Unique Customers.
For example, if you had 150 purchases made by 100 customers in 30 days, you would have a purchase frequency of 1.5, which means that your average customer visits the store 1.5 times during a 30 day period.
Finally, you should also monitor your store’s average order value, which is simply the average value of each individual order a customer makes in your store or on your website.
This is calculated by taking your total revenue in a given time period and dividing it by your number of orders.
So if you had revenue of $1000 and you had 100 orders in that time, you would know your average order value is $10.
If you are able to retain your customers, you grow faster and make more money.
The challenge, of course, is figuring out how to do that.
There are some things you can do as a business that help, of course: Loyalty programs or reward programs are great for incentivizing people to return by offering them something if they make enough repeat visits. But this only works if your old customers are aware that the program exists and find the benefit desirable. In many cases, customers simply do not know about loyalty programs that stores offer.
What if there was a way to reach more of your former customers to alert them to the various deals you offer returning customers?
SMS marketing is that way.
Why SMS? Simple: People read text messages. One study found that 19 out of every 20 text messages is opened. That’s a 95% open rate. What other channel can you think of that offers that kind of return? Answer: There isn’t one.
This is what makes texting so valuable: simple engagement. People see texts. They mostly don’t see emails, Facebook posts, and Google Ads—and don’t even get us started on direct mail campaigns which are mostly not able to be tracked at all and cost their users a great deal of money.
One of the most powerful things about SMS is that it doesn’t require you to come up with some new, never-before-imagined marketing technique to trick people into buying from you.
You communicate to people like they are people.
You persuade them that you offer something valuable to them.
And they respond by visiting your store.
What makes SMS unique is simply that it actually produces real engagement. But it isn’t magic.
You need to offer people real value and you need to know what real-world problem or desire your business addresses for your customers.
This means you need to have an excellent product. You also need a good pitch to get people to come back.
In some cases, that may simply be to buy from you again because your product is that awesome. But in many cases you’ll want to sweeten the pot in some way.
Loyalty programs are often a great way to do that. Returning customers can earn points of some kind toward a discounted or even free product in the future.
Another option is to offer one-time deals for loyal customers. You can segment your list of phone numbers for texting in the same way you segment email addresses. So perhaps on a special occasion—the anniversary of the store opening, a certain holiday or season, or something similar, you can text your most loyal customers a special deal or discount.
These are just some ideas for how you can encourage people to visit your store again and again.
Ultimately, though, your customer retention is going to rise and fall on the strength of your products and the strength of your relationship with your customers.
If you would like to get started with SMS marketing and particularly with using SMS to reach your best customers or to encourage one-time customers to come back, you can sign up for a free trial with Mobile Text Alerts today.