Amazon Customer Retention Rate: Why Increasing it Matters for Amazon Sellers
State of Play for Amazon Sellers Right Now
The current environment for Amazon Sellers is pretty tough. That's why a strong customer retention strategy is necessary.
Amazon has increased its FBA fulfilment fees (as well as a host of other fees) by around 5%.1 CPCs are also rising by as much as 50% year-on-year according to Marketplace Pulse.2
Source: Marketplace Pulse
This is further compounded by the global supply chain issues and related rise in input costs. With more than 6 million new sellers on Amazon’s platform and thousands more joining daily, it’s a really tough environment to succeed!
Whilst the new types of data from Amazon have been really helpful such as the search query dashboards and brand analytics performance, it’s still quite difficult to put all these datasets together into a coherent story of what you should do to improve your Amazon business.
Brand Building as a Differentiator
In order to succeed, sellers need to think about building a brand on Amazon, not merely selling products. One of the most powerful ways is to start with your most valuable asset - your customers!
Unfortunately understanding your customers’ behavior is not an area Amazon gives Sellers the data for. Wouldn't it be powerful to understand:
- How profitable is a typical customer?
- How many orders does a customer place?
- How long does it take between orders?
- Do they buy the same product over and over again or do they switch to a variation (different flavor or a large capacity for instance)?
The rest of this article will focus on one piece of this puzzle - customer retention rates.
What is a Customer Retention Rate and Why does it Matter?
The customer retention rate is the number of customers who have bought two or more times from you as a percentage of the total number of customers who have bought at least once from you.
In our example below, there were 587,648 customers who bought the product once in the past 2 years. Of those, 185,613 bought again. This means the customer retention rate from the first to the second purchase is 32%. Note this doesn’t have to mean they bought the same product again. It could be any product because what you’re interested in is a customer retention rate, not the repeat order rate for a product. By using the customer retention rate, we can capture scenarios where the customer buys a variation next (different flavor, size, capacity) which is a much better measure of customer loyalty and brand affinity.
It’s worth pointing out that from the second to the third order, the customer retention rate is 46% (i.e. 89,970 customers out of the 185,613 bought a third time). So we can see that retention rates get stronger with each order as customer loyalty works its magic.
Source: Nozzle's tool
This effect is so strong that we crunched the numbers to find that a 1 percentage point increase in retention from the first to the second purchase can result in up to a 7% increase in actual profits within 12 months - that’s a 7x multiplier!
In the example above, increasing the 185,613 by 1,856 additional customers (i.e. 1%) to 187,469 would mean a 7% increase in profits.
The reason it’s so powerful is because some of those people who buy a second time go on to buy a 4th (or 5th) time. And crucially, you don’t have to pay anything each time they purchase again, unlike when they buy the first time round where you could be paying Amazon PPC costs for example.
I’m Sold! But How Do I Increase Customer Retention on Amazon?
Good question! Whilst Amazon doesn't have traditional tools like abandoned cart reminder emails or post-purchase email flows that encourage up or cross sells, there are a few ways to try increase customer retention:
Amazon’s advertising tools allow for re-marketing to customers who have previously bought from you. Sponsored Display ads on the search side as well as Amazon demand side platform (display ads) allow for the targeting of customers who previously bought within a specific time frame. And guess what - Nozzle provides the information to understand when to re-market:
Source: Nozzle's tool
This chart analyzes the time it takes to make a second order given someone made the first purchase. So we can see that around 20% of the time people ordered again from days 0 - 7 and around 25% of the time people ordered between days 30 - 60. This can help you time your re-marketing campaigns to make sure you get the most bang for your buck. The line chart shows you that after 90 days, around 80% of the people who would have bought twice have already done so, so you may want to think carefully about continuing to spend beyond 90 days.
Source: Amazon's console
Another way to increase customer retention is to include package inserts in the actual delivery. You need to be careful to remain within Amazon’s Terms of Service so you need to ensure you’re sending the customer back to Amazon (possibly with a coupon code). Don’t ask for any reviews, and actually provide some extra value in the first place. Some examples include extending the warranty of your product or if you’re selling food ingredients, you can include recipe ideas.
Amazon’s Customer Engagement Tool (Beta)
The Customer engagement tool allows sellers to send emails to “followers” of your brand when launching a new product. It’s limited right now as you can’t customize the text or image. It also only covers limited use cases such as a new product launch). But, if they extend the tool to more use cases (abandoned carts, cross or up sells for instance), this could become one of the most powerful ways to drive customer retention.
Source: Example email Amazon's Customer Engagement Tool
Customer retention can be a very powerful tool to grow your brand and the overall profitability of your Amazon business. Nozzle’s customer analytics tool and expertize in this area have helped hundreds of brands gain an edge over their competitors and accelerate their Amazon journeys.
Try it out for yourself with our no-commitment 14-day free trial!
1 Lab960, 'Amazon Fees 2022: 5 Major Changes For Sellers & How To Prepare,' Link here.
2 Marketplace Pulse, 'Amazon Ads Are Getting More Expensive,' Link here.