Retention vs Engagement Rate: Which Metric is Best

engagement vs retention rate

A good starting point for optimizing your ecommerce store is to focus on doing more of those tasks that work and generate revenue. Although this sounds simple and it might be obvious to you which channels and tasks are performing well, it is still a good practice to calculate your revenue per traffic source. This is a relatively simple task (traffic sources – Google Analytics) once you have turned on Google Analytics for ecommerce.

Revenue Per Traffic Source


Once activated you will need to wait 24 hours before the data you need becomes available in GA. Make sure your ecommerce platform has it switched on, most platforms have a setting for this although some might need an additional plugin.

Once you have data rolling in break down your total revenue by channel, including social, organic search, paid search, referral, and all other major sources. With this data, you can better optimize your overall strategy. Start by doubling down on what works and then review the rest.  

You can find your Ecommerce report via the GA menu:- >

Acquisition > All Traffic > Source / Medium, here select Ecommerce from the drop-down.

Once you understand where they are coming from then you can focus attention on understanding what makes your users become customers.

Buyer Motivation

The metrics you measure and the insights gained from the data provide the foundation upon which conversion rate optimization (CRO) techniques are based, used to increase personalization and ultimately sales. Improvements can be made through constant refinement and A/B testing to content, throughout the customer journey down the conversion funnel.

Your retention rate and Engagement rates are both valuable metrics for this investigation, akin to a canary in a coal mine. These metrics provide an early warning system when something is wrong, for example, lackluster response with a sales promotion. It also provides valuable intel about what else you could offer to visitors or users to increase sales. In addition, both these rates provide great KPIs to work towards for sales, marketing teams, or integrated smarketing teams.

So what’s the difference between retention rate and engagement rate and how should they be used for CRO?

Retention Rate

Your retention rate provides data on how effectively you are retaining customers, keeping them coming back for more, but it does not look at exactly what they were doing while on the website when they do return. 

For an ecommerce website, this translates into gradually warming them up to buying via a conversion funnel. An improving retention rate means you will have more potential customers in the conversion funnel. It is a vital step to increasing sales because returning customers are more likely to purchase than new website visitors. 

For CRO purposes, it tells you precisely when to intervene and provide personalized messages, to incentivizes further progression down the conversion funnel (discount offer perhaps)

Engagement Rate

Your engagement rate is something usually analyzed when looking to improve a piece of content, particularly if it is posted on social media since this is a key metric supplied by social media platforms. 

It provides information about the level of engagement a piece of content is achieving within a specific audience and is the only way to gauge how effective your social media campaigns are in some cases.  

This is achieved by counting how many users remain active over a defined period of time. A higher consumer engagement is an indicator of great content and when taking an overview, then a great content strategy. 

It also suggests that you have correctly defined persona’s and provided highly relevant targeted content designed to lead each persona type down the conversion funnel (if looked at on a per persona basis).  

How can you use CRO to improve this? Simple AB test your content, make it shorter, longer, try multiple title versions, etc.

Net Promoter Score

Another great metric to measure is the Net Promoter Score. In order to measure this, you need a method in which it can be collected.  

It’s no longer enough to canvas your customers once a year with your annual customer survey. These days NPS is collected in real time, like a stock market ticker. Every opportunity should be taken to elicit feedback via NPS, why? Because it’s anonymous, quick and easy, and most importantly non-invasive when compared to all other methods of collecting customer feedback. 

As such it’s an early warning system that something is wrong enabling you to correct any issues identified before serious damage is inflicted.

Customer Acquisition Cost (CAC) + Lifetime Value (LTV)

In order for any business to make money, the customer acquisition cost has to be less than the lifetime value, however, this can be difficult to gauge since it is a prediction of the future revenue from a customer which is far from simple. 

Essentially what you would do to calculate this is to sum up the total number of sales made to the customer then extrapolate future earnings (several different methods of this) from this and then minus the customer acquisition cost. 

Quite frankly it’s a pain to dig back into past data to calculate LTV, therefore we prefer to look at the average order value. If your average order value is greater than the customer acquisition cost then you are onto a winning product or product category. 

The difficult question for new ecommerce businesses is how much time and effort to spend/invest into raising the average order value, especially if you can’t lower your CAC. Sometimes it is just better to cut your losses and try something new. Not all product niches are profitable.

Shopping Cart Abandonment Rate (SCAR)

SCAR is calculated by dividing the total number of completed purchases in a given period by the number of shopping carts used within that same period. Subtract the result from one and then multiply by 100 for the SCAR percentage rate for that period.

On average, around 70% of all shoppers will abandon their shopping cart online, therefore it makes a great metric to measure since there is a lot that can be done to reduce this average SCAR figure, this is typically done using conversion rate optimization techniques and OptiMonk.

Take care not to take this average figure too seriously because cart abandonment rates vary greatly between industries, and also from country to country. For example, in the health and beauty sector SCAR is around 4-5% lower than the average SCAR, while consumer electronics tend to be 4-5% higher.

Various surveys tell us that the biggest reason for SCA is the lack of free shipping, so if you are not providing free shipping then you need to calculate the cost/benefit ratio to see if it would pay to provide it. Currently, around 50% of all online retailers supply free shipping.

Return Rate

For every 10 purchases via your ecommerce store, you should expect around 3 product returns, this is a figure that is 3x higher than in physical stores. Again this varies from country to country and industry to industry. 

As an example, the UK has one of the highest return rates in the world. Not surprisingly your returns policy and page are one of your most important, and typically, what they are looking for is a simple no-questions return policy with FREE returns shipping.  

67% of buyers check your policy before purchasing and so if you are not catering to user concerns then you are eliminating a large proportion of your potential sales.

Churn Rate / Retention Rate

Your churn rate is the percentage of customers who will stop doing business with your business within a specific time period, typically this is an annual figure. 

One problem with this calculation is that this is not a constant figure, – it varies,- despite this it is considered a constant within the calculation. 

To avoid this potential pitfall, be sure to calculate the Churn rate of a group of customers (whole persona for example) rather than individual customers

Retention Cost

Repeat business is less costly than winning new customers, to determine how much cheaper it is for your business you need to calculate the retention cost over a period of time.  

Costs such as discount promotions and customer support (+tools) and general admin costs such as billing should all be included, then compare it to your CAC. Again this makes for a great KPI for customer service. 

This also provides a great case for merging customer services and sales to provide a sales fulfillment team within as part of a smarketing team. If you calculate your retention cost with conversion rate optimization in mind you are likely to find many opportunities to optimize your promotional offers and cut costs.

Conclusion

What brings your dedicated customers back time and time again, conversely what makes others leave never to return. If you can understand your users’ motivation, then you can apply this knowledge to increase the relevancy of your content and messages. Thereby increasing engagement of your content.

The knock-on effect is that you can mitigate those factors that cause your customers to abandon your product or service. For example, provide specific incentives to those groups with a high churn rate. It all starts with the customer and ensuring that they get what they want.

How do you know what the user wants?

The answer is two words: customer service or customer feedback. Through a customer service survey, you can elicit feedback from your customer base however this is extremely time-consuming and a costly endeavor.

Consequently, I recommend using a Net Promoter Score survey, check out the NPS feature of OptiMonk for a simple no-hassle implementation.

The metrics you choose to measure define how successful you will be with CRO, every metric is another opportunity to retarget your customer onsite to optimize the consumer journey and stop losing customers.

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