What is customer lifetime value and how to increase it in your online shop?

The goal of every business is to earn money and increase the return on investment. You probably work hard on optimisation of many aspects of your e-commerce store, focusing on conversion rate. While running and promoting online stores, marketers often concentrate on the shopping cart value, which is a reasonable approach to take. But what if you consider the bigger picture in order to maximise your e-commerce profits in the long-run?

The key metric you should measure: Customer Lifetime Value

Customer Lifetime Value (CLV or LTV) is a metric that, in practice, means the sum of revenues that a customer will generate for the company throughout their entire relationship.

If you change the goal of increasing conversion rate to focusing on CLV you should rethink the whole strategy. This holistic approach might seem inefficient immediately, and it is time-consuming, but it can help you build a strong relationship with your customers that can bring years of regular shopping. Long story short: prioritise acquiring the most valuable customers rather than minimizing the conversion costs.

The main goal of estimating CLV: if you know how much a client is worth to your e-commerce store, then you are able to decide how much money you can spend on specific activities to make the company profitable.

How to calculate Customer Lifetime Value?

Let’s get down to the details. First of all, take into consideration a relatively short period of time – let’s say 12 months. The whole customer lifetime (which could be even decades) would be risky to depend on because of changes in your offer or on the market itself and unpredictable competition, for example.

You can use the following equation to estimate CLV:

CLV = Average single order value * Average repeat transaction * Retention period

Once you have calculated CLV for your clients you’re all set and ready to act!

Read more about average order value in e-commerce: https://www.growcode.com/blog/average-order-value/

How to increase e-commerce Customer Lifetime Value?

The next step you should take is to design a marketing strategy that will help you increase long term revenue for your online store. You should focus on the aspects that determine CLV, i.e. the separate components of the above equation. Below you can find some ideas worth trying.

Up-selling and cross-selling 

To increase the average value of sales, display product recommendations that are related to the ones already viewed. For example, show to your customer items that are often upgraded to from the ones they were interested in, like premium products from the same category. Another idea – suggest buying a product that fits with their selected item. Additionally, optimise other aspects of the shopping cart page. Refine the user experience so that finalising a transaction will be hassle-free (make sure the main checkout CTA is visible, that it’s easy to change the number and size of products, inform about secure payment methods and so on).

Stay in touch with your consumers

To make an impact on the repeatability of transactions, communicate with your customers from time to time. Don’t let them forget about your brilliant online store, but make sure you don’t spam them too. You can use remarketing and marketing automation methods to attract clients to your e-commerce store again. What you can do?

  • retarget ads on social media (mainly Facebook, Instagram);
  • e-mail marketing campaigns once a month with the best deals;
  • send web push notifications to inform about a new collection or sale season.

Build a long lasting relationship with your customers

Last, but not least – work on the retention period. A great idea for dealing with this issue is content marketing. By creating helpful articles and videos that can be valuable for your customers, you can strengthen your company’s expert image and make it seem trustworthy. Don’t talk only about your products or brand, but focus on the actual problems of your audience and how to solve them (subtly with the help of your e-commerce). Once you create awesome content, work on its distribution. Use social media to build a community of devoted consumers.

We hope that you’ve found this article helpful and we’d like to encourage you to try the methods mentioned above so that you can increase your e-store CLV. Don’t hesitate to integrate many of them, but don’t forget about optimising your actions. Whatever works best for your business!

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