Running an eCommerce is not just about reinvesting profits to acquire new customers. It is about developing a relationship with existing customers so they buy your products again and again.
The term commonly used for this is increasing customer lifetime value (CLV).
For eCommerce, CLV is among the most important metrics that must be tracked and worked on. To put things in figures, Invesp shared that if you increase Customer Lifetime Value by just 5%, your profits grow by 25% to 95%.
More importantly, customer retention is also cheaper. It can cost 5x to 7x more to acquire new customers than retain customers.
But the question that arises here is, How to increase customer lifetime value? And that’s exactly what we are breaking down.
In this guide, we are going over:
- What is Customer Lifetime Value?
- Why is CLV important for Ecommerce?
- 15 ways to increase Customer Lifetime Value
- What is a good Customer Lifetime Value?
What is Customer Lifetime Value?
Customer Lifetime Value (CLV) is the metric that represents the total amount of money a customer is expected to spend with a business over a period of time. That is, after subtracting the cost of acquisition.
For an ecommerce, Customer Lifetime Value depends on:
- Average Order Value: On average, how much does a customer spend on your eCommerce?
- Order Frequency: It is the frequency by which the customer places an order on your eCommerce.
- Customer Acquisition Cost: It is the cost that eCommerce has to pay in marketing and resources to acquire that customer.
- Customer lifespan: The average duration a customer continues to make purchases from the business
So, this is how you can calculate your Customer Lifetime Value:
CLV = (Average Order Value x Order Frequency) – Customer Acquisition Cost
To increase the Customer Lifetime value, eCommerce has to either increase average order value, and order frequency—or reduce the customer acquisition cost.
Why is CLV important for Ecommerce?
Building long-term strategy
Customer lifetime value is built over a period of time. That is, one has to strategies a customer lifecycle from acquisition, customer retention, and building brand loyalty.
Curating this end-to-end experience allows eCommerce to build a long-term strategy.
This also pushes you to create leak-proof systems that keep customers connected with your brand.
Forecasting marketing ROI
To increase customer lifetime value, eCommerce has to break down the customer lifecycle and the cost associated with the same.
Additionally, this also motivates you to set e-commerce KPIs goals. This indeed helps in forecasting the marketing ROI of your brand.
It also helps you find the areas where you can reduce your spending and bottlenecks that need more resources.
Reducing churn rate
Returning customers are the most valuable customers for eCommerce. But if the systems aren’t in place to re-engage them, likely, they might not choose your brand again.
Tracking CLV motivates eCommerce to reduce the acquisition cost while finding ways to increase profits.
This reduces the churn rate—that is, customers leaving your brand—and increases your eCommerce’s overall customer lifetime value.
Strategic customer segmentation
To increase the CLV of an eCommerce, one has to segment customers based on their engagement with the brand.
This allows eCommerce to target the valuable customer segment and plan on increasing the order frequency or order value.
Additionally, it also helps find inactive customers and cut down the cost of retention that otherwise brand might spend.
15 ways to increase Customer Lifetime Value
A wishlist in eCommerce is a common feature to allows customers to bookmark products that they wish to buy in the future. Shoppers use it very often when they are simply browsing through product catalogs.
For an online store, this benefits the business in two ways.
First, it recalls customers even when they are not in the buying phase–but in the phase of exploration. They can engage with your store by simply adding products to their wishlist, and revisit the store when they are ready to buy it.
Second, it tells you–the eCommerce–what are the customers interested in. This insight is highly valuable as it allows you to personalize your outreach and marketing campaigns.
Either way, it helps bring shoppers back to your store and motivate them to make a purchase. Hence increasing the order value or frequency to increase the customer lifetime value.
Use direct communication
Direct communication in marketing is the medium through which you can directly reach out to your audience. Here, the most common mediums of direct communication are Email, WhatsApp, & SMS.
These are the channels that allow eCommerce to send personalized messages. That means, the message can address the customer with their name, engage with them based on their past shopping behavior, and guide them to take the next action.
For example, brands like Huckberry sent this email to the customer when they abandoned their cart.
Using these direct channels helps you in cart recovery, curating personalized offers, and communicating with the customer to know more about their experience.
All this plays a vital role in recalling customers to the store and increasing their customer lifetime value.
Here, it is important to note spam the customers with generic outreach. Understand your customers and use the best of your marketing abilities.
