Brands that don’t put their returning customers first are missing out on significant revenue. Returning customers spend more, cost less, and can be the difference between a profitable quarter and layoffs, especially in a questionable economy. Now, at a surface level, those are some bold statements. But over the course of this article, we’ll show you exactly why we feel confident making claims like this with six shocking brand loyalty statistics.
TLDR: The customer retention statistics you need to know:
- Increasing customer retention rates by 5% can boost profits by 25% to 95%
- Customers who are loyal to a brand tend to spend 43% more
- 80% of a brand’s profits come from 20% of its customers
- A 2% increase in customer retention can lower ad costs by as much as 10%
- 66% of online shoppers are willing to share a referral code
- You need a loyalty solution built to drive sales for DTC sellers running on Shopify, and the only Built for Shopify loyalty partner is Rivo.
Why investing in customer retention is important: Statistics on brand loyalty.
These surprising statistics present a strong case for why every DTC business should invest more in brand loyalty and customer retention.
1. Increasing customer retention rates by 5% can boost profits by 25% to 95%
According to research conducted by Bain & Company, a 5% increase in customer retention can boost profits anywhere between 25% to 95%. This is an incredibly powerful statistic for any DTC business looking to make the most of their existing customer base. The research shows that businesses that focus on customer retention and loyalty programs can reap significant financial benefits in the long run. This is because it costs much more to acquire new customers than it does to retain existing ones.
Many businesses spend a considerable amount of their budget on acquiring new customers, including marketing campaigns, promotions, and other sales tactics. However, by focusing on retaining existing customers, businesses can reduce their marketing costs while increasing their profits. This is because returning customers are more likely to make repeat purchases, resulting in a more consistent revenue stream.
2. 43% of customers spend more money at brands they’re loyal to
According to data from the National Retail Federation, 43% of customers spend more money at brands they’re loyal to. This is because they know they can trust your products to solve their issues. A recent study found that 58% of customers are even willing to pay more for a better customer experience because they know at the end of the day they'll have to pay somehow to get what they need, so they may as well spend with a brand that they feel connected to.
This statistic highlights the importance of building strong customer relationships that go beyond the initial sale. Loyal customers are more likely to become brand advocates, spreading positive word-of-mouth marketing and referring new customers to the business. This can help businesses increase their customer base and boost their revenue stream without additional marketing costs.
3. 80% of a brand’s profits come from 20% of its customers
The Pareto Principle is an age-old formula that models business trends. It states that 80% of a brand’s profits come from 20% of its customers, while the remaining 80% are typically made up of one-time buyers. For example, if you generate $100,000 in sales within a month and have 1,000 customers over the same period of time, then this means that 200 customers are responsible for $80,000 in sales.
This statistic demonstrates the importance of prioritizing the 20% of customers who generate 80% of the business's profits. Businesses should focus on building strong relationships with these customers to encourage repeat purchases and increase customer loyalty. This can be achieved through loyalty programs, personalized marketing campaigns, and exceptional customer service.
4. A 2% increase in customer retention can lower ad costs by as much as 10%.
As the digital advertising landscape becomes more competitive, DTC brands are facing steep ad costs on popular platforms like Google and Facebook. In fact, the cost per click for Google Ads increased by 4% in Q4 2022 compared to the previous year, and Facebook advertising costs increased by 90% in Q3 2020 compared to the previous year. This means that DTC brands must find ways to reduce their advertising spend and still reach their target audience.
One way to lower ad costs is to focus on customer retention. According to a study by Bain & Company, a 2% increase in customer retention has the potential to lower advertising costs by as much as 10%. This is because loyal customers are more likely to make repeat purchases and recommend the brand to others, reducing the need for expensive ad campaigns to acquire new customers.
To increase customer retention, DTC brands can implement a variety of strategies, such as offering personalized recommendations based on past purchases, providing excellent customer service, and creating loyalty programs. By investing in these retention strategies, brands can reduce their ad spend and focus on building strong relationships with their existing customers.
5. Loyalty program members spend between 12-18% more per year than non-loyalty program members
Loyalty programs are a powerful tool for DTC brands to increase customer spending and boost profits. According to research from the Harvard Business Review, customers who join loyalty programs spend between 12%-18% more per year than non-loyalty program members.
One reason for this increased spending is that loyalty program members feel a sense of exclusivity and reward for their continued business with the brand. They may also feel a sense of obligation to continue making purchases in order to reach the next level of rewards within the program.
Another reason for increased spending is that loyalty programs often offer personalized rewards and incentives that are tailored to the customer's past purchase behavior. For example, a loyalty program may offer a discount on a customer's favorite product, or reward them with a free item after making a certain number of purchases.
To create an effective loyalty program, DTC brands should consider offering a mix of rewards and incentives that are personalized and relevant to their target audience. They should also make the program easy to understand and use, and communicate the benefits of membership clearly to customers.
6. 66% of online shoppers are willing to share a referral code
Word-of-mouth marketing is a powerful tool for DTC brands, as customers are more likely to trust recommendations from friends and family than traditional advertising. Referral programs are a great way to encourage existing customers to share their positive experiences with others and drive new business to the brand.
According to a HubSpot survey, 66% of online shoppers are willing to share a referral code to earn greater rewards. This indicates that loyal customers not only spread the word about a brand to loved ones, but also share their enthusiasm for their favorite brand's loyalty program.
To create an effective referral program, DTC brands should consider offering incentives that are valuable to both the referrer and the referred. This could include discounts, free products, or other exclusive rewards. They should also make the referral process easy and seamless for customers, and communicate the benefits of the program clearly.
In addition, DTC brands should track the success of their referral program and adjust their strategy as needed. This could include experimenting with different incentives, targeting specific customer segments, or promoting the program through different channels.
By leveraging the power of word-of-mouth marketing through a strong referral program, DTC brands can drive new business and increase customer loyalty over time.
Invest in Customer Retention and Loyalty
These statistics on customer loyalty present a strong case for why every DTC business should invest more into brand loyalty and customer retention. Investing in customer loyalty not only helps you retain existing customers, but it also helps you attract new ones. With the right loyalty solution, your DTC business can increase sales, lower ad costs, and build strong relationships with your customers.