Customer Retention Rate: Definition, Formula, and Strategies

Keeping existing customers is usually more efficient than constantly chasing new ones. Many business sources estimate that acquiring a new customer can cost around 5–7x more than retaining an existing one—but market researchers (including Ipsos) warn this “x-times” rule is context‑specific and often oversimplified.

What is Customer Retention?

Customer retention definition: keeping customers who have already bought from you—and encouraging repeat purchases. In ecommerce, retention shows up as a second order, a subscription renewal, or a customer choosing your store again because the experience was reliable.

Research into online loyalty suggests many retailers may not break even on a one‑time shopper when acquisition costs are high—repeat purchases are what make the relationship profitable. One well-known example is Amazon Prime: surveys by Consumer Intelligence Research Partners, reported by industry press, put Prime retention at about 93% after the first year (and about 98% after two years).

Customer Retention Rate: How to Measure It

Customer retention rate is the percentage of existing customers you kept over a period (month, quarter, year). The standard formula is:

CopyCustomer retention rate = [(Customers at end - New customers) / Customers at start] × 100.

Example: Start January with 500 customers. Acquire 100 new customers. End January with 450 customers.
Retention rate = [(450 − 100) / 500] × 100 = 70%.

What is a good customer retention rate? It depends on what you sell and how often customers reorder. For many ecommerce brands, “good” is often discussed in the ~20%–40% range (with 30%–40% commonly used as a quick retail benchmark), while repeat customer rate benchmarks are often in the high‑20s (a widely cited ecommerce benchmark is 28.2%). Consumer subscription businesses often target annual retention around 75%–80%.

Why Customer Retention Matters for Ecommerce

Repeat customers tend to spend more over time. Research from Bain & Company found that in one online apparel study, repeat customers spent 67% more later in the relationship than in the early months. Bain also popularised a widely used benchmark: improving retention by 5% can increase profits by 25% to 95%.

Retention reduces pressure on paid marketing, because returning customers don’t need to be “re-acquired” through ads every time. Loyalty can also create free growth: Bain’s online loyalty research highlights referrals and word of mouth as a highly effective (and economical) way online retailers grow.

Customer Retention Strategies That Work

A strong customer retention strategy combines lifecycle marketing with a smooth customer experience—so the second purchase feels easy.

Email marketing for customer retention.

Automate a welcome/post‑purchase flow, abandoned cart reminders, and a win‑back sequence for inactive customers. Mailchimp documents abandoned cart email automation, and ecommerce guidance treats cart recovery emails as a practical way to bring shoppers back to finish checkout.

Loyalty programmes and rewards.

Keep it simple: points for orders, perks for repeat buyers, and referral rewards. Programmes like Sephora’s Beauty Insider and Starbucks Rewards show how points + tiered benefits can encourage repeat buying.

Personalisation.

Use purchase history to recommend relevant products, add birthday offers, and tailor emails for returning shoppers. McKinsey & Company reports that personalised communications can influence repurchase (78% of consumers in one survey said personalisation makes them more likely to repurchase).

Subscription models.

If reordering is frequent, offer “subscribe and save” or auto‑replenishment. Shopify describes replenishment subscriptions as a model that automates repeat purchase of essentials, and brands like Dollar Shave Club and Birchbox illustrate the “delivered on a schedule” approach.

Customer service and fulfilment.

Fast delivery, clear tracking, and easy returns remove anxiety. In Bain’s research, repeat purchase drivers include correct delivery and easy access to customer service—basics that directly affect ecommerce customer retention.

Post‑purchase engagement.

Send thank‑you emails, delivery updates, and simple product tips; ask for reviews after the customer has time to try the product. Post‑purchase email guidance from Bloomreach and Klaviyo frames these messages as a way to nurture relationships and increase lifetime value.

Exclusive deals for existing customers.

Early access, members‑only bundles, and VIP events make loyalty feel valuable—an idea reflected in guidance on “members‑only” loyalty models.

How to Improve Customer Retention

If you’re asking how to improve customer retention, make it measurable and start small: measure → segment → automate → learn.

• Track your baseline retention rate (and time to second purchase).
• Segment customers (first‑time, repeat, high‑value, at‑risk) so messages stay relevant.
• Start with 2–3 actions (welcome, cart recovery, simple loyalty), then test and refine.
• Use feedback (surveys, reviews, social mentions) to find friction and fix it quickly.

Common Customer Retention Mistakes and Helpful Tools

Common retention mistakes include slow support, too many generic emails, weak personalisation, and painful returns. Ecommerce guidance highlights smooth shopping, relevant recommendations, reliable delivery, and stress‑free returns as drivers of repeat purchases—and personalisation research shows customers notice when experiences don’t feel tailored.

Helpful tools include: email/SMS (Klaviyo, Mailchimp); loyalty (Smile.io, LoyaltyLion); customer service (Zendesk, Gorgias); analytics (Google Analytics, Shopify Analytics); and SMS marketing (Postscript, Attentive).

Conclusion

Customer retention is one of the fastest paths to profitable ecommerce growth. Measure your customer retention rate, then focus on a small set of proven retention strategies—email automations, loyalty rewards, and a stronger post‑purchase experience. Small improvements compound over time.

FAQs

What is customer retention?

Keeping existing customers and encouraging repeat purchases over time.

How do you calculate customer retention rate?

[(End customers - New customers) / Starting customers] x 100.

What is a good customer retention rate for ecommerce?

Many ecommerce brands see good retention around 20% to 40%, with an average repeat customer rate often cited around 28.2%.

What are the best customer retention strategies?

Lifecycle email (welcome, cart recovery, win-back), loyalty programmes, personalisation, reliable fulfilment and service, and subscriptions for repeatable products.

Customer retention vs customer loyalty: what is the difference?

Retention is behavior (customers return). Loyalty is deeper preference and commitment.

How much does it cost to retain a customer vs acquire one?

A common estimate is 5 to 7x, but researchers caution the ratio is context-specific and should not be the only basis for your strategy.