As per Accenture studies, 91% of customers today are more likely to shop from a brand that personalized their buying experience.
Build social community
Having a social audience and a social community are two separate things. While social audiences might simply follow you, the social community engages with you, shares their feedback, and is your brand’s advocate.
If you are using your social media channels, aim towards building a community of your own. And luckily there are various content marketing ideas for the same.
- Feature User-Generated Content (UGC) to motivate customers to use your products.
- Engage with your customers’ posts to build a two-way social connection.
- Highlight what recent customers or influencers are talking about your brand.
- Be part of trends and integrate your brands.
- Run a contest for giveaways and coupons.
The goal is to stay memorable and engaging. Create content that is more than simply selling, and focus on creating community. This recall helps grow your customer lifetime value, while also helping you reach a new audience.
Start eCommerce subscription
Ecommerce subscription services are among the most efficient ways to increase customer lifetime value.
One of the reasons why companies like Dollar Shave Club and Craft Coffee become market leaders is because of higher order frequency.
That is, through an eCommerce subscription you hook a customer into buying your products at a regular interval.
This model is great for online stores with low SKUs. Since the customer doesn’t have to choose each time—creating a subscription removes the decision-making phase each time.
Niches like Self-care, diapers, pet food, dairy, etc have benefited from this business model the most.
Create a memorable customer experience
A memorable experience is everything that makes a customer feel a priority.
This includes justified pricing, high-quality product presentation, in-depth product description, customer reviews, quick delivery, and most importantly—Good products.
In order to increase the lifetime value of a customer, the store has to deliver an experience a shopper would wish to relive.
That is why it is highly advisable to focus on how to increase the shopping experience. This indeed will deliver high ROI and help you achieve the goal of improving customer lifetime value.
Work on customer feedback
When you are running and optimizing your store, you might often come across the block of “what to do next?”.
The best part is, you are already thinking in the right way. All you need to do is hear what your customers have to say.
One underrated benefit of running an online store is the ability to hear what customers are saying about your brands and products.
Ask for customer reviews and find what are the opportunities to improve.
Not finding anything? It’s time to use user experience tracking tools like Clarity. It is a free tool by Microsoft that allows you to see how customers have interacted with your site.
Using such tools will help you learn more about your customer behavior and help you improve the overall experience.
Hence, motivating customers to increase order frequency and helping you increase your customer lifetime value.
Create loyalty programs
E-commerce loyalty Programs are marketing strategies to reward customers for their continued engagement and purchases.
In terms of increasing customer lifetime value, Loyalty programs are a reward system to motivate customers to buy more.
This can simply be a coupon code to increase their cart value, or giving them reward points on each purchase to get avail discount offers. We all have seen eCommerce using these techniques, and now you know the reason.
As an eCommerce, you have to motivate customers to buy more from you. The cost of marketing and retention are all included in the cost of acquisition. So make sure you calculate your CLV to be three times your acquisition cost.
Personalize marketing efforts
We referred to personalized marketing in direct communication, but let’s understand it better. Today, customers don’t want to be treated on generic terms.
They want eCommerce to remember them and suggest products based on their preferences.
And personalization starts from the web itself. You might have seen a section on eCommerce of “Recently Viewed Products”.
Taking a step further, eCommerce can also use insights from the wishlist and order history of the customer.
When you use these insights through direct communication, you can often find better conversion rates. As per Campaign Monitor, personalized email marketing is 6 times more likely to drive conversion. Moreover, Mailmodo has shared that personalized email marketing increases conversions by 20%.
Come of the common types of personalized email that you can send to your customers are:
- Price drop updates
- Holiday offer update
- Birthday Offers
- Based on the order history update
- Wishlist reminder update
The goal of eCommerce personalized marketing is to deliver a memorable experience while focusing on conversion. It helps in increasing the order frequency and order value to grow your customer lifetime value.
Upsell & cross-sell products
Upselling and Cross-Selling are a very common eCommerce strategy to increase the average order value.
In eCommerce, Upselling is a sales strategy where customers are motivated to buy expensive items.
For example, when shopping for a pair of shoes—you are presented with a limited edition blue color variant of the shoe. It costs just $20 more. This is what Upselling would look like.
Cross selling on the other hand means motivating customers to add additional products, based on what they are currently purchasing.
