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Klaviyo recently dropped a bombshell of a report.
Here’s what they said:
“The retailers with high retention (over 50%) were either declining in revenue, or growing very minimally. Whereas the retailers with lower retention (under 50%) were mostly experiencing growth, and often at very high rates.”
Wait… what?
They even included a graph to back it up:
Holy shit?!
What happened to “it’s five times cheaper to retain a customer than to acquire a new one?”
Does this mean retention is completely useless?
Before we pour cold water on email marketers (including myself), let’s pump the brakes a bit.
I sent this to Alexandra Greifeld from No Best Practices (who I consider way smarter than me on this subject).
Here’s what she said:
“They might be confusing correlation and causation here.”
“Typically, brands that are scaling fast have lower retention rates because they’re depending more on casual/impulse buyers to grow.”
In other words, it isn’t the low retention rates that are enabling growth.
It’s the growth that’s driving down retention rates.
But there’s more to the story…
“The most interesting finding was that the most successful companies (in terms of total revenue growth) often retained far fewer of their customers, but succeeded in increasing the spend of those customers.
The least successful companies retained many more of their customers, but those customers’ spend decreased.”
That’s huge.
And when you think about it, it makes sense.
Most brands obsessed with retention throw discounts at every single customer even though many of them would have come back to buy anyway.
It cuts into profit margins and destroys a ton of value.
So… what’s the solution?
Drew Sanocki from PostPilot had a great take on this:
Basically, you figure out who are the type of people who come back to buy again even without any marketing.
That’s called your baseline retention rate (I talk about this more in my recent article).
You then take the people who didn’t come back to buy and ONLY target them with your offers.
Most brands don’t get this because the email attribution settings trick them, making it seem like the winback campaigns are producing amazing results, when in reality, they’re destroying value.
All that said, there’s still a lesson to be learned from Klaviyo’s report, which is:
Brands that prioritize acquisition grow faster.
It’s very difficult for e-commerce companies to grow without a steady stream of new customers.
The graph below by Pedro Porto Alegre puts it into perspective:
You’re always better off dialing in your acquisition (like crafting better Meta ads) than A/B testing email subject lines or time delays in cart abandonment flows.
That’s it from me.
Have a great weekend,
Siim
P.S. Have you checked out my latest Emails that Sell analysis? This one talks about writing emails in a unique brand voice.
