Originally published November 9, 2016, updated July 21, 2021
Online B2B sales, although uneven across many industries, are seeing tremendous growth. Sales grew by an average of 10% and reached $1.39 trillion, according to the 2021 B2B eCommerce market report. And in the background, customers are getting more demanding, and the market more competitive.
They are retention and churn. In this post, we’ll explore how eCommerce retention and churn metrics work, show you how to calculate them, and explore some tips on how B2B eCommerce companies can improve their numbers.
Customer Retention and Churn in B2B eCommerce
Retention and churn have traditionally been the KPIs of choice for service providers, where engagement and long-term commitment matters. For example, Netflix can understand its monthly retention and churn rate by comparing its subscribers at the end of the month with the beginning of the month. However, B2B eCommerce purchases are a lot more difficult to calculate since customers purchase according to their unique needs. At first glance, these KPIs may not seem applicable to most non-contractual eCommerce purchases.
At the same time, this doesn’t make calculating retention and churn any less important. These are two essential KPIs that any B2B eCommerce business should track. Whether you’re an emerging B2B company with only a few customers or an established business, keeping track of customer retention will allow you to effectively grow your customer base. Minimizing churn, too, is critical to maintaining customer-centric focus and developing a sustainable business that stands the test of time.
What Is the Customer Retention Rate?
The customer retention rate measures the percentage of customers that continue buying from you over a given period of time. However, we should also define what is a “retained customer” in the scope of B2B eCommerce. Is it someone who bought something in the last six months, or is it someone who has generated a certain amount of revenue? Many businesses set this number themselves, whether it’s a revenue threshold or purchases over a time period.
Why Is Customer Retention Important in B2B eCommerce?
Companies that focus on customer success have long set themselves apart through bigger revenues, margins, and growth rates. That’s because existing customers buy more, in larger volumes, and spend more money with each purchase. It also costs less to acquire them and to keep them happy.
In fact, retaining customers is such a powerful profit driver, that even a 5 percent boost in retention will increase profits from 25% to 59% percent and up.
Unlike B2C eCommerce retention strategies, where good email promotion and low prices can go a long way, B2B eCommerce retention is a bit more complicated. Since B2B customers need to purchase for their business, they are looking for good relationships, easy price negotiation, repeat ordering, and flexibility. And, since B2B relationships are longer and B2B customers spend more over time, a lost customer will have a more damaging impact on revenue.
It’s important to realize that B2B sellers in different industries will experience vastly different retention rates (ie. fast-moving consumer goods versus medical supplies). The KPI for retention, therefore, becomes truly valuable when combined with customer segmentation – that’s when you can fine-tune your marketing messaging to buyer personas and demographics.
How to Calculate Customer Retention Rate?
To determine your customer retention rate, take your customers at the end of your time period, subtract customers that were gained within the same period, and divide the result by customers at the start of the period. You will arrive at a percentage of customers retained over your period.
Some Customer Retention Metrics
You can improve your customer retention rate calculation by focusing on select indicators. These metrics will help you focus on the retention strategies that will work for your business, maintain your store’s profitability, and ensure that you’re on the right path.
1. Repeat customer rate
Your repeat customer rate is how many customers come back instead of leaving for your competitor – to Amazon, for example. This number is a pretty clear indicator of how loyal your customers are to your brand, and how likely they are to come back and purchase more.
2. Repeat purchase rate
Your calculation of a repeat purchase rate will depend on your definition of what constitutes a repeat customer. A repeat customer could make one additional order or buy twice or more from you. Or, you can choose to measure how many customers chose to purchase from you over a certain time period.
3. Purchase frequency
Purchase frequency is how often the average user is coming back for subsequent purchases during a specific time frame. This can make up the lion’s share of a B2B eCommerce business’ annual revenue, so if indicators of customer retention start to slip, so can this one.
4. Time between purchase
Time between purchase shows you how often users go before making a repeat purchase. This value will vary significantly between industries. However, if it takes your clients more time to make a purchase, you can adjust the timing of your marketing campaigns or target them with different messaging.
5. Average order value
With repeat purchase rate and purchase frequency out of the way, you can use your average order value (AOV) calculation to get the most out of each order. This metric refers to how much money a customer spends in your store whenever they make a transaction.
