What is the Difference Between Repeat Rate and Retention Rate in E-commerce?
We have so far understood what retention rate is, how they are calculated, and their significance to long-term growth. Moving to retention measurement specifically in context of e-commerce, another common metric is 'Repeat Rate'.
How is it defined? How is it different from retention rate? Let's understand.
Defining Repeat Rate:
Repeat rate in e-commerce is calculated by identifying the percentage of transactions within a specific period that are attributable to customers who have previously made purchases.
For example, if in March 2025, an e-commerce store records 1,000 transactions, and 600 of these are by customers who have shopped before March 2025, the repeat rate for March would be 60%.
This metric provides insights into the short-term effectiveness of sales tactics and unit economics of the business in the short term.
Distinguishing Between Retention Rate and Repeat Rate:
Retention rate tracks the percentage of customers from a specific cohort who return to make additional purchases after their initial transaction.
For instance, if 500 customers made their first purchase in January 2025, and 150 of them make another purchase in July 2025, the M-6 retention rate for the January cohort would be 30%.
This metric evaluates long-term customer loyalty and is not directly affected by the total number of transactions in July 2025 or the rate of new customer acquisition in July 2025.
In contrast, the repeat rate for July 2025 is dependent on retention rates of all months prior to July 2025, as well as the number of new customers in that month.
Let's understand the distinction with another example.
Consider a scenario where an e-commerce platform launches a marketing campaign in January 2025 that attracts 1,000 new customers and generates 1,250 transactions that month. If only 250 of these transactions are from existing customers, the repeat rate for January 2025 is: (250 / 1250) = 20%.
However, if new customer acquisition were lowered significantly to 250, the repeat rate for January 2025 will be 50%.
On the other hand, if 300 of the January's new 1,000 customers return to make a purchase in July 2025, the M-6 retention rate for the January cohort would be 30%. This number will not be influenced by increasing or decreasing the customer acquisitions in July 2025.
This scenario illustrates how the scale of acquisition campaigns can affect repeat rates in the short term, while retention rates reveal deeper insights into long-term customer engagement.
Takeaway:
Monitoring both repeat and retention rates is crucial for e-commerce businesses. While the repeat rate offers immediate insights into the effectiveness of sales tactics and health of the business at a point in time, the retention rate provides a more robust measure of long-term customer loyalty and business health.
These metrics together enable businesses to tailor strategies that enhance customer engagement at all stages of the customer lifecycle.