E-Commerce CLV: Only One-Third of Customers Make A Second Purchase During the First Year

June 4, 2015

This article is included in these additional categories:

Digital | Retail & E-Commerce

RJMetrics-E-Commerce-Customers-Repeat-Purchase-Probability-June2015Only 32% of customers make a second purchase during their first year as a customer, says RJ Metrics in an analysis of 176 e-commerce retailers and 18 million customers in North America and Europe. But while the probability of a customer making a second purchase is relatively low, once that threshold has been passed the likelihood of the customer making more purchases grows significantly.

Indeed, 53% of customers who had made a second purchase came back to make a third, and of those making a third 64% returned to make a fourth purchase. That repeat purchase probability grows to 83% of buyers making a 9th purchase going on to make a 10th. In other words, as the report states, “a customer’s repeat purchase rate steadily increases with each incremental purchase.”

(It’s worth noting that the analysis was limited to companies with total revenue in the $1M-$1B range, excluded customers with a customer lifetime value above the median of the 100th percentile and below the median of the 1st percentile, and further limited to customers who made their first purchase between January 2009 and January 2014. For the purposes of the report, customer lifetime value is calculated as the sum of all purchases a customer makes in a given time period.)

The study demonstrates that engaging customers and encouraging a second purchase within the first 30 days is critical, as 69% of a customer’s first-year spend comes during their first 30 days as a customer. Specifically, a new customer was found to spend an average of $154 over their first year of doing business with an e-commerce retailer, with $106 spent during the first 30 days.

Looking past the average buyer, the analysts report huge variations in customer purchase behavior, with the top 1% (by 365-day value) spending more than all of the lower 50% combined, a pattern that generally holds steady regardless of the industry segment. As one might expect, those customers in the top quartile based on 365-day customer lifetime value (CLV) continue to spend more over time, while other CLV quartiles have generally made the vast majority of their year-long purchases on the first day.

In other interesting study results:

  • The fastest-growing e-commerce retailers by revenue quartile showed a CLV 79% higher than others;
  • Among industry segments, the housewares/home furnishings category has by far the highest 365-day CLV ($391.88), while mass merchants ($53.81) have the lowest; and
  • Keeping with industry segments, health and beauty customers make the most average number of orders in the first 365-day period (2.67), while customers of computers and electronics retailers make the fewest (1.14).
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