The Repeat Purchase Rate (also known as the 'Repeat Customer Rate') is a metric that reveals the percentage of a company's customers who return to make another purchase over a given period. Think of it as a business's “stickiness” score. If you find yourself going back to the same coffee shop day after day, you're contributing to their high repeat purchase rate. For a value investor, this simple number tells a powerful story about customer loyalty, product quality, and brand strength. A consistently high rate suggests customers aren't just buying out of convenience or because of a one-time discount; they are coming back because they genuinely value what the company offers. This transforms one-time buyers into a reliable stream of future revenue, which is the bedrock of a stable and predictable business—exactly the kind of company that catches the eye of investors like Warren Buffett.
A high repeat purchase rate isn't just a vanity metric; it's a window into the health and durability of a business. It separates the fads from the franchises.
A company that consistently convinces customers to return has a powerful durable competitive advantage, or moat. This advantage could come from several sources:
A high repeat purchase rate is tangible proof that the company's moat is not just theoretical—it's actively keeping competitors at bay and customers locked in.
Businesses with loyal, returning customers are far more predictable. Their revenue doesn't depend solely on the expensive and uncertain game of winning new clients. It costs a company far more in marketing and sales efforts to attract a new customer (customer acquisition cost) than it does to retain an existing one. A high repeat purchase rate lowers this burden, leading to higher profitability and more stable cash flows. For an investor, this predictability reduces risk and makes it easier to forecast a company's long-term performance and calculate its intrinsic value.
The beauty of the repeat purchase rate lies in its simplicity. You don't need an advanced degree to figure it out. The formula is: Repeat Purchase Rate = (Number of Customers Who Made a Repeat Purchase in a Period) / (Total Number of Customers in that Period) x 100
Let's imagine an online store, Socktastic, wants to calculate its repeat purchase rate for the last quarter.
Using the formula: (350 Repeat Customers / 1,000 Total Customers) x 100 = 35% So, Socktastic's repeat purchase rate for the quarter is 35%. This means over a third of their sales came from their existing customer base.
Like any single metric, the repeat purchase rate needs context. A raw number means little without understanding the landscape.
There's no magic number. A “good” rate is highly dependent on the industry and business model.
To get a full picture, always analyze the repeat purchase rate alongside other key metrics.
Ultimately, a strong repeat purchase rate is a sign of a healthy, customer-centric business. It’s a clue that you might have found a wonderful company worth holding for the long haul.