Online shoestore Zappos was founded in 1999 and has in less than a decade grown to be one of the leading lights of e-commerce.

Zappos CEO Tony Hsieh is a firm believer in the value of a delightful customer experience and is an early adopter of Twitter. I asked him a few questions to find out how this focus on satisfaction (and the Twitter factor) is helping the company progress.

You obviously attach a lot of importance to customer service and exceeding expectations – how effective has this been in terms of customer retention?

In 1999, we had almost no sales. This year, we are on track to do about $1 billion in gross merchandise sales. The number one driver of this growth has been through repeat customers and word of mouth. On any given day, about 75% of our orders are from repeat customers.

Is retention a big focus for you, or is Zappos – like many e-commerce companies – still very much focused on acquisition?

We are focused on both, but what we’ve found is that word of mouth is our most cost effective form of marketing. So a lot of the money that we would have normally put into paid advertising/marketing, we instead put into customer service and the customer experience in order to drive repeat customers and word of mouth.

You offer free shipping and make it nice and clear on the site – how effective has this been as a sales driver?

It’s not just free shipping, it’s free shipping both ways, where we pay for the return shipping (and we have a 365-day return policy). For clothing and shoes, we’ve found that customers find taking the risk out of returns to be very important, so it drives sales.

How long have you offered PayPal and BillMeLater? What proportion of customers is using these payment methods?

We just launched with PayPal and have used BillMeLater for almost 2 years. It’s too early to give numbers for PayPal. For BillMeLater it’s a small percentage of our overall sales relative to credit cards.

The site doesn’t fill the screen – have you consciously left it this way to target lower screen resolutions? Or is there some other reason?

We’re in the process of launching a new site which will use more screen space. You can take a look at the new site here.

How much attention do you pay to website usability? Do you make small changes to the site constantly, or big changes every once in a while?

We like to make small changes to the site constantly.

You’re often cited as a model of ‘how a CEO should do Twitter’, and you encourage your employees to use it.  How much oversight do you have? Do you do ‘rules’?

Twitter has been great for developing a more personal connection with both employees and customers. We introduce employees to Twitter during their new hire orientation, and we also offer Twitter classes at Zappos for whoever wants to take them.

Our Twitter policy for employees is: ‘be real and use your best judgement’.

Do you receive / solve many customer queries through Twitter?

I receive them every once in awhile, but in general no. Our 1-800 number is the best way to get an immediate response to time-sensitive customer inquiries.

What other forms of social media are you using at Zappos?

We are pretty active blogging and we also have a presence on Myspace, Facebook, and YouTube. But we’re most active on Twitter and on our blogs.

We created a Twitter site and our list of employees on twitter is here. All the employees tweets are aggregated together here.

I love that thing you do with new hires. Tell us about ‘The Offer’ and the thinking behind it.

During the new hire class, we offer employees $2,000 to quit. Because our number one focus as a company is company culture, we want to make sure that employees aren’t here just to collect a paycheck.

We want employees that believe in our vision of being about the very best customer service and want to be a part of our culture. On average, only 2-3% of new hires end up taking the offer.

You’re shipping internationally, but are there any plans to open up Zappos in the UK?

We don’t have any plans to do so in the next few years.