Three Ways to Improve Your Customer Retention Rate
Aside from calculating your metrics, you can survey your customers to find out which one of them are repeat or one-time buyers. Surveys can also help you go deeper into factors that are important to your repeat buyers, and single them out as areas for improvement. One-time buyers may want lower prices, whereas repeat purchasers can be more receptive to loyalty programs or customer service. Here are three primary ways to improve your retention rates:
1. Improve customer service.
An easy-to use customer service portal with a help desk and live chat system go a long way to assuring customers you care. Whether they reach you by traditional methods like phone or email, or (as is increasingly the case) through social media, poor service can quickly turn users away. By the same token, it can also turn a disappointed user into a happy one that will promote your brand within their social circles.
2. Start a customer loyalty program.
In a competitive shopping environment, customers want to feel appreciated by those who they choose to give their business. B2B customers, like their B2C counterparts, respond favorably to loyalty programs, points, and other forms of rewards. You can segment customers with a CRM software and target them with personalized messaging according to their reward program. These significantly contribute to higher order values, purchase frequencies, and other metrics that indicate healthy customer retention.
3. Offer a better B2B experience.
Business customers buy on behalf of their companies, so they usually deal with approval processes and negotiations before a purchase is finalized. Decision-makers like to view their orders and modify fulfillment data if necessary. Other customers prefer to checkout with a guest option, which understandably reduces friction and encourages repeat purchases. Meeting these needs translates to a better purchase experience, all of which can be accomplished with a customizable B2B eCommerce platform.
What Is the Customer Churn Rate?
Customer attrition is a natural component of running a business, but an excessive churn rate is a sign of trouble. A high churn rate means that customers are unsatisfied with your product or service or it fails to meet their expectations. As with digital retention KPIs, calculating churn for B2B eCommerce sellers is a bit more tricky than your average subscription service.
Why Is Customer Churn Important in B2B eCommerce?
While it may seem strange to focus on customers that are lost, knowing your churn rate helps you understand what you’re doing wrong. A change in your churn rate or CCR can mean many things, from customer response to a new product or a pricing policy. It could also represent market shifts: new competitors entering the arena or existing ones changing their strategy.
As mentioned before, retaining an existing customer is cost-effective (as it costs less to sell to an existing user than to a new one). A happy client can act as a source of referrals – that is – increase your revenue. The cost of disappointing a customer is high too: over 51% of B2B customers with a poor experience will avoid your brand. More importantly, only one in 26 unhappy customers is going to complain. The other 25 will simply churn.
What is a bad churn rate? Different industries will have different factors affecting churn. Identify these factors before calculating your numbers, since it will give you a more realistic picture of customer satisfaction and effectiveness of your marketing efforts. Sellers in many B2B industries generate considerable revenue from repeat purchases, so keeping track of where, how, and why customers are churning allows you to act quickly and readjust your resources at the first sign of trouble.
How to Calculate Customer Churn Rate?
Calculating the percentage of churned customers is quite straightforward. Take your customers at the beginning of your period, subtract them from customers left at the end of the period, and divide it by customers at the beginning. You’re not looking at sales from new customers here, only the ones from existing customers.
Some More Customer Churn Metrics
You can reduce your customer churn by focusing on select KPI churn rate metrics. Most of these are feedback-related, as they give you a better understanding of customer intent, which customers are at risk of churning, and the impact on churn on your bottom line.
1. Revenue Growth Rate
Your revenue growth rate is a measurement of how much your revenue changes over a time period. It’s a critical B2B eCommerce metric, and falling revenues are almost always synonymous with customer churn. Here’s how you can calculate it:
2. Customer Satisfaction Score
Measuring customer satisfaction (CSAT) is important, as it gives you an idea of what your customers think about your products, services, and business. Simple surveys can ask whether respondents think their experience was positive or negative. These can be implemented in email form at the end of each support interaction.
3. Net Promoter Score
The Net Promoter Score (NPS) is a survey for measuring customer loyalty. Unlike the customer satisfaction survey, which asks, how satisfied are you with the product or service, the net promoter survey asks, “How likely are you to recommend our company to someone you know.”
Those who respond with a low score are classified as detractors, those in the middle are passives, while top-scoring respondents are promoters. Detractors are likely to churn, and thus, companies can focus their attention on them.
