Online shoppers are clear with their order delivery expectations.
They want it free.
They want it NOW.
And they hate delays.
How much, you ask? Read on to be truly astounded!
The Human Cost of Late Deliveries
How would you feel if you were affected by any of the following situations?
- Critical medicines being delivered late.
- A birthday gift you send reaching the destination a day after the birthday.
- Santa delivering that particular Peppa Pig life-size toy your child has been coveting for months a day after Christmas.
You would surely not order from the same business again. You would most certainly not accept an excuse like “We outsource our shipping needs to FedEx, UPS, or DHL, so please check with the shipping carrier.” In fact, such an excuse would only infuriate you further.
Now put your customer in the same situation.
Read till the end to learn how you can deal with late deliveries and spur customers to spend more on your brand!
Needless to say, they would be just as anguished as you would in their situation.
Late deliveries impact your business in multiple ways:
- They indicate you overpaying for poor service.
- They erode your brand’s reputation.
- They lead to poor online reviews.
- They lead to increased support calls.
- They lead to customer churn.
- They affect your revenue.
You Pay for Delivery Delays
Do you sometimes feel, as an eCommerce retailer, that despite paying a steep price to provide customers a top-notch delivery experience, you still struggle with their complaints? Do you feel it is unfair to be held accountable for delivery issues considering you foot every exorbitant charge mercilessly billed by UPS/FedEx/DHL expecting them to help deliver a quality eCommerce experience? Shouldn’t these carriers be held accountable for late deliveries?
They should be, particularly because, by providing you poor service, they end up making you spend up to 20% more on shipping costs than you should. Money-back guarantees do little to set right the situation. Neither do they help in improving customer satisfaction. This makes auditing your shipments a must. After all, where else would you pay for poor service quality? You must be in a position to only pay for the service quality you receive, not for empty claims of near-white-glove service.
Surveys have repeatedly shown that a majority of buyers refuse to shop from a retailer following a negative delivery experience. As if this were not bad enough, many such former customers end up posting damaging reviews on social media and forums that deter potential customers from buying from this retailer (could be you!).
This can hit you pretty badly, especially if you are just starting out and are still building a name for yourself, hopefully for providing a good customer experience. Ironically, new businesses also have the least leverage over shipping since your delivery volumes are still not high enough to make you a priority customer for your shipping company.
A majority of buyers refuse to shop from a retailer following a negative delivery experience.
Oh the double whammy!
This is what makes it important for you to take definite measures to ensure your customers get the best possible post-purchase customer experience at all times.
But there is a step before that: getting acquainted with concepts and metrics that provide a sense of whether the overall customer experience (CX) you offer (of which post-purchase CX is an important part) satisfies shoppers.
That being said,
Should You Focus on Retaining Customers or Acquiring New Ones?
The truth is that acquiring new customers is costly work. It costs as much as seven times more to acquire a new customer than to retain an existing one. Also, an existing customer will buy more from you and recommend your business more than a new customer will.
- It costs around seven times more to acquire a new customer than to retain an existing one.
- An existing customer will buy more from you and recommend your business more than a new customer will.
For these reasons, it is critical you retain your existing customers at all costs.
Key Metrics You Should Be Tracking
You can get an unbiased picture of whether you are investing in the right areas and if you are getting commensurate returns by tracking key metrics like Customer Acquisition Cost (CAC), Customer Retention Rate (CRR), and Customer Lifetime Value (CLV).
Customer Acquisition Cost (CAC): Are You Spending Too Much on Acquiring Customers?
In simple terms, Customer Acquisition Cost (CAC) is the cost of convincing a potential customer to purchase your product / service.
CAC includes the cost of marketing and sales. The higher your CAC, the more you need to charge your customers for using your product / service in order to make a profit.
The simplest way to calculate CAC is to divide marketing and sales costs combined for a period by the number of customers acquired during the period.
For example, let’s say a small business spends $100,000 in a year on marketing and sales. 2000 new customers buy its products during the year.
The CAC of this business can be arrived at by dividing 100,000 by 2000. The answer is 50, which means this small business spent $50 in marketing and sales costs to acquire each new customer during the year.
Retaining existing customers by providing a great customer experience reduces the need to spend heavily on acquiring new customers. As they say, “every penny saved is a penny earned.”
Customer Retention Rate (CRR): Are You Keeping Your Customers Happy?
Customer Retention Rate (CRR) lets you know what percentage of customers still shop with you at the end of a period compared to at the beginning of it. The importance of customer retention cannot be overstated.
Loyal customers are worth up to 10 times as much as the value of their first purchase. Studies have shown that increasing your customer retention rate even by 5% could lead to increased profits of between 25% and 95%
Loyal customers are worth up to 10 times as much as the value of their first purchase.
