The Ecomm Analyst

When I open a new brand’s dashboard for the first time, the first metric I look at isn’t AOV or conversion rate or anything related to the current month. It’s returning customer rate over the trailing twelve months.

If the number is above 30%, I’m dealing with a real business. If it’s below 20%, I’m dealing with a marketing engine that’s spending money to acquire strangers and may or may not be making any of it back. The middle is where most brands live and where the most interesting work tends to happen.

Returning customer rate is undervalued because it’s lagging. You can’t move it this month. You can move conversion rate this month. You can move AOV this month. You can’t move whether the customer who bought from you eight months ago is going to come back, because they either are or they aren’t, and any work you’re doing now will only show up in the metric a year from now.

Most operators optimize for what they can move this month. This is rational, but it’s also why so many DTC brands look like they’re growing right up until they aren’t.

A high returning customer rate covers a multitude of sins. Acquisition can be expensive. AOV can be modest. Conversion rate can be middling. If the customers you do acquire come back, the math works. A low returning customer rate, by contrast, means you have to win on every other dimension simultaneously, and most brands cannot do that for long.

I usually look at the cohort version of this metric, which is the percentage of a given month’s new customers who place a second order within 365 days. (I run this in ThoughtMetric.) The cohort version tells you whether retention is improving, getting worse, or holding steady, which the rolling number alone can’t.

The things that tend to actually move the metric over a 6 to 12 month horizon are, in roughly the order I see them work, product quality (by far the biggest lever, because if the product doesn’t deliver, nothing else matters), post-purchase experience (unboxing, shipping speed, the first email after delivery, all of which compound), reorder prompts at the natural reorder window for the category (mechanical for consumables, creative for durables), and loyalty programs of the real kind, with real economics, not points-for-points programs nobody understands.

The things that don’t tend to move the metric, despite what marketing decks claim, are email frequency above a baseline (more sends do not produce more loyalty, often the opposite), discounting (paying customers to come back is not the same as building a brand they want to come back to), and brand storytelling in the way the term usually gets used (stories support buying decisions, they don’t replace them).

Watch the metric. Move it slowly. The compounding is enormous.