If you’re in e-commerce, chances are you’ve been told to track your returning customer rate. On the surface, it sounds like a retention metric – a measure of how well you’re keeping customers coming back.

But here’s the truth: it’s not about retention at all.

Let’s break it down properly, with a few real-world examples to make it clear.

What Most People Think Returning Customer Rate Means

The common belief is that a high returning customer rate equals strong brand loyalty. It’s seen as a win. “Look, 40% of our customers are coming back – we must be doing something right!”

But that assumption is off.

Why? Because this metric doesn’t tell you how often customers return, or how long they stick around. It just tells you the percentage of total purchases made by returning customers in a given time period.

So if your overall customer base is shrinking – but a handful of loyal buyers keep purchasing – your returning rate can look high… even though your business is stalling.

What Returning Customer Rate Actually Tells You

Let’s say you’re running a DTC skincare brand. You’ve had 1,000 orders this month, and 350 of those came from past buyers.

That means your returning customer rate is 35%.

Sounds great, right?

But if you dig deeper, you find that you only had 650 new customers this month. Compare that to the 1,000+ new customers you were acquiring six months ago.

Now the picture changes: your acquisition is slowing, and repeat buyers are propping up your numbers. That high returning rate? It’s not a success signal. It’s a warning sign.

When a High Returning Rate is a Red Flag

If you’re an early-stage brand and your returning rate is creeping above 30%, it’s often a sign that you’re leaning too heavily on your existing customer base.

You’re not bringing in enough new people to grow.

In some cases, this might be a media buying issue – poor prospecting campaigns, too much spend on retargeting. In others, it could be a brand problem – weak creative, unclear messaging, or no differentiation in the market.

This is especially common with brands who get early traction from a loyal niche, then struggle to scale because they mistake repeat purchases for overall growth.

Where You Should Be Looking for Retention Insights

If you want to understand customer loyalty, retention, and lifetime value, don’t rely on returning rate.

Instead, use cohort analysis.

Shopify’s latest cohort report is a great starting point. It tracks groups of customers over time – showing you how often they repurchase, what their average spend looks like, and how their behaviour shifts month to month.

With that, you can answer meaningful questions:

• Are my customers sticking around after month one?
• When do they tend to churn?
• How long does it take to break even on my CAC?
• What’s my real LTV by acquisition channel?

These insights help you plan better offers, adjust your media mix, and set budgets that actually make sense.

The Bottom Line

Returning customer rate isn’t a retention metric – it’s a ratio. One that becomes less meaningful without the context of your new customer acquisition.