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The Importance of Repeat Customers and Second Purchases in Growing Your Business

When growing an online business, nothing quite matches up to the feeling of receiving a notification for an order placed by a new customer.

It’s exciting to know that your marketing has drawn in a new client that has not previously engaged with your business - it creates a belief that your business has picked up forward momentum. Once the adrenaline dies down, however, it is important to remember that a new client doesn’t necessarily reflect your business’ growth.

Though retail has always been focused on immediate results, even before e-commerce became popular, a good entrepreneur knows that the cash register is not reflective of a successful business. 

It has to be sustained and gradually nurtured over time - and that means building loyalty through repeat customers.

Let’s dive in and understand why a second purchase or repeat customer is more important than a new client’s first purchase:

Importance of the Second Purchase

There are a few aspects in which the repeat purchases or ‘retention rate’ is important to consider. To make it easier to understand, we can cover these points in segments:

Photo by Visual Stories || Micheile on Unsplash

 

Acquisition VS Retention.

Data shows that acquiring a new customer can cost up to five times more than retaining a customer once their first purchase is completed. 

This means that the cost of customer acquisition is really high and substantial resources are deployed by a business in its quest to acquire a new customer. 

Acquisition Cost refers to the expenses incurred on property, equipment, marketing, and any other necessary expenses either direct or indirect, that are required to entice new customers to make a purchase. 

On the contrary, Retention Rates are a measure of existing customer activity, and can usually be improved with very little additional cost and more efficient utilization of existing resources.

A new customer is likely to make a purchase in only 5% - 20% of all instances. Conversely, the success rate of converting a customer looking for a repeat purchase ranges between 60-70%, and therefore, the cost of retention over acquisition is relatively cheaper over time.

A customer placing an order a second time is also more likely to make a larger purchase, and buy other products in your store to experiment with. This means that you now have a recurring client for not just your best-selling items, but also for any new goods you may decide to stock.

Second Purchases Lead to More Success

This may astound a lot of people, but it has been observed that increasing customer retention by just 5% leads to a growth in profits by 25% - 95%. These are really substantial numbers and highlight the importance of retaining customers to drive up business. 

Clearly, it’s well worth the effort to satisfy customers and convince them to become repeat customers. This may involve giving them options to provide feedback on their customer experience - so that you can directly thank them for positive details and address negative points. 

This leads to the customers developing confidence in the business entity - there are few better ways to retain customers than simply giving them attention and treating their opinions as valuable.

Since only 20% of new buyers are likely to make a second purchase, it is imperative to create an environment that leads to long-term customers. Once a customer has been convinced to make a second purchase, they are far more likely to repeatedly purchase from a certain business.

In tandem, it’s essential to maintain details of customers’ preferences and records of what draws their attention.

Image by author: Graphite Note Cohort analysis

How to Increase the Likelihood of a Second Purchase?

Various concepts can be utilized to increase the likelihood of inducing a customer to make a purchase. These include loyalty programs, referral programs, and other reward programs - here’s a basic overview of some common successful tactics:

● Customers can be enticed to increase the size of their purchase or to buy additional items by providing them benefits by clubbing items together.

● Loyalty programs would reward a customer by providing special prices or discounts when the customer revisits the website.  

● Referral programs can give special offers to an existing customer for encouraging others to sign up. The customer can then use a link or referral code on their next purchase.

● Reward programs can encourage a customer to cross certain value thresholds so that they can avail of special offers or gifts or discounts.

● Gamification is another effective marketing strategy that is employed to reward customers for completing simple tasks or interactive competitions which enhance the customer’s experience. You could give customers reward points, for example, by getting them to share details and join a newsletter.

Utilizing these methods, you can come up with unique strategies to effectively increase your customer retention.

Aside from making your business grow financially, it is also important to study your sales with recurring customers to learn other insights and feedback about your e-commerce business.

A Second Purchase Is a Form of Indirect Feedback

What a lot of e-commerce businesses fail to consider is that a second purchase from a customer is a source of valuable insight into several different business metrics. It also acts as a source of indirect feedback - by placing a second order, the customer tells you a lot without having to say anything at all:

Categories and Products

It is important to pay attention to the various categories and products on your website or online store that receive repeat orders. 

If you’re able to notice purchase patterns within categories, you can then understand where your product strengths lie and what niche market you can capture.

For example, you may notice a certain design/pattern of a given product or a specific category of products performs significantly better than others in the same space. 

You can study what it is about these products or designs that appeals to your customers and expand your product line effectively.

Image by author: Graphite Note ABC analysis

Time Frame: Seasonal Sales

If you notice a specific period during which customers are more prone to place a second order, it may highlight a popular ‘season’ for that particular product to be in demand. You can also study how long it takes for customers to make a second purchase after their first, to gain an accurate account of your retention rates.

Is Your Marketing Effective?

Second purchases are a great indicator of which marketing tactics are effective in enticing your customers to remain loyal to your store. This is important as it can help you strategize methods to make your business grow further.

Analyzing Data

Collecting data of repeat customers can allow you to compare the different demographics you attract. You can compare two different customers, or simply compare two different purchases of the same customer to figure out how they are reacting to your marketing techniques and loyalty programs.

There is a lot of data to be collected and analyzed when it comes to e-commerce and the second purchase is perhaps the most important aspect to study.

 

Conclusion

Only 20% of first-time buyers are prone to making a second purchase. 

This may seem discouraging, but it is reassuring to know that once your customer has made a second purchase, they are more likely to repeatedly purchase similar products, forge a strong relationship with your brand, and recommend your products to friends and family.

Now that you have an understanding of why the second purchase is so important, you are all set to grow your business and find customers that will last forever!

Graphite Note strives to provide businesses with automated statistical models built with the help of predictive analytics to create a time-efficient, pro-tech solution to their data analysis needs. Models like customer segmentation, Cohort analysis of ABC analysis can help you greatly in identifying your customer groups, their behavior, and the best course of action for them.