Are you missing the easy points you need for the win?
The NCAA March Madness college basketball tournament highlights the significance of loyal fans and seizing opportunities. Victory is usually only by a razor thin margins. As fans of the UConn Huskies, Storyhub headquarters in Connecticut is thrilled that our men’s team is going into the Final Four in Houston, even as we congratulate Ohio for their win over the UConn women. But all this basketball and cheering fans made us think about e-commerce and your loyal fans.
As an e-commerce retailer, you win new first-time customers every month. These customers are expensive to acquire, but once you’ve won them, they become like easy free throws instead of long three-point shots or tough scores under the boards.
In the 2023 NCAA basketball season, the top 100 players all shot above an incredible 85%, while the worst teams shot a coin toss at 50%. These numbers contrast sharply with the conversion rates most retailers achieve when converting first-time customers into repeat customers. Most reported numbers are in the 10%-15% range, meaning that for every ten shots taken in our basketball analogy, brands hit only one or two shots, which is not good.
The journey from first-time customers to loyal fans goes through their second purchase, which is the key to unlocking LTV, profits, and growth. Although there are many essential metrics in e-commerce, the Returning Customer Rate (Returning Customer Rate = (# of Return Customers / Total # of Customers) x 100) is the closest to capturing this “magic moment.” However, it doesn’t fully capture the significance of that moment.
Put yourself in your customers’ shoes for a moment. With numerous thoughts and distractions competing for their attention and money, the moment you, as a retailer, need is when they pause to think and click buy for their second purchase. Since they are already aware of your brand and have experienced your product, they are more informed than first-time buyers. Although you’re pleased that they’ve come back, a question arises: Why did these customers return? How are they different from those who never made a second purchase? Is it due to age, preferences, gender, demographics, or other factors that could help you find more customers like them?
The importance of answering these questions can vary depending on your store, market, and customers, but if you don’t measure, you’ll never know. At Storyhub, we call this the Fan Conversion Ratio (FCR), which is the ratio of all first-time customers to customers who make a second purchase. It can be measured in different time frames, from all time to monthly cohorts. Measuring it is essential because it provides insights into the value of each month’s marketing spend. For example, 100 new customers that convert at 12% are very different from 15%. By increasing your FCR month over month, you can double your brand’s monthly addition of new repeat customers by making small adjustments. This can be the difference between profitable growth and losing money since one-and-done customers are usually underwater due to the high cost of customer acquisition.
By not measuring your Fan Conversion Ratio, you may be missing the shots you need to win.