At Konigle, we are passionate about helping online stores make real money, i.e. profits. One of the realities of selling online is that the first purchase is usually the least profitable. Stores invest money to acquire customers; this is known as Customer Acquisition Cost. To increase margins, one way is to lower Customer Acquisition Costs. But an even better way to reduce customer acquisition costs is to make it zero.
A customer who makes repeat purchases has a customer acquisition cost of almost zero. This makes each repeat purchase highly profitable, and the cumulative effect of all these profitable transactions is significant. The ability of a store to generate more sales from a single customer is measured by Customer Lifetime Value. A higher LTV indicates that customers are making more repeat purchases from the store, resulting in increased profits.
Increasing customer lifetime value is a high-return growth strategy. To identify cost-effective tactics to do so, we conducted a study of 5.5 million shoppers across online stores in more than 30 countries. The aim of the study was to understand repeat purchase patterns and answer the question: Do customers buy again?
Our study revealed that most online stores experience a sharp decline in customer retention. After the initial sale, only 20% return for a second purchase, 8.1% for a third, and 4.3% for a fourth. At the far end, only 0.2% of customers ever come back for a tenth order.
The lifetime value (LTV) of a customer increases significantly with each additional purchase. A customer who makes a second purchase has an LTV that is almost four times higher than that of a customer who only makes a single purchase. Those who return for their tenth order have an LTV that is 70 times higher.
These figures are not encouraging. They demonstrate that most online shops have customers who make a one-time purchase and then do not return. They may have been attracted by a need or incentive, such as a particular item in stock or a great deal, but have no reason to stay.
This situation is not ideal. Online stores should not have “one and done” customers.