For example, during the checkout of the same limited edition shoe on eCommerce, you are suggested to buy a shoe care kit at a 50% discount. Not a bad deal right? And that sums up what cross-selling is.
As an eCommerce, you can use upselling and cross-selling based on data from the customers.
Insight from the wishlist frequently bought together, and previous customer history–all create leakproof funnels to increase your average order value. And hence increasing your customer lifetime value.
Offer bundle products
Bundling means creating a package of products that are frequently bought together at a discounted price collectively.
This allows customers to get everything they want in one checkout without manually comparing the compatibility and adding each one to the cart.
Bundle products reduce the overall browning time of customers. As per a recent study from Swanky Agency, using bundle products reduced the number of clicks by 18.7% while increasing the conversion rate by 7.09%.
If an eCommerce is aiming towards increasing the customer lifetime value, bundle packages allow you to increase order value instantly.
Additionally, a well-curated bundle package will also help an eCommerce sell products that might not be selling separately.
Increase visual appeal of products
For a customer to make a decision quickly, they need to be sure of the product in the first go. Product images play a crucial role in building this confidence and increasing the conversion rate of eCommerce.
Splashlight shared that nearly half of online customers want to see high-quality product images before they buy products online. Moreover, as per Volusion’s report, high-quality product photos can increase conversions by 35% and reduce returns by 22%.
That being the case, eCommerce must invest in high-quality photography, as well as product photo editing services.
Visually appealing product images allow customers to interact with the products and help them decide better and faster.
Celebrate with your customers
We have talked in depth about building a community with your customers to increase customer lifetime value.
But to ensure your community is dedicated to your brand, you’ll have to show appreciation and celebrate with them.
And let’s not simply stick with the idea of just celebrating the national holidays. Let’s take a step ahead and celebrate the birthday week of the customer, the birthday of the brand, a good shopping experience, and much more.
The idea is to keep the brand lively and show your customers you value them. Sharing brand stories and behind-the-scenes can engage customers.
Additionally, showing the social work your brand participates in, can motivate customers to contribute to the cause.
Patagonia is a popular brand that contributes 1% of its sales to environmental organizations. Moreover, 87% of online consumers are also willing to buy from brands that advocate for social issues.
Remove inactive customers
In a customer retention cycle, there are various sets of customers.
The first is the customers who have just discovered your brand and placed their first order. Second are the ones that regularly interact with your brand. That is open your emails, add products to the wishlist, and might also have placed another order.
These two are great prospects that you must invest in to increase the customer lifetime value of the customer.
Third-tier customers are the ones who have placed the order one time and have never interacted again.
After a period of time and attempts to engage these customers—it is recommended to remove these inactive customers from your list of customer retention.
Spending resources on re-acquiring these customers would simply increase your overall customer acquisition cost.
You can use these resources to acquire new customers instead and try to engage them to increase the customer lifetime value of your eCommerce.
Offer a referral program
Talking about customer acquisition cost, it is important that an eCommerce strategies the ways to decrease the cost and increase customer base.
This can be done through word of mouth and using your current customer base to promote your brand.
Referral programs are among the most common strategies to motivate current customers to refer to your brand.
Brands like Everlane offer a $25 discount to you and your friend on the next order. This increases the order value of the current customer while also reducing the cost of acquisition.
It is also well known that 88% of people prefer products suggested by friends and family.
Provide memorable customer support
Hiccups and mistakes are part of running any business. The important part is how you deal with it. For any customer, a brand’s support is the most important factor in determining if they will buy from the brand again.
So, while we are breaking down everything to increase customer lifetime value, we have to address the importance of good customer support.
Along with your support team, find out the most recurring issues that your customers are facing and resolve them. Also, train your team on how to deal with customer queries and address a situation.
What Is a Good Customer Lifetime Value?
Customer Lifetime Value for an eCommerce can vary depending on factors like average order value, order frequency, and acquisition cost.
However, it is important to have metrics to calculate if your store is doing good or not.
Experts have suggested that your Customer Lifetime Value should be 3x your customer acquisition cost. That is your CLV:CAC should be 3:1.
Learning about various ways to increase customer lifetime value is vital for eCommerce. It directly reflects on the profit, while also increasing the brand loyalty and engagement among the customers.
Above, we have shared 15 specific ways that shall help you increase customer lifetime value. Be sure to understand your customers, and curate a strategy based on their preferences and buying habits.