repeat_purchase_rate [CapiPedia]

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======Repeat Purchase Rate======
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 investing|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]].
===== Why It Matters to Value Investors =====
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 Sign of a Strong Moat ====
A company that consistently convinces customers to return has a powerful [[durable competitive advantage]], or [[moat]]. This advantage could come from several sources:
  * **Brand Power:** Customers trust the brand and associate it with quality (e.g., Apple, Coca-Cola).
  * **Habit Formation:** The product becomes part of a customer's routine (e.g., your morning Starbucks coffee).
  * **High [[Switching Costs]]:** It's too much of a hassle or too expensive for customers to move to a competitor (e.g., changing your company's entire software system).
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.
==== Predicting Future Revenue ====
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]].
===== How Is It Calculated? =====
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**
==== An Example in Action ====
Let's imagine an online store, //Socktastic//, wants to calculate its repeat purchase rate for the last quarter.
  - During the quarter, a total of 1,000 unique customers bought socks.
  - Looking at their purchase history, //Socktastic// finds that 350 of those 1,000 customers had also purchased from them at least once before.
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.
===== Putting It Into Context =====
Like any single metric, the repeat purchase rate needs context. A raw number means little without understanding the landscape.
==== What's a "Good" Rate? ====
There's no magic number. A "good" rate is highly dependent on the industry and business model.
  * **Consumables:** A grocery store or a coffee pod company like Nespresso would expect a very high rate, as their products are used and replaced frequently. A rate of 60%+ might be normal.
  * **Durables:** A company selling mattresses or cars will naturally have a very low rate when measured quarterly or annually. People don't buy a new car every year. For these businesses, you might look at longer timeframes or other loyalty metrics.
  * **Subscriptions:** A business like [[Netflix]] or a //Software-as-a-Service// (SaaS) company lives and dies by repeat purchases (i.e., subscription renewals). Here, investors often look at the inverse metric, the [[churn rate]], which measures how many customers leave.
==== The Bigger Picture ====
To get a full picture, always analyze the repeat purchase rate alongside other key metrics.
  * **[[Customer Lifetime Value]] (CLV):** Are these repeat customers profitable over the long term?
  * **Profit Margins:** Is the company sacrificing profits with deep discounts just to get customers to return?
  * **Growth in Total Customers:** A high repeat rate is fantastic, but the company also needs to be attracting new customers to grow.
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.