Today, businesses have more data about their customers than ever. For most e-commerce brands, this presents a big opportunity to transform their data into a driver of recurring revenue and long-term growth using paid media channels like Facebook Ads.
Untapping a growth opportunity
Did you know that it costs five times as much to attract a new customer than to keep an existing one? On average, repeat customers make up 40% of sales, while only representing 8% of customers.
Not being fully aware of this cause businesses to dedicate most part of their marketing efforts and investment to customer acquisition. But allocating resources to retain more customers can bring big rewards. As pointed in a study by Bain & Company, a 5% increase in retention can improve profitability by as much as 55%.
Having customers buying from your brand repeatedly translates to increased lifetime value, or the total amount spent from their first purchase to their last, but encouraging re-purchases requires a system of communication in every step of their journey.
Why Facebook Ads?
Facebook Ads give you the opportunity to continue building a relationship with your customers before and after their initial purchase. However, it’s critical that each message you send is relevant to them, and that’s where the purchase history data you own can make a difference.
The key point for sustainable growth through paid media is to understand the different relationship every customer has with your brand, and connect with them showing the right message at the right time. You can do that with the help of segmentation and Facebook Ads.
The Retention Matrix approach
The following method will allow you to optimize the performance of Ad campaigns to existing customers by segmenting your customer data upon your business goals. Note that it is strongly recommended to use a segmentation tool to avoid time-consuming manual work that the process requires.
In order to start creating customer segments, you need to set a segmentation criteria. We will use a framework called the Retention Matrix, which includes two pre-defined segment conditions:
It’s a simple scheme that divides your customer base in 4 different customer types, depending on the transactions that they have made with your business. The matrix has two axes, based on how active and how loyal your customers are.
The first step is to allocate the four different types of customers in the 4 quadrants. You can do this by setting a number of days since their last purchase (recency) and the total number of transactions they’ve made (frequency).
In this example, we’ll consider 90 days since last purchase as the reference to differentiate active customers (under 90 days) vs. inactive customers (over 90 days). For the vertical axis, we will separate customers who purchased only once (one-timers) and those who purchased more than once (loyals). These are the different segment conditions of each quadrant:
The whole point of this matrix is to set a marketing strategy for each of the 4 subsets of customers with the objective of encouraging repeat sales. The resulting action plan would look like this:
The second step is to upload these 4 customer segments to Facebook as custom audiences, so you can target customized campaigns to each of them.
The third and last step of the process is tailoring specific messages for each custom audience. For your reference, here are some examples of Ad campaigns for each of the four action plans:
TOMS features company values by sharing inspiring customer stories around its products.
Remarketing ad by Happy Socks. Offering a discount as an incentive is, in many cases, the trigger to win back dormant customers.
Flywheel’s lead nurturing campaigns offer content that resonates with existing or potential clients, building a relationship and leading them to the buying stage.
GoPro launched a trade-up promo following an Up-Selling ad strategy to get existing customers to buy their recently launched product.
This process can get much more sophisticated and include many more segments based on different products, categories, levels of recency and frequency, etc.. for which specialized software like Relevanzz is needed.
The success of your Ad campaigns using the Retention matrix will highly depend on two factors: selecting the right criteria to build the customer segments and aligning the action plan consistently with the right Ads to each group.
The Customer Segmentation tool for Facebook Ads
Relevanzz is a segmentation platform specifically designed for Facebook Ads. It allows marketers to build advanced customer segments based on transactional data and sync them automatically with Facebook, enabling unlimited possibilities of campaign creation.
Ready to get started increasing your customer retention? Create a free account with Relevanzz, follow the Retention Matrix strategies here described and consistently keep track of your business’s retention rates to get the most out of your customer base.