If you want to increase your store’s customer lifetime value, you realize its importance on your bottom line and customer relationships. Customer lifetime value is essential for profitability.
That’s the spirit! We love helping ecommerce entrepreneurs build financially strong and sustainable businesses.
So, the formula we use for calculating customer lifetime value is
CLV = avg. order value x avg. number of orders
Then in order to increase CLV, we have to move both factors up: average order value and average number of orders.
AOV is straightforward: aim for larger orders.
But what about order count per customer?
Some order a lot in a short period of time, meaning your entire relationship with them as customers is quite short. Others can stay your customers for years and place only a few orders from time to time.
There are different types of customers and so you can maximize the average number of orders playing on both purchase frequency and retaining customers (prolonging customer lifespan).
So the CLV formula can be put in the following way:
CLV = AOV x order frequency per month x lifespan
How to increase customer lifetime value in ecommerce?:
Want to catch up on CLV?
CLV Mini series Part 1: why successful businesses optimize for CLV
CLV Mini series Part 2: how CLV impacts your bottom line
The stress is on meaningful here. Sure, many apps and tools do automatic product recommendations, but what’s the basis for these recommendations?
Even if you’re setting them up yourself, it’s a subjective thing and you may be wrong about what products go well together.
That’s the beauty of data-driven marketing – you don’t have to guess.
Look at the data what your customers often buy together, these are the bundles they care for.
You might be surprised and these might not make perfect sense to you, but hey, we all think different and the important thing here is for you to use your data and learn directly from your customers.
A wide product range is great, but too much options and people fall into the paradox of choice.
If you make it easier for people to decide, they’ll feel better about shopping from you and will easily add more items to their carts. This improves the customer experience.
For this purpose, you can:
If people shop online, they already value time and convenience. But an extra effort won’t hurt.
You can suggest complimentary items needed for the optimal use of the primary product people buy.
For example, a frying pan can work on its own, but adding a set of bamboo utensil that won’t scratch it is an idea many will appreciate. It saves the trouble and makes the use of the product much better (and you won’t get complaints about a scratched pan).
This one’s a favorite of mine. It’s simply genius and drives customer loyalty. People feel good about it even though they know they’re paying more.
Offer freebies (old stock, new product tests, small cards and trinkets) or samples (ask your suppliers) with an order over a certain value to bump up AOV.
You can even give a really nice and big thing for the highest order tier, e.g. over $300, just to stimulate people’s curiosity and make such an order look appealing.
Yes, you probably accept returns and everything, but it gets complicated when customers with larger orders return items and the order value drops below the free shipping threshold.
Simply let it slide and don’t charge for shipping in such cases.
True, there are people who exploit such policies, but you’re working to make the shopping experience pleasant for your good, honest customers who will keep you in business with repeat orders.
And it eliminates the risk so they’ll be more willing to order generously.
Getting frequent orders from existing customers is at the heart of customer retention. In fact, many ecom people write off customers as lost after only 3 months without an order and go on to acquire new customers. This is a mistakes and costs money.
It, of course, largely depends on your products and product lifecycle.
Do you know how often customers come back and shop from you?
Find out with Metrilo’s Retention analysis
But if you expect an average customer lifespan of about 3 years, better make them buy more often to use the relationship period to the max.
Perfectly-timed emails for exactly when customers are ready to buy again will work wonders in reactivating.
Make it easier for people to get the items they’re clearly interested in. A simple set up like this one:
doesn’t feel intrusive and actually creates excitement: “Oh, awesome, I can get it, it’s not all over.”
Unfortunately, urgency has been overused and people are tired of seeing “last one in this size” so giving them a sense of not missing out is welcome.
If you want to speed things up and shorten the time between orders (TBO), your promotions should be more dynamic. If all you do is Christmas, spring sale, 4th of July sale and back to school, you can’t expect much buzz.
Instead, spice thing up. Different groups of customers like different types of promos so covering more will get you more results.
Only by looking at March in the calendar, you can have a International Women’s Day, First Day of Spring, St. Patrick’s, Easter, and World Wildlife Day specials! Not counting all the other niche promos you could do based on customer behavior.
We mean good surprises. 🙂
These are little things to show you humanness and gratefulness to your customers so they feel good about giving you repeat business. It doesn’t have to be just a handwritten note, that’s overused.
It can be:
They’re nothing to worry about but they’re an unpleasant hassle for both you and the customer so they should be avoided in order to keep the shopping experience spotless.
How can you make sure clients get what they think they’re getting?
First, explain everything in the product descriptions – material, suitable purposes, maintenance and supplies needed, etc. so they know everything there is upfront. There’s no use of misleading people if they’re going to return the item later.
Second, your product pictures should show detail – back, front, special details, hems, labels, texture – anything that people look for when buying at a physical store should be visible on your site as well. Here’s a great guide to product photography for online stores.
And third, when selling clothes, make sizing understandable. That’s imperative. It’s best to work with a standard system like the US/ EU/ UK one and truly adhere to it. If not, list the measurements that correspond to your sizes in full so people can easily pick the right one for themselves.
We live in the time of personalization and tailored email marketing is the industry standard. But somehow even big retailers fail to do it properly.
For example, if someone has never bought any athleisure items from you but only work button up shirts, there’s no point in sending them your new sports collection.
You can’t make everybody buy all of your products so it’s smarter to give them what they want – only more often. 😉
Your entire relationship with a customer can be longer is you add steps to the customer lifecycle and work to fight the natural “slip away”.
Very few shops sell products of vital importance so customers have to buy them and buy often. But people still get hooked on Apple products, right? They enjoy the experience that comes with buying those products and happily make Apple’s CLV huge.
A few ways to achieve that feeling and improve customer loyalty are:
Customers are loyal as long as you don’t fail. After all, they pay to get a certain item. You can have the prettiest site and the best promotions, and if your product quality goes down, so will customer satisfaction.
They rarely forgive because they have other places to buy from. It’s up to you to deliver a great product every time and outshine the competition.
Customer service should get better as your relationship with a customer progresses. It’s true first impression matter a lot, but losing a long-time patron due to bad service is unacceptable.
They trust you repeatedly and so should you. All reward points don’t matter if those valuable customers feel mistreated and left behind.
We’ve talked about how discounts devalue the brand before, but research now proves they’re bad for the bottom line in the long run.
Customers acquired with discounts tend to have a lower CLV since they view the brand as not worthy to pay in full for.
So don’t rely on promo codes alone to bring in new customers. Find such that will pay the full price.
Despite what’d be convenient for us as marketers, our customers are not all comfortable communicating over the same channels, say only FB messenger.
That’s why keeping an eye where your most important customers are and meeting them there is a good retention tactic. They’ll be comfortable to engage with your brand.
They respond well to monthly newsletters ? Ok. They like а confirmation call on the phone? Why not? They are eager to discuss related topics in a FB group? Make it happen.
It’s only logical to ask the opinion of repeat buyers – they know your brand better and have more to say. Plus, engaging them in the product development boosts brand affiliation.
Do it often, ask about new products and site redesigns, about alternative uses of products and user-generated content. The goal is to be always at the back of their minds.
Do you work in way to optimize customer lifetime value? What do you do? How has it affected your business? Share your experience in the comments below.
Metrilo’s mission is to help you build your ecommerce brand and win your place in the customer’s heart. We share what we learn from our daily work with product innovators and founders here. Subscribe to our weekly newsletter to get the freshest lessons and conquer your niche.