Calculating CRR requires these data points:
- The number of new customers acquired during a particular period (N)
- The total number of customers at the end of the period (E)
- The total number of customers at the start of the period (S)
This is the formula to calculate CRR:
CRR = [(E-N)/S] X 100
In essence, to calculate the CRR for a particular period, deduct the number of new customers acquired during the period from the total number of customers at the end of the period, divide the resulting number by the total number of customers at the start of the period, and multiply the resulting number by 100 to obtain a percentage.
Let’s take a look at an example.
Let’s assume you want to calculate your customer retention rate for a particular year. You started the year with 100 customers and lost 5 of them during the period. You acquired 10 new customers during the year.
At the end of the year, the total number of customers you have (E) would be 105 (keeping in mind the ones you lost and gained).
Now, let’s apply the formula to calculate the CRR for the year.
CRR = [(E-N)/S] X 100
CRR = [(105-10)/100] X 100
The customer retention rate for the year works out to be 95%, which is a spectacularly great percentage indicating you have great customer retention programs in place.
Another important metric to measure for eCommerce retail businesses is Customer Lifetime Value (CLV).
Customer Lifetime Value (CLV): How Much Are Customers Spending on Your Business?
Customer Lifetime Value (CLV) is a metric that is critical to the long-term viability of a business. It is the measure of how much a business can expect to earn off each customer during the course of their relationship. In other words, it is the measure of how much a customer is expected to spend on a business during their lifetime. The inference to be drawn here is that the longer a customer chooses to buy from a business, the greater their lifetime value. CLV is a foward-looking metric.
Customer Lifetime Value comes in many avatars: The terms Customer Lifetime Value (CLV or CLTV), Lifetime Customer Value (LCV), and Life-Time Value (LTV) all refer to the same concept.
Calculating CLV is an exercise that helps identify important customer segments in terms of their purchasing power. Consequently, the bulk of marketing and sales efforts could be targeted at these segments for maximum profitability. CLV also helps to make decisions about how much money to invest in the acquisition of new customers and in the retention of the ones existing.
How to Calculate Customer Lifetime Value (CLV)
The way CLV is usually calculated is using the formula,
CLV = average purchase value for a customer segment X number of times a customer from a segment will purchase each year X average length of customer relationship for the segment.
Let’s assume you run an eCommerce site selling shoes.
A professional runner who is a frequent buyer on your site might be worth this:
$100 per shoe pair X 4 pairs yearly X 8 years (average professional career length for segment) = $3200
The mother of an infant might be worth this:
$20 per shoe pair X 5 pairs yearly X 3 years = $300
Now you know you will need to devote more attention to the professional runner than the mother of the infant in order to boost your bottom line moving forward.
This is the value of calculating CLV.
The Impact of Late Deliveries on Key Metrics
Late deliveries have a definite impact on the metrics we’ve discussed.
Late deliveries have the effect of decreasing the CRR of your business. Most customers who experience a late delivery tend to abandon a business rather than stay on.
Late deliveries increase the CAC of your business. This is on account of the negative social media reviews and word-of-mouth interactions that need to be countered.
As far as CLV is concerned, it decreases (and drastically) because of late deliveries. Not surprising, considering that customers who experience delivery issues don’t stay loyal to a business.
How to Deal with Late Deliveries & Boost Customer Lifetime Value
Here’s how to improve customer satisfaction in the last mile and deal with shipping delays, while ensuring your customers enjoy a near-white-glove delivery experience:
- Create a loyalty program to encourage customers to buy more and often.
- Under-promise and over-deliver on delivery dates.
- Track your shipments in real time using a parcel-tracking service.
- Keep your customers informed of package location at all times.
- Send regular e-mail and SMS updates to customers about important parcel-tracking events, including delivery issues.
- Upsell via your e-mail and SMS updates to spur further spending.
- Make use of a Delivery Experience Management (DEM) service to manage your customers’ post-purchase experience.
- Make the ecommerce returns process free and as simple as possible. This will contribute to the overall comfort level of your customers.
- Compensate customers for late deliveries by offering them coupons or discounts on future purchases.
- Audit your shipments and claim refunds for delivery failures, including late deliveries (but remember, refunds don’t prevent customer churn).
- For every delivery failure that happens, do a thorough analysis to understand the reasons.
- Make your business accessible on social media channels to receive feedback and keep a tab on general customer sentiment.
Taking proactive measures to handle late deliveries helps provide a positive eCommerce customer experience and improves metrics like CRR, CAC, and CLV.
Improved customer service in the last mile translates to an improved bottom line for your business.