tl;dr
Most brands invest heavily in acquisition and almost nothing in retention — even though retention drives the majority of long-term profit
In a typical scenario, around 50% of a customer's lifetime value comes from repeat purchases — even with mediocre retention
A 20% improvement in repeat purchase rates can increase lifetime value by over 30% — because each step multiplies through the entire customer base
The real wake-up call: once you factor in profit rather than just revenue, many businesses barely break even on the first order. Retention is where the profit actually comes from.
Shifting some resources from acquisition to retention — even at the cost of slightly higher CAC — can increase profit per customer by 80%+ in the long run
Why retention is chronically underfunded
Most businesses pour resources into acquiring new customers. The marketing budget, the team headcount, the agency spend — it's almost all pointed at acquisition. Retention gets an email marketing manager, maybe some flows, and that's it.
But email marketing is not retention marketing. It's one channel within retention — an important one, but not the whole picture.
The question this article answers: what does retention actually do to your economics, and what is it really worth investing in?
The base scenario
Start with a fairly typical brand:
Customer acquisition cost: €20
New customer AOV: €50 — margin at 45% = €22.50
Returning customer AOV: €70 — margin at 53% = €37.10
After deducting CAC, the first order contributes roughly €2–3 in margin
Retention rates (typical mid-range brand):
1st → 2nd order: 25% of customers return
2nd → 3rd order: 50% of those return (so ~13% of all customers place 3 orders)
Rates continue improving slowly through subsequent orders
Eventually around 1% of customers become truly loyal, repeat buyers
Adding all expected repeat orders up, the lifetime value per customer is ~€43 — with 50% of that coming from repeat purchases. Even with weak retention, half of all the value a customer generates comes from them coming back.
What a 20% improvement looks like
Now increase the first-to-second order rate by 20%, and the second-to-third (and beyond) rate by another 20%. These are meaningful but achievable improvements.
Because each cohort multiplies into the next, a 20% improvement at each step compounds:
Lifetime value rises from €43 to €57 — a 33% increase
61% of LTV now comes from repeat business (up from 50%)
The number of customers who remain and buy again increases by a factor of ~4
This is the compounding effect of retention: small improvements in early steps cascade through every subsequent order.
What "good" retention looks like
For the best brands — those with products that naturally lend themselves to repeat purchase — first-to-second order rates of 40–50% are achievable. At this level:
Lifetime value reaches €66
Two thirds of LTV comes from repeat business
That's a 53% increase in LTV compared to the base scenario, driven entirely by improving how many customers come back.
The profit picture — why this really matters
LTV in euros is one thing. Profit is another.
In the base scenario, once you account for CAC, you're barely breaking even on the first order. Almost all the profit is generated by repeat customers. This is the reality for most ecommerce brands — especially as acquisition costs continue to rise.
If your retention is near zero, your business is close to structurally unprofitable. You're spending €20 to acquire a customer, making €2–3 on the first order, and hoping they come back. If they don't, that's a bad business.
Now consider shifting some of that acquisition budget toward retention. Assume this raises CAC by 25% — a significant hit on the acquisition side. But if that investment moves you from mediocre to good retention:
Profit per customer increases by ~80% compared to the original high-acquisition, low-retention scenario.
Even a 20% improvement in repeat rates, multiplied across thousands or tens of thousands of customers, has a massive impact on the bottom line. The compounding nature of retention means that €1.20 more in LTV at one step translates into far more across the full customer base.
What to watch in Klar
The repeat purchase rates used in this model come directly from the Retention Overview report in Klar — specifically the Repeat Order Probability section at the bottom. This shows you what percentage of customers who placed N orders go on to place N+1 orders.
Use this as your baseline. If you see a ramp-up pattern (rates improving with each subsequent order), your product has natural stickiness. If rates are flat or declining early, you likely have an activation problem — not just a retention one.
The bottom line
Retention is the lifeblood of a profitable ecommerce business. For most product categories, it's where the majority of long-term profit is built. Acquiring customers is necessary, but without retention, you're running on a treadmill.
The resources you allocate to retention should reflect that reality. The following articles in this series walk through what you can actually do at each stage to get there.