% of returning customers is misleading

Reading time: 4 minutes

% of returning customers is misleading 🤯

Hello ECOM growth folks,

JK here. What’s up? ✌️ I hope you are doing great and your results are steadily growing.

I’ve had an exciting discussion with the founder of one of the 7-figure ECOM brands I work with about this money, and I want to share some takeaways with you.

But before we dive deep into that, I want to remind you about last week’s topic that I shared with you:

TOP creative concepts for ads

You learned all about:

🧠 Evergreen concepts every brand can use

🧠 Real examples from each of the concept

🧠 My breakdown to understand why it works

You can read the blog post HERE if you still need to check it out.

Now, let’s move to the topic of this week.

Why % of returning customers is misleading

So often, we think, talk, and listen about how retention is the name of the game for profitability in 2024 when building a profitable ECOM business.

It is, but what should be analyzed to understand the impact?

The most common answers you will hear are:

> % of returning customers

> LTV

> % of returning customer’s revenue

% of returning customers is the most frequent, especially for the Shopify stores, because this is one of the team’s main metrics.

My 7-figure client was the same; when we discussed retention, he showed me this and talked about how successful they are.

As you can see, he has a 28,24% returning customer rate this year.

Which is solid.

The old rule was that if 25-40% of revenue came from returning customers, you had a healthy business and still room to grow. 45-55% is a red alert that you are not as efficient with acquiring new customers, and it’s time for some advanced tactics for acquisition, launching new products, or thinking about expanding to new sales channels or markets.

But in reality, it’s misleading, and you need to dive into the data to understand the impact of your retention.

What do I mean by that?

In reality, it often happens that % of returning customers goes up because:

> We are not efficient with acquiring customers

> We decreased the budget on our main acquisition channels

> We had an extensive email or sms push addressing the existing customers

> We had a product launch that did the majority of the sales on returning customers

> Out of our primary season, the chances of existing customers buying are much higher than new ones

These are just a few.

So I claim that measuring only the MoM trend of % of returning customers is HIGHLY misleading 🙉

Agree?

And when I explained this to the founder, he started thinking about what else he needed to look at.

WHAT TO DO 💡

I gave him some core ideas on what to analyze to understand retention success better:

> MoM revenue growth from the returning customers

> MoM returning customer’s AOV trend

> MoM customer list growth

> MoM growth of revenue per customer on the list

> LTV 60, 90, and 180 days

> Most important = Cohorts 🏆

What is Cohort, and how can it be used? 🤔

By Shopify definition

The Customer cohort analysis report displays data about your customer acquisition and retention. A cohort is defined as a group of customers that have similar characteristics. Customers are grouped into cohorts for the Customer cohort analysis report based on the date they placed their first order.

The cohort analysis table displays data about repeat purchases by customers based on when they made their first purchase. Each row represents a cohort of customers who made their first purchase in the same period.