4. Customer lifetime value
The customer’s lifetime value (also known as CLV or LTV) is a metric that measures how much profit an average user contributes to an entire lifecycle. If this number drops and your audience remains the same, your customers are churning sooner. Formulas for measuring CLV can get complicated based on the types of products you sell and customers you serve, but the basic principle is the same: you’re determining the amount of value the average user brings to your business.
For complex B2B eCommerce scenarios with multiple types of customers, it’s wise to use separate calculations for different customer segments.
Three Ways to Reduce Your Customer Churn Rate
Just like with boosting customer retention, there are some things you can do to reduce customer churn. Let’s take a look at some of them.
1. Understand why customers churn.
The first step in reducing customer churn is understanding why customers churn. Interviewing your high-profile customers, running email surveys at purchase thresholds, implementing exit surveys, or enabling reviews in your eCommerce stores are some of the few strategies to collect customer feedback.
2. Know the signs you may lose a customer.
Aside from reviews, you can use your CRM software and eCommerce behavior metrics to track customer behavior. If customers abruptly stopped logging in, reduced their session durations considerably, or keep abandoning their carts at checkout, these are alarming signs. It could all point to the fact that customers are having trouble reaching their goals and are considering looking elsewhere.
3. Help your customers stay.
Ensure you are targeting the right people with the right messages so that they make the most of your product – even if it means changing your marketing strategy. Double down on your documentations and resources, whether it’s blog content, whitepapers, or interactive user documentation. That’s where a CRM and eCommerce platform can help. As an integrated B2B eCommerce solution, OroCommerce relays accurate, real-time customer data between the B2B eCommerce solution and multi-channel CRM system. This way, you make the right decisions to retain customers and cut down on churn.
How Customer Retention Rate vs Churn Rate Apply to Your Business
Now that you understand all about customer retention, customer churn, and how to measure it, how does it all apply to your business?
Customer metrics for a factory machinery parts supplier will be vastly different from a consumer packaged goods wholesaler. With the former, customers will be concluding high-value deals and will have high customer lifetime value, and thus more opportunities to boost revenue through retention.
Nevertheless, both retention and acquisition are oftentimes two sides of the same coin. After all, your existing customer base is oftentimes the single best asset of your business. These customers are familiar with you, your product, and know how you do business.
Should you observe a decreased customer retention or a growing churn rate, it is a clear signal that your B2B clients are not fully satisfied. Consider revisiting your customer loyalty strategies, product and service quality. As customer satisfaction depends on a multitude of factors, you should refine the customer approach across the entire business and align your departments in doing so.
Improve Retention, Lower Churn and Keep Your Customers
Allocate enough time, resources, and energy towards boosting customer retention and reducing churn. Try creative ways of engaging both inactive customers and existing clients, reaching out to the customers via different communication channels, designing customer satisfaction surveys to receive feedback, and constantly tweaking their marketing strategy.
Get your customer service team to thoroughly address crucial requests, minimize response time, and ensure customers can quickly reach support.
Start off by measuring every customer retention rate KPI for each period that makes sense for your business – monthly, quarterly, or yearly.
As you make any changes to your products or services, these metrics can provide great benchmarks along the way. Hopefully, as you start keeping a closer track of these metrics, you will be able to increase your customer retention rates, decrease your churn, and boost your bottom line.
Questions and Answers
What is customer churn in B2B eCommerce?
A churn rate effectively shows how your business manages to retain its customers. Although churn is something most eCommerce companies cannot totally avoid, it is a metric they should track and minimize as much as possible. Businesses with high churn focus more on acquisition, growing much slower as a result.
What is a good churn rate in B2B eCommerce?
B2B eCommerce sellers see a lower churn rate than B2C eCommerce sellers, but the number still depends on the industry and type of customer. According to research by Recurly, the average B2B churn rate is 5%, while the B2C churn rate crossed the 7% mark. Some industries have higher churn rates than others, with IoT products seeing the lowest churn rates and subscription boxes the highest.
Why should I track customer retention in B2B eCommerce?
B2B sellers that track their customer retention rates can learn how to keep customers coming back. This lowers acquisition costs and brings them more revenue. These metrics help identify what percentage of customers return, how many of them purchase month after month, or whether a new product, pricing strategy, or external factors led to a decrease or increase in customers.