For e-commerce retailers, a successful sale isn’t considered complete once a customer finalizes their purchase during the checkout process. The process ends when the purchase arrives at the customer’s home on time and in good condition. And if it arrives late, it could be the last purchase the customer makes.
One study found that 69% of consumers “are much less or less likely to shop with a retailer in the future if an item they purchased is not delivered within two days of the date promised.”
While replacing these lost customers with new ones may seem like a simple solution, it’s not necessarily a smart one financially. Acquiring a new customer can cost anywhere from five to 25 times more than retaining an existing customer (numbers vary by study and industry). Whether the actual number lies closer to the low or high end of that scale, retaining customers is best for your business.
The best way to understand the real impact late deliveries can have on customer retention is to learn a few important metrics, which can also be key to measuring your business’s own success in keeping your customer base satisfied.
E-Commerce Metrics to Know
Customer Acquisition Cost
Customer acquisition cost (CAC) is the cost of convincing a potential customer to buy a product or service. This also includes the cost of advertising, marketing, and sales. Keep in mind that acquiring a new customer is only worthwhile if they spend more than your CAC, or else you won’t make a profit.
You can calculate your customer acquisition cost by dividing the dollar amount spent on customer acquisition during a period by the number of customers acquired during that time. For example, if a company spent $100,000 on advertising, marketing, and sales during a year and acquired 1,000 new customers, it spent $100 to acquire each new customer (100,000 ∕ 1,000 = 100).
Customer Retention Rate
Customer retention rate (CRR) measures the percentage of customers you’re able to keep during a specific period.
The Office of Consumer Affairs at the White House estimates that loyal customers are worth up to 10 times as much as their first purchase. That being said, an increase in customer retention of only 5% can cause profit increases between 25% and 95%.
To calculate customer retention rate, you need to first gather a few numbers:
- The number of customers at the start of the period (S)
- The number of customers at the end of the period (E)
- The number of new customers acquired during the period (N)
Because CRR is concerned with the number of customers retained throughout the period and not the number acquired, subtract the number of new customers from the number of customers at the end of the period. Then divide the resulting number by the number of customers at the start of the period and multiply that figure by 100 to get a percentage.
In other words: CRR = [(E-N)/S] X 100
For example, imagine that a business started the year with 200 customers and had lost 15 customers and gained 10 customers by the end of the year. The business would have 195 customers at the end of the year.
[(195-10)/200] X 100 = 92.5%
The business’s customer retention rate for the year was 92.5% — a great percentage, considering that the average CRR is below 20% for most industries.
[Related: Infographic: How to Create the Best Buying Experience for the Customer]
Customer Lifetime Value
Customer lifetime value (CLV) predicts the total revenue a business will receive from a single customer over the entirety of their business relationship. CLV increases the longer a customer continues to purchase from a business, so customer retention is key.
Businesses can use CLV to determine which customer segments are most valuable and then focus marketing and sales efforts on attaining this customer type. CLV can also help inform decisions about how much to invest in retaining existing customers and acquiring new ones.
To calculate customer lifetime value for a particular customer segment, use this formula:
CLV = average purchase value X average purchase frequency rate X average customer lifespan
Essentially, the customer segments that spend more per purchase, purchase more frequently, and are more loyal, have the highest customer lifetime value.
The Cost of Late Deliveries
Now that these metrics are clear, the true cost of late deliveries will be as well.
Here are some statistics to keep in mind:
- 69% of consumers “are much less or less likely to shop with a retailer in the future if an item they purchased is not delivered within two days of the date promised.” (source)
- 17% of respondents will stop shopping with a retailer after receiving a late delivery one time. (source)
- 55% of respondents will stop shopping with a retailer after receiving a late delivery two to three times. (source)
So how do late deliveries affect your business?
Late deliveries decrease your customer retention rate. In turn, late deliveries drastically decrease your customer lifetime value (and your return on whatever you spent to acquire the lost customers in the first place).
What’s more, late deliveries also increase your customer acquisition cost: When you lose customers due to late deliveries, you can expect negative word of mouth and online reviews, which will make it harder (and more expensive) to acquire new customers.
[Related: How to Create an Effective Return Policy]
How to Prevent Late Deliveries & Boost Customer Lifetime Value
If your business already has a history of late deliveries, you can do little to accommodate affected customers except offer refunds or discounts. However, to prevent late deliveries in the future, you can:
- Overestimate how long shipping will take and under-promise.
- Partner with a reliable courier, audit your shipments, and claim refunds for any late deliveries.
- Use a parcel tracking service to track shipments in real time.
- Send customers real-time updates about package location and delivery issues.
- Audit your shipments and individually address the reasons for delayed deliveries that are most prevalent.
Of course, the most effective and least time-consuming way to prevent late deliveries is to outsource your fulfillment to an experienced third-party logistics provider (3PL), such as Hollingsworth.
Hollingsworth ensures on-time delivery with comprehensive resources that enable efficient scaling, preventing delays due to spikes in shipment delivery volumes, and state-of-the-art technology, offering complete visibility into shipments and preventing delays due to lost packages, vehicle breakdowns, failed delivery attempts, traffic, and more.
By preventing late deliveries, Hollingsworth can help you retain customers, boost your customer lifetime value, and increase your return on investment. All you’ll have to worry about is what to do with the time and money you’re saving.
Read more about Hollingsworth’s fulfillment and distribution services or contact